The Pensions Regulator warns half a million small employers to avoid fines

A warning has been sent by The Pensions Regulator (TPR) to half a million small employers of their risk of being fined for not taking action on their workplace pension obligations.

The Department for Work and Pensions’ (DWP) ‘Workie’ character, who first made an appearance on our screens in October last year, returns and emphasises the importance of this matter.

TPR executive director for automatic enrolment Charles Counsell said that TPR is “concerned that a minority of smaller employers are leaving things too late and struggling to comply on time”. Counsell also reinforced that: “Employers should start planning 12 months before their duties start.”

Even if your business has no staff to put into a pension scheme, you will still have auto-enrolment duties and you must not ignore these in order to remain compliant and avoid fines.

For more information and guidance through the auto-enrolment process, take a look at our useful guide; Before, at and after your staging date.

Robo-advice and new FCA rules set to take centre stage

Robo-advice, a new advice framework and the challenge of meeting new capital adequacy rules look set to be the regulatory issues that dominate in 2016.

Advice firms have been told to brace themselves for yet more change in the form of a new leadership team at the FCA, as well as reforms to the advice rulebook as a result of the ongoing Financial Advice Market Review.

The appointment of a new chief executive at the regulator is expected in a matter of weeks, with acting chief executive Tracey McDermott tipped for the role.

But independent regulatory consultant Richard Hobbs believes there is still more change to come.

He says: “Once the new chief executive is appointed, they are likely to ring the changes, both in terms of personnel and the organisation. The FCA, in managerial terms, is in a bit of a mess and the new head may set about refreshing the top team. These appointments might not necessarily be better, but they will not have the baggage of the previous team, and will come with a more open mind.”

Once the new chief executive is bedded in, they will have to quickly get to grips with the findings of the advice review, expected to be published before the March Budget.

The remit of the review, carried out jointly with the Treasury, is to examine the advice gap, regulatory barriers facing advice firms, and the role of technology in “cost-effective” advice.

It will interact with existing FCA initiatives such as Project Innovate, which aims to provide regulatory support to firms wanting to launch financial products and services.

Hobbs is concerned the FCA is pinning its hopes on robo-advice and technology to plug the advice gap.

He says: “Consumer engagement with financial services needs to be improved, and that is the elephant in the room. The great white hope at the moment is robo-advice, but I am doubtful about that.

“These systems will get better and better over time, and consumers will begin to engage with them. But this would be engagement on quite a superficial level.

“What happens when the investor doesn’t understand what they are reading? An adviser will spot a quizzical look and ask the client about it. A system can be structured to clear some of these kinds of obstacles, but it can never be as intuitive as a good adviser. Self-help can only get you so far.”

Away from the advice review, law firm DWF partner Harriet Quiney predicts there will be more fallout to come from the use of aggressive tax avoidance schemes.

She says: “HM Revenue & Customs is gradually mopping up these schemes, but there is still work to do and if advisers and accountants have been involved, they could be vulnerable.”

She suggests at a wider regulatory level the increase to capital adequacy requirements may be a concern.

Last month the FCA confirmed plans to hike the minimum capital adequacy requirement from £10,000 currently to £20,000 by 30 June.

Advisers will have to hold either 5 per cent of investment business annual income or £20,000, whichever is higher.

Higher capital adequacy requirements for smaller firms will be phased in over the next 18 months.

Quiney believes the new requirements, combined with an already challenging market for professional indemnity insurance, will make it difficult for some firms.

She says: “The FCA’s approach to capital adequacy can be quite heavy-handed. Yet equally, businesses don’t necessarily appreciate how quickly their capital can disappear if they have a number of complaints.

“Most firms don’t have to deal with a raft of complaints. But you only need one adviser to decide something like Arch cru is a good investment, they sell it to 15 people, then it falls over, then it is 15 times the cost of the excess.”

Quiney adds: “The interplay bet-ween capital adequacy and PI cover is an issue for firms, and advisers will need to think about this quite carefully.”

Adviser views

Tom Kean, Director, Thameside Financial Planning

I would like to see the absence of input from the regulator this year, but I fear what we will get is the opposite. I am not sure the advice review is going to amount to anything more than the regulator justifying its existence.

Tim Page, Director, Page Russell

The success of robo-advice will come down to catching the right wave at the right time. My big hope is robo-advice can drive efficiencies in admin and back- office systems, and ultimately translate to an improvement in face-to-face advice.

