Eight year jail sentence for insider dealing pair

Two crooks have been hit with jail sentences after being convicted of insider dealing this week.

Investment banker Martyn Dodgson and chartered accountant Andrew Hind were convicted on Monday, and have now been handed 4.5 years and 3.5 years, respectively.

Dodgson's sentence is the longest ever handed down for insider dealing in a case brought by the FCA.

Confiscation proceedings will also be pursued for both.

It marks the conclusion of the FCA's largest ever investigation into insider dealing, and saw the regulator partner with the National Crime Agency under the banner of Operation Tabernula.

Tabernula has so far seen the authorities secure five convictions, including those of Dodgson and Hind.

The FCA and its predecessor, the FSA, has now secured 30 convictions for insider dealing.

Sentencing Dodgson and Hind, His Honour Judge Pegden, described their offending as “persistent, prolonged, deliberate, dishonest behaviour.”

FCA director of enforcement and market oversight Mark Steward said: “This case involved serious offending over a number of years, conducted in a sophisticated way using deliberate techniques to avoid detection. Dodgson was an approved person who was entrusted by his employer with sensitive and valuable information. He betrayed that trust by exploiting the information for his own benefit, conspiring with Hind to deceive the market

“Insider dealing is ever more detectable and provable. And this case shows lengthy terms of imprisonment, not profits are the real result.”

Between December 2006 and March 2010, personal friends Dodgson and Hind used inside information sourced from Dodgson to effect secret dealing for their own benefit.

To prove the conspiracy, the FCA – working with the NCA – relied on five acts of insider dealing at five companies: Scottish & Newcastle in October 2007, Paragon Group of Companies in July 2008, Just Retirement in October 2008, Legal & general in February 2009, and BSkyB in March 2010.

The investigation uncovered elaborate strategies used by Dodgson and Hind to cover up their activities. These included using unregistered mobile phones, encoded and encrypted records, safety deposit boxes and the transfer of benefit using cash and payments in kind.

MAS shelves digital support service and cuts nine roles

The Money Advice Service has shelved plans to introduce a piloted digital service as it put nine roles at risk of redundancy due to scrapping its entire marketing budget.

The MAS announced its 2016/17 business plan today, which confirmed its overall budget would reduce by 7.5 per cent to £75m and its £8.83m marketing budget would be cut entirely.

MAS chief executive Caroline Rookes told Money Marketing an “assisted digital service”, that was piloted for six weeks with Money Saving Expert, will not be permanently rolled out due to the MAS being shut down.

The pilot combined online and telephone support and the MAS said last year it was reviewing the pilot results with a view to offering a version of the service through financial guidance websites.

Rookes says: “In view of the announcement at the Budget things like that have been out on hold.”

Elsewhere, the MAS is also continuing to work on filling guidance gaps, particularly for people in the “squeezed middle” and because many existing services are small and local.

It will invite third-party organisations to bid for use of a £7m fund intended to develop the services currently on offer.

Rookes considers the latest business plan builds on the “excellent foundations” of the agency's work in 2015/16 and will continue to help people manage their money.

She adds: “[It is] also to start to make the transition from the Money Advice Service to the new organisation.

“What we mean by that for 2016/17 is starting to build the capacity and expertise for commissioning money guidance once the new organisation comes into being because the proposals are we will not have a direct service and we will not have a consumer brand, we will commission through others.”

The MAS is working with the Treasury and the FCA on the transition and a steering group with representatives from the three organisations has been set up.

On the eradication of the marketing budget, Rookes adds: “It is something that has been very controversial throughout the life of the Money Advice Service and it is clear that although the proposals that were published at the Budget were still only for consultation it was clearly the intention we would not spend any more on marketing.”

Robert Reid: Why having the risk conversation is vital

With all the discussion around due diligence, much of it has centred on products, platforms and providers, with the client sitting firmly to one side. But just as important as due diligence on providers is making sure there is a robust process in place to determine a client's risk profile. There needs to be more than just a form; there needs to be a conversation.

Far too many advisers are still not recognising risk profiling as anything other than a tick box exercise that, once completed, simply lets you move on to the next step. It is a bit like certain online terms and conditions check boxes you must complete to proceed. Many of us just check the box without reading the reams of text in front of us.

For me, the risk conversation is even more vital if your default is tracker funds. I have to say this does not mean I am advocating a more active approach, it is just that, minus the conversation, some clients may find accurate tracking hard to take in a volatile market.

It is fair to say that using certain passive funds where there is reduced volatility (that is, not pure trackers) may be attractive to some clients seeking low costs but not so low they have to endure volatility at a level they would be uncomfortable with. This is not a process that is easily explained and carried out on paper or on a website, so a face-to-face meeting is needed to arrive at a suitable recommendation.

Taking clients to the point at which they can confirm they are agreeing to a recommendation from the position of feeling fully informed is essential in delivering advice that can stand the test of time, irrespective of who reviews it later. In short, all advisers need to ensure their clients have reached the state of informed consent.

