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For today s discerning financial and investment professional
Seven Things The Chancellor

Forgot To Mention
Latin America Where Next?
Compliance Officers
The Crackdown Continues
ASIA
STILL THE PLACE TO BE

JULY/AUGUST 2015
Cover.indd 1
ISSUE 41
03/08/2015 15:00
CONTENTS
C O N T R I B U TO R S
Brian Tora
an Associate
with investment
managers JM
Finn & Co.
Lee Werrell
a senior
compliance
consultant and
industry adviser.
Richard Harvey
a distinguished
independent
PR and media
consultant.
Nick Sudbury
known for his
columns in many
leading financial
magazines.
Neil Martin has
been covering the
global financial
markets for over
20 years.
Michelle McGagh
brings a wealth
of experience
on industry
developments.
Abbie Tanner
is Managing
Director
at Gliocas
Consulting.
7-8/15
Editorial advisory board:

Richard Butler, Michael Holder,
Ian McIver and Mark Pullinger
6
News
So what did George forget to mention?
10
Lento
Latin Americas unlikely saviour
14
Crystal Ball, Anyone?
Julys a tough month, says Brian Tora
16
Japan Funds
What sorts of patterns will suit your clients?
20
How Many Platforms?
Different platforms for different clients
24
Asia After the China Upset
Theres still plenty to go for, says HyungJin Lee
28
Powering Ahead
We talk to Michael Beveridge at Standard Life
32
THE FRONTLINE:
Yes, the China
crunch was
gruesome, but
theres optimism
in the air
Editor: Michael Wilson

editor@ifamagazine.com
Art Director: Tony Merlini
tony.merlini@thewowfactory.co.uk
Publishing Director: Alex Sullivan

alex.sullivan@ifamagazine.com
A Busy M&A Scene

We continue our interview series on exit strategies
36
The Crackdown Continues
But keep calm and the regulator will be reasonable
IFA Magazine is published by IFA Magazine Publications Ltd, The Old Wheelwrights,
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2015. All rights reserved
IFA Magazine is a trademark of IFA Magazine Publications Limited. No part of this publication may be reproduced
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Cover.indd 2
IFAmagazine.com
03/08/2015 15:00
WORDS OF WILSON
July/August 2015
Ancient History
The month of August began well enough.
Or so we thought at the time
The global economy had
enjoyed a seven-year bull
run which had encouraged
millions of investors to
forget the panics of the
previous decade and to
put their hard-earned
cash back into a market
which, according to the
American pundits, was set
for ever-greater things.
The Dow eventually closed
the month 44% up on
its year-earlier level.
The hideous oil price
spiral of popular memory had
turned into a rout, with crude
prices halving in a year, while
consumer prices and interest
rates had moderated and
life was really looking pretty
good. Even though economic
growth had just started to
flatten off in the US.
If there was one cloud
on the horizon, it was that
US government debt had
been allowed to balloon
during one of the biggest
Keynesian experiments of
the last quarter-half-century.
But hey, that wasnt so bad
because it had only helped
to reinforce the dominance
of the US dollar at a time
when European economies
had mired themselves in
debt that didnt look nearly
so attractive. Yes, there were
definite advantages to having
the worlds refuge currency.
IFAmagazine.com
Ed's Welcome.indd 3
Shipwreck
The year, of course, was 1987,
the Keynesian boom had been
started in 1982 by Ronald
Reagan, and the problem that
had been lurking below the
surface since the spring, like a
shipwreck in waiting, was that
the Fed had quietly conceded
that its ability to maintain the
strong dollar was looking a
little thin. But the shock, when
it came, it came, was swift.
The savage events of
October 1987 are etched into
every stock market veterans
memory. The plunge of 2008
was a mere trifle in comparison,
although admittedly it certainly
wasnt over in a few months
like its 1987 counterpart. In a
few days Hong Kong was down
45%, London and New York
by 27% and 23% respectively,
and Australia suffered a
crippling 42% blow. All round
the world, investors reined
in their emerging markets
exposure - and ironically, the
eventual upshot was that
the dollars suction power
if anything increased.
Lessons Learned
returned from the August