Woodford reveals his biggest investment mistake

Neil Woodford says his biggest investment mistake during his career is not investing enough in tobacco companies.

Speaking to Radio 5 live’s Wake up to Money, he said that he continues to back tobacco companies, despite other investors shunning the sector.

He said: “I’m paid to exercise investment judgement. I have to look at my investment universe and pick the best investments that I can and expose my investors to those investments and hopefully deliver attractive returns.

“And I have throughout my career believed the tobacco industry offers some very attractive characteristics. Probably, if I were to put my hand up, the biggest single mistake I’ve made in my career is not having enough tobacco exposure.”

Currently Woodford has more than £1bn invested in tobacco firms at Woodford Investment Management.

In his Woodford Equity Income fund his largest holding is Imperial Tobacco, at 7.67 per cent of the fund. British American Tobacco at 5.49 per cent and Reynolds American at 3.93 per cent are also in the fund’s top 10 holdings.

Performance attribution data published by the asset manager, which highlights which stocks have driven up performance, shows tobacco firms rank highly.

Most recent data shows that Imperial Tobacco was the second highest contributor, bringing 2.03 per cent of performance, closely followed by Reynolds American at 1.87 per cent.

China scraps trading ‘circuit breakers’

China has scrapped the ‘circuit breakers’ it introduced at the start of the week that intended to reduce market volatility, after two days of market closure.

The circuit breakers were introduced to minimise market losses and meant a 15 minute halt to trading after a 5 per cent fall in the market and a stop to the day’s trading following a 7 per cent fall.

However, markets were forced to close on Monday and Thursday this week after 7 per cent falls were recorded, with the stock exchange staying open just 870 seconds before the first trading halt on Thursday.

In a statement issued by the Shezhen and Shanghai stock exchanges they said the circuit breakers were being suspended to “maintain smooth operation of markets”.

The Financial Times reports that in a statement the China Securities Regulatory Commission said: “The circuit breaker mechanism is not the main reason for the market drop, but based on the experience of the two recent instances, it hasn’t achieved the expected effect, but rather produced a definite ‘magnetic effect’.”

Before the decision was announced Mark Dampier, head of investment research at Hargreaves Lansdown, said: “The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.

“The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.”

JP Morgan UK sales head exits

JP Morgan Asset Management head of UK funds field sales Mike Parsons is leaving the asset manager after almost 10 years.

Parsons has been with the firm since 2007. He was head of UK intermediary sales until the end of 2013 when he was put in charge of a newly created team of stockbrokers, wealth managers and advisers across three sales teams.

JP Morgan Asset Management declined to comment on his departure, but a spokesperson confirmed that Parsons is leaving the company.

Parsons will not be directly replaced and a new hire for a new role will be announced in due course, says the spokesperson.

JP Morgan Asset Management UK funds head Jasper Berens restructured the UK sales team in 2013. The restructure was intended to focus on the manager’s income offerings and take advantage of the Budget’s pension reforms.

Parsons said at the time: “Some firms are looking to outsource all or the majority of their investments so you need a team and a proposition for this. Other firms, which may have been more of a generalist IFA, are now moving to a wealth manager style of business.

“We decided we had to specialise our sales team to provide a more targeted level of service to each of these market segments.”

Employers failed to motivate in 2015

A third of UK employees could not name a single occasion that motivated them at work last year

New research shows UK businesses missed the mark when it came to motivating their workforce in 2015 as over a third (34%) of employees said they could not name a single occasion where they felt motivated at work last year.

The Employee Motivation: Who came out on top in 2015?’ report reveals that despite a quarter (24%) of staff saying ‘yes’ they felt motivated at work in 2015, nearly half of the UK workforce collectively felt neutral or negative feelings towards their job.

When asked how they felt about their job in 2015, employees replied:

• They loved every second of their job (14%)
• They had to work hard, but still enjoyed all aspects of their job (40%)
• They’re sat on the fence and don’t feel any emotion towards work (27%)
• It was all work and no play (7%)
• My employer expected too much from me (7%)
• I didn’t like any aspect of my job last year (5%)

The survey was commissioned by incentive and reward experts, Red Letter Days for Business, to explore one of the building blocks affecting the low engagement and productivity rates in the UK – employee motivation.

Who was motivated?

It will come as no surprise that 25-34 year olds were the most motivated at work last year; this age group are likely to be working their way up the career ladder, learning every day, and achieving promotions.

How motivated was each generation at work in 2015?