To get to that position clients need to understand any products being used and the strategy that is being deployed, and be comfortable with the investment risk they are taking while remaining under their maximum capacity for loss.

Relying on third party assessments are fine provided you understand how they arrived at their conclusion. Taking things on trust in the current and developing regulatory environment is far from sensible. Some may go further and suggest it borders on recklessness. It is important to state that the principle of informed consent extends to the adviser in their discussions with the providers and platforms involved.

Conversations are the glue that holds a robust and reliable investment process together. Without them, there is a real danger that everyone involved is not on the same page.

Talking of the need for a conversation, the last few weeks have seen Standard Life's 1825 busy on the acquisition trail and those bought out prompted to tell us a restricted proposition is not necessarily inferior to an independent one.

The best protection any client can hope for is an absence of conflict of interest and it is fair to say that being restricted does not prevent that. However, it does make it more difficult, especially if something does not align with the new parent's objective to move product.

I would be interested to know if any of those who sold canvassed their clients to determine their views with regards to their adviser becoming restricted. I suspect they did not and now the marketing will need to step up a gear to prevent any clients looking, then going, elsewhere.

Robert Reid is director at The Ideas Lab

Neptune India: three stocks we're buying & the one we're not

By Kunal Desai, Head of Indian Equities

The Neptune India Fund's investment process serves as a key differentiating feature of the portfolio versus its peers, contributing to its significant outperformance under Manager Kunal Desai's tenure. Focusing on industry disruption, accounting quality, liquidity and corporate governance, Kunal sets out three stocks that he's buying in the Neptune India Fund – and the one he's avoiding.

Click here to view stocks

Important information: Investment Risks

Neptune funds may have a high historic volatility rating and past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations and your clients may not get back the original amount invested. Investments in emerging markets are higher risk and potentially more volatile than those in established markets. References to specific securities and sectors are for illustration purposes only and should not be taken as a solicitation to buy or sell these securities. Neptune funds are not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for reference only. Please remember that forecasts are not a guide of future performance. The content of this document is formed from Neptune's views as at the date of issue. We do not undertake to advise you as to any change of our views. Neptune does not give investment advice and only provides information on Neptune products. Please refer to the Fund's prospectus for further details.

Britain's “Forgotten Army”: The collapse in self-employed pension membership – and what to do about it

Pension scheme membership among employees has risen by more than five million in the past four years because of the policy of automatic enrolment into workplace pensions. But Britain's army of 4.4 million self-employed people, who account for one in seven of the workforce, are not covered by automatic enrolment.

Pension coverage among the self-employed is not just low but it is falling and has now reached crisis levels.

In the mid-1990s, estimates by the Department for Work and Pensions suggest that 62 per cent of self-employed men of working age were saving into a pension. By 2012 that proportion had fallen to just 22 per cent (see Figure 1). There is a real risk that millions of self-employed people are heading for poverty in retirement unless action is taken.

Figure 1: Self-employed, working-age men, by whether currently contributing to a personal pension, 1996/97 to 2012/13 (percentages).

Source: Family Resources Survey, Department for Work and Pensions [data not available for 06/07 to 08/09]

A new report published by Royal London – entitled 'Britain's “Forgotten Army”: The collapse in pension membership among the self-employed – and what can be done about it' – offers a practical solution to that problem. The report recommends a substantial 'nudge' to get the self-employed saving in a similar way to the successful approach that has been adopted for employees.

The report recommends that the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be charged at a rate of 12 per cent rather than the current 9 per cent. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime Isa, provided that they made their own direct contribution of at least 5 per cent. The combined contribution of 8 per cent would match the statutory minimum under automatic enrolment.

While self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3 per cent of NICs that they had paid in. This is very similar to the way in which employed earners can only get a 3 per cent employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops. It is estimated that around three million self-employed people would be covered by the new scheme and it could increase the number of self-employed pension savers by well over two million if opt-out rates are similar to what they currently are for automatic enrolment.

Steve Webb, Director of Policy at Royal London, said:

“Self-employed people are missing out on the surge in pension scheme coverage among employed earners. Indeed, whilst the number of self-employed people is growing, their membership of pension schemes has collapsed and is now at crisis levels. It is time for action. Using the existing National Insurance system to mirror the process of automatic enrolment is the best way of giving self-employed people a 'nudge' to start saving for a pension. In addition, because self-employed NICs are linked to profits, contributions would automatically go up in good years and down in poor years. Without action, millions of self-employed people could face poverty in old age.”

Commenting, Mike Cherry, National Chairman of the Federation of Small Businesses, said:

“This report makes an interesting and valuable contribution to the debate surrounding how to best support the self-employed to save for their retirement. With the number of people choosing to be self-employed at a record high, this is a subject which needs much greater thought and attention. FSB will shortly be publishing our own research, which will shed further light on the challenges raised in this timely Royal London report.”