beaches. Even today, no-one
is sure whether the October
1987 panic was caused by
big-scale fiscal uncertainty,
or Iranian gunfire in the
Gulf, or program trading (the
favourite villain), or a simple
bubble that had ignored a
lack of market safeguards?
Nowadays, of course,
we have those safeguards.
Stock markets shut down
automatically when prices
drop by a certain amount;
reporting standards are
much better; and corporate
governance has improved.
So why does it trouble me
that Shanghai should have
hit those very trading buffers
at the exact same moment
that Europe was facing a
nine-digit debt write-down
over Greece? And what is it
about those unusually high p/
es that bothers me at a time
when profits are moderating?
The odds against an
October panic are long. But a
short sharp correction might
be another matter.
Mike Wilson, Editor
And to think, we didnt

see a single bit of
this coming as we
03/08/2015 09:54
NEWS
Summer of
Discontent
Youll probably have noticed
that this year hasnt turned out
to be the dream ride that the
equity bulls were forecasting
back in January. But cheer
up, Autumns on its way
The expected
downturn in the
Greek situation
turned into a sudden
rout as the Syriza
government turned
upon its creditors with
what Finance Minister
Yanis Varoufakis
was pleased to call
Game Theory, and
the rest of us would
probably call terrible
bad manners. It was
no great surprise that
Germanys Angela
Merkel eventually
stopped playing the
smiling diplomat
and unleashed
the Dobermans
on Greek premier
Alexis Tsipras, with
an enforced deal
that has shaken
many international
observers with its
ferocity. And which
may yet prove to be
unenforceable in
practice - there are
few who doubt that
Greeces 300 billion
debt will ultimately
prove unpayable.
News.indd 4
All things
considered, the
European equity
markets did well to hold
onto any of the years
gains at all, and in the
event the EuroFirst
300 picked up by 10%
in the second week
of July alone. A sure
sign, if it were needed,
that Varoufakiss idea
of starting a stock
market fire that would
scare the Troika into
submission had been
a ludicrous fantasy.
China Panics
Meanwhile, on the
other side of the planet,
Chinas long-awaited
equity panic hit the
markets just before
the June issue of IFA
Magazine hit the
doormats. (Drat, and
wed worked so hard to
warn you in advance.)
Intra-day price
falls of up to 10% in
Shanghai were enough
to trigger the safety
shutdown routines,
thank goodness. But
it was notable how the

Beijing authorities
responded with attacks
on short-sellers and
hedge funds before they
addressed the problems
of their own making.
As on 16 July, the
Shanghai Composite
was struggling around
the 3,800 mark, some
26% down from 5,170
on 12 June. Ouch.
And then there were
the commodity markets,
with oil still bumbling
around the $51
mark for West Texas
intermediate and with
copper rediscovering the
six-year lows of $2.50
which it had discovered
in January. Even corn
futures, at $400, were
barely half the prices of
mid-2012 and had a long
way to go before anyone
could call the short-term
July improvement a
viable trend. Mining
companies of every kind
are still licking their
wounds and worrying
about their leverage.
There are few

who doubt that
Greeces 300
billion debt will
ultimately prove
unpayable
The US Advantage
Was there no escape from
all this? There certainly
was. The US markets,
always a very long way
from other trouble spots,
continued their steady
four-year ascent as if the
US had nothing to lose
from a weak euro and an
overpriced China. Thats
the way it goes with
having a refuge currency,
we suppose. And all the
while, Janet Yellens
guessing game about the
timing of the coming US
rate rise continued to
titillate the markets and
to suck in foreign deposits.
No sign of that changing,
then. Long may it last.
IFAmagazine.com
03/08/2015 10:09
PART
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1
News.indd
5
07/07/2015 10:09
12:03
03/08/2015
NEWS
NEWS IN BRIEF
Covert Support?
Chinas mid-July rebound from
the very severe panic of late
June may have been artificially
enhanced by measures from
the central bank, a new report
suggests. Caijing, a prominent
Chinese financial magazine,
reported that 17 of Chinas largest
state-owned banks lent
a combined Rmb1.3 trillion ($210
billion) to the countrys margin
finance agency by
13 July, in an apparent attempt
to head off the collapse in stock
market values. The news led
to speculation that the 15%
rebound seen so far since the
price collapse had not perhaps
been all that it appeared.
Seven Things
That George
Didnt Quite Say
The Summer Budget left a lot of pennies that havent
quite dropped yet. Heres our round-up of things
that might still prove to be game-changers
Bridge Over
Troubled Water
BP reached an $18.7 billion
settlement of federal, state and
local claims in respect of its
liabilities over the Deepwater
Horizon oil spill in 2010. That
included a $5.5 billion fine for
offences against the Clean
Water Act, which was less than
had been expected. But the
companys overall pre-tax charge
for the whole affair stands at
$53.8 billion, roughly in line with
early estimates. The news did
nothing much to halt a slide in
BPs share price since mid-April
It wasnt what
George said
in the Summer
Budget, it
was what he
didnt say
that the papers got.