• 25-34: most motivated age group with 39% saying ‘yes’ they felt motivated
• 35-44: 24% said ‘yes’ they felt motivated
• 55+: 23% said ‘yes’ they felt motivated
• 18-24: 21% said ‘yes’ they felt motivated
• 45-54: least motivated age group with just 17% saying ‘yes’ they felt motivated

Bill Alexander, CEO at Red Letter Days for Business says: “It’s worrying that only a small percentage of each age group could say ‘yes’ they feel motivated at work. What’s more worrying is how little 18-24 year olds are driven – this is our workforce of the future therefore employers need to do more the nurture this talent.”

What factors drove motivation?

People taking part in the survey were first asked to confirm what would motivate them at work, followed by a free text box to write about an occasion they could remember that made them feel driven last year.

Top 5 motivators of 2015 were:

• I had a good work/life balance (45%)
• I have a motivating boss who is very good at their job (25%)
• I have great peers, we always manage to motivate each other (19%)
• My boss is very good at saying thank you. It keeps me motivated (17%)
• The office environment is very motivating (16%)

However, when it came to the free text box over a third (34%) of employees said they could not remember a specific occasion when they felt motivated by their employer.

“It’s concerning that such a large percentage of our workforces had difficulty naming a specific time when they felt driven,” says Bill Alexander. “However, we must note that out of the employees who could remember an occasion the top responses fell into one of four categories: achieved, challenged, gained knowledge and recognised.”

What affected employee motivation?

Finally, the report explored elements that could affect motivation in the workplace such as hygiene factors and staff recognition and rewards. The results show flexibility, freedom, high quality tools and recognition are key factors that can have a positive – and negative – impact on a workforce’s drive:

Flexibility to enable staff to choose where they work: 46% of staff who could choose whether they worked at home or in the office in 2015 were highly engaged.

• Freedom to allow staff to perform personal tasks while at work: 48% of staff who were allowed to shop online while at work were highly engaged. In comparison, out of the employees who were not allowed this freedom just 27% were highly engaged.
• Provide staff with high quality tools to do their job: Half of staff who receive high quality tools at work are highly engaged.
• Recognise hard work: 82% of employees who said ‘yes’ I felt motivated in 2015, were rewarded with some form of reward or recognition for a job well done.

“This research indicates that simple hygiene factors such as where employees work and the tools they’re given to work with have a bigger impact on motivation than employers’ may think,” continues Bill Alexander.

“However, the biggest lesson we all must learn from these insights it that the most motivational elements that create memorable moments with staff appear under the four categories: achieved, challenged, gained knowledge, and recognised.

“Employers who strive towards giving their staff the opportunities to experience these four elements throughout 2016 will no doubt benefit from an engaged and driven workforce – and hopefully improve the third of employees who could not remember a moment when they felt motivated last year!”

Click here to download the full report

Data provider FE switches to clean share classes

FE will switch to clean share classes for its fund rating system, ahead of changes from the Investment Association later this year.

The data, research and ratings provider will switch the share class it uses for the basis of its FE Crown and FE Passive Crown ratings to the highest charging clean share class from 18 January.

Currently the primary share class used as the basis for ratings and sector rankings is the highest charging, including bundled share classes.

However, in February last year the Investment Association consulted on changes and determined a fairer system would base performance data on the clean share classes through which most investors access the fund.

FE data director Sam Walker says: “The historical premise for basing the rating on the highest charging share class, which has been in line with industry best practice and also the trade body, was to assure that all investors were getting a fair deal, and to ensure that all funds were being measured on the worst experience of any investor.

“Of course the limitation of this approach is that it fails to support investors looking to make new investments in clean share classes; we risk misleading people who want to conduct a like-for-like comparison on funds during their evaluation processes.”

Under the changes, asset managers can base a fund’s performance on just the history of the clean share class, or they can tack on the performance from the bundled share class.

Asset managers that had an existing institutional share class pre-RDR and converted it into an RDR share class for retail clients, rather than setting up a separate unbundled share class, could benefit from the move as they will have a longer track record for the clean share class.

The move could lead to a significant re-shuffling of sector rankings.

In its report on the issue, the Investment Association acknowledged: “Some firms may choose not to use simulated data as there is no regulatory requirement to provide simulated past performance, and that is their prerogative. This would, of course, affect the information used in comparison tables and may mean the primary share class has no performance record over longer periods and so miss out being ranked in those tables.”

FE has made the switch ahead of the Investment Association’s deadline of 18 April, with other data providers expected to make the change by April.

Morningstar and Lipper were not immediately available for comment.