Welcoming the report, Huw Evans, Director of the Association of British Insurers, said:

“This is an important report into an area of public policy that has received little attention in recent years: how to encourage self-employed people into greater saving for retirement. I hope Royal London's proposals kickstart the debate that is needed so the decline in retirement saving from the self-employed can be tackled effectively.”

 

To find out more about “Britain's Forgotten Army”, click here to download the full policy paper.

Phil Young: The socially responsible investment advice quandary

The new types of socially responsible investments pose a quandary for advisers. Neither regulation nor legislation need to change but advising on these SRIs does not fit into the usual pattern and process of advice.

They can come in all kinds of formats, not just a fund. The SRIs I discuss here are typically single businesses organised around a common social good.

They differ from traditional ethical or “green” investments in that ethical funds seek to achieve investment returns while avoiding certain types of business, such as tobacco and weapons. Advising on these ethical investment funds is a specialised subset of advising on investment funds. In contrast, the new breed of SRIs are specifically seeking to invest in specific projects or people who need help.

They are not a charity, as an SRI includes the possibility of a financial return, not simply an emotional one. But where does the priority lie? An investment return could be far more predictable elsewhere. Is the thrill of investing in something risky mixed with the emotional return in helping good causes the real attraction? Inevitably, as SRIs start to professionalise, the costs and charges of running them as investments will direct some of the money into the business of financial services administration.

We already see this in the bigger, more professional charities regularly criticised for investing too little of the donations received into charitable causes and too much into themselves. The counter argument is this professionalism allows them to gather far more money in absolute terms and a sustainable charity is better for donors and donees alike. So they are a business but probably a very high risk one.

It is possible an investor in an SRI is interested purely in the best potential returns from the universe of all qualifying SRIs but it is likely they will be more interested in the cause in which  they are investing.

The pitches from SRIs I have seen to date have focused on the causes, with a very limited financial track record to point to. A reasonably diverse portfolio of SRIs with a demonstrable performance record might emerge over time but right now many of the new ones look like a bit of a punt.

Social investment tax relief gives them a tax break similar to a  venture capital trust or an enterprise investment scheme through deferral of capital gains tax. Older, wealthier clients may pick up on this first. However, they can be small, single companies with limited track records, so potentially harder to research and validate than a VCT or EIS.

Affordability and education

As a pure investment with no altruistic considerations, no adviser would ever recommend one. So how do you help a client interested in investing in an SRI?

As part of their financial plan, you can advise them how much of their portfolio they can afford to lose. You can explain this is a high risk strategy and not something you would advise as part of your own investment advice. You can explain what part of their portfolio needs to be traditionally invested and what can be used on a discretionary basis for philanthropic work. The expectation can be set that there will be no expected return. It might be they do not have this money to spend comfortably and they need to understand something else in the plan needs to be sacrificed to pursue this course.

Should a client come to you with an SRI they have selected and ask for your assessment of it, you are being asked in a professional capacity. If it is a fund it may be simple enough but undertaking due diligence on a small company will be difficult. It is also worth checking if the instrument used is covered by your regulatory permissions.

It is important to communicate what you can and cannot do and where responsibility lies. If you do not want to advise in this area, do not include anything that could be construed as an initial or ongoing advice charge on this part of a client's portfolio.

Philanthropy is a growing area in the UK and is already huge in the US. Broader questions will be  asked about whether it is right to make charitable giving contingent on returns if it will take money away from charities or help privatise state functions in the longer term.

Conflating charity and investment means there is a danger neither will be done well and that poses a problem in the context of “professional” investment advice and the broad spectrum of choices available. Serious thought is required before advising on it but it will appeal  to some very wealthy clients.

Phil Young is managing director at Threesixty

Aegon acquires 350k customers in swoop for BlackRock platform

Aegon is to acquire BlackRock's defined contribution platform and administration business for an undisclosed sum.

The deal sees Aegon acquires around £12bn of assets and 350,000 customers, creating a workplace savings platform with total assets of £30bn.

BlackRock head of DC Paul Bucksey will be managing director of the merged business.

Following the transaction, the US giant asset manager's £65bn UK DC business will focus on investment management.

Aegon UK chief executive Adrian Grace says: “The combined strength and breadth of expertise makes us a compelling choice. With employers demanding additional solutions to meet employees' needs to and through retirement, workplace savings are no longer just about traditional DC pensions.

“BlackRock's renowned strength as a leading investment manager means it retains its role as the primary investment manager for the clients who will transfer to Aegon as part of the transaction.”

BlackRock head of EMEA David Blumer adds: “The pensions and investment landscape has changed significantly in the UK over the last few years. BlackRock believes Aegon's broad retail product and digital capabilities will best serve the increased demand from employers for holistic retirement solutions in the future, and are a perfect partner to deliver on our DC platform and administration clients' growing needs.”

The transaction, including the transfer of assets and liabilities to Aegon is subject to regulatory and court approval.

Earlier this year Money Marketing revealed Aegon has been in talks with L&G over acquiring Cofunds.