But, cynics that
we are, there are a
number of forward
implications that
we think might still
cause complications
for some clients.
One
The 1 million IHT
Property Allowance
Yes, it was the
Budget for Working
People and the
end of the line for
welfare shirkers.
That was certainly
the happy impression
News.indd 6
Apologies all round for

starting off with the
low-hanging fruit, but
it seems that there
are still some clients
who believe that the
surviving member of a
marriage or partnership
can offset 1 million

against the family
home in addition to the
normal twice-325,000
IHT allowance. Or,
alternatively, that the
new set-up is as good
as a 1 million IHT
allowance, isnt it?
It isnt. If a client
has a million in
savings but doesnt
own a home, then all
hes got is the basic
650,000 allowance
and your estate will
pay the 40% tax rate
on that 350,000 as
if the Chancellor had
never got up to speak.
IFAmagazine.com
03/08/2015 10:09
NEWS IN BRIEF
Of course, if a
client is in that position
he may very well be
tempted to sell up
350,000 worth of
his assets and buy a
property PDQ, so as
to get the tax break.
Which will deliver a nice
boost to property prices.
And conversely, if hes
been thinking of selling
up the family home
in his old age so as to
invest in a more flexible
portfolio - or even simply
downsizing then hell
need some assurance
that he wont now be
penalised for being
roofless. Relax, however,
those assurances
have been given.
Finally, of course,
home-owners with
estates worth more
than 2 million (not just
2 million properties,
please note) will find
their IHT entitlement
progressively scaled
back, and from 2020/21
the new allowance will
taper away completely
for those estates worth
more than 2.35 million.
Will the new rule
count for properties
in shared ownership?
For equity release
situations? Etcetera?
Probably, but we need
to see the details.
Two
The Billionaire
Non-Dom Exodus
Hitting the Non-Doms
is another idea that
sounds better coming
from George Osborne
than it would have from
Ed Balls. Even Balls
was prepared to admit
(on camera!) that it
wouldnt raise much
money, but by the time
the Chancellor had got
to his feet on 8 July
its prospects seemed
to have improved.
IFAmagazine.com
News.indd 7
Yes, Non-Doms
whove been primarily
resident in the UK for
15 of the last 20 years
will pay tax on their
worldwide income
as if they were UK
nationals. So will this
mean that the Russian
billionaires will forsake
London for the bright
lights of Monaco or the
Virgin Islands? Will the
London banking scene
crash into insignificance
as well-heeled nondom bankers flee to
Luxembourg? And will
Kensington property
markets be flooded with
urgent sell orders that
will smash prices? We
wouldnt bet on it.
Three
PISA?
Sorry about that, but
you have to think of
a fancy acronym for
most new products, so
perhaps well chance our
arm with the image of
something tall, artfully
crafted and famously
wonky because of its
iffy foundations. The
Chancellor announced,
in the most roundabout of fashions, that
he was encouraging
a round of innovative
thinking about a new
financial product
that will combine
the best features of
a pension with the
characteristics of an
ISA. Theres a green
paper in circulation
about the idea.
Its going to be
challenging, of course,
because a pension gets

its tax rebates upfront
while an ISA relies on
getting them only when
the decumulation starts.
But it fits in with the
spirit of the pensions
freedom rather well.
It would seem to
suit the Chancellor very
well, too, because the
investment sum thats
currently snowballing
in a tax free pensions
environment (until
decumulation) is
currently putting an
upfront strain on the
Treasury. A PISA
will presumably grow
more slowly than a
well-managed SIPP,
because its starting
size is smaller. But
lets ask how it might
go in terms of tax?
Will it, for instance,
prove to be an attractive
route for higher earners
who are now watching
their lifetime pension
contribution caps
reduced from its original
1.75 million to a puny
million? An additional
25,000 a year of eligible
PISA contribution
entitlements would
go a long way toward
plugging the gap
although it would still
struggle to compare with
the tax breaks attached
to riskier EIS, SEIS
and Venture Capital
Trust investments.
London House
Prices Still Strong
Greater London house prices
climbed by an average
7.8% during the year to June,
according to Rightmove, with
average prices at 615,115.
But the pressure was heaviest
in first-time buyer territory,
where prices rose by 1.1% in
June alone. Nationally, prices
rose by 5.1% during the year
to July, and information from
the Council of Mortgage
Lenders suggested a 15%
annual increase in lending.
Inflation at Zero
UK consumer inflation dropped
to 0% in June, the Office for
National Statistics confirmed.
The fall, which had been widely
expected, was said to be due
to a 2.2% annualised drop in
food prices and a 10.2% fall in
petrol and diesel costs. But in
view of the strong UK economic
growth announced in the
Budget, there were few fears of
any major deflationary pressures.
Sure enough, on 16 July the
Bank of England governor Mark
Carney dropped a heavy hint
that UK interest rates might rise
around the turn of the year.
We have this
feeling, though, that
the tax implications
will still prove tricky.
Watch this space.
03/08/2015 10:09
NEWS
NEWS IN BRIEF
Comfortable Nest
Seven of the 11 Nest funds run
by the National Employment
Saving Trust have outperformed
their respective benchmarks
since their foundation in 2011,
the trusts annual report and
accounts claim. Star billing
goes to the NEST ethical fund,
which achieved an annual
12.42% growth against a target
of CPI plus 3% (effectively
4.88%). The NEST system now
covers 2 million employees
from 14,000 employers and
manages almost 420 million.
The report can be found at
http://tinyurl.com/phdzklf
Four
Five
Changes in the Buy

to Let Market
The Dividend Raid
Yes, the decision to

scrap private owners
eligibility for tax
relief at higher rates
is likely to shake
things up for smaller
landlords. Starting
in two years time,
tax relief will be
reduced in scope
until by 2020 its
only available at the
basic 20% rate. And
from next April the
automatic 10% wear
and tear allowance
will be applied only
if the landlord has
actually replaced
furnishings, instead
of merely wishing he
had. Expect an impact
on the BTL market,
which may well result
in forced sales.
sometimes significantly.
The progressive tax hike
will probably squeeze
some higher earners
right out of income
investing. Although
it may also encourage
fund managers to
restructure their total
returns in ways that
blur the line between
income and capital gain.
The removal of the

10% tax credit on
dividends from next
April is to coincide
with the introduction
of an annual tax free
Dividend Allowance
of 5,000. Once that
Dividend Allowance
has been exhausted,
tax will be payable at
7.5%, 32.5% and 38.1%
for basic, higher and
additional rate tax
payers respectively.
Six
The National Wage
Theres no
disguising that this
will imply a need for a
major policy change for
some investors, notably
those with larger
portfolios effectively, a
250,000 fund earning
a 2% yield (say) will
break even on the deal,
but bigger portfolios
will be disadvantaged,
The same as the

minimum wage, to all
intents and purposes,
except that it sounds
better. The newspaper
headlines were all about
that headline figure of
9 an hour. What they
forgot to mention was
that it wont happen
until 2020 (when,
purely coincidentally,
Mr Osborne may be
pitching for re-election
as prime minister). Next
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News.indd 8
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Publication: IFA Magazine
Size: 110x380
Ins Date: 0
IFAmagazine.com
03/08/2015 10:09
80
NEWS IN BRIEF
Aprils 7.20 an hour

is all that the poor will
get in the meantime.
Which industries
will the 9 National
Wage hit the hardest?
Care homes, nursing,
country-sports staff,
car park attendants
and those helpful old
folks in B&Q. There are
some policy anomalies
here, arent there?
Seven
Whoopee, Were
a Tax Haven
The announcement that
Britains corporation
tax levels will be
axed to just 18% by
2020 has aroused
a certain amount
of grumbling from
outside these shores.
By our reckoning, an
18% corporate rate
will make Britain the
lowest tax area within
the G20 group. It will
also amount to more
than a third off the
28% main rate that
was being levied as
recently as 2010. (The
current rate is 20%,
falling to 19% in 2019.)
Make no mistake,
this was a grudge
match. The Chancellor
had already been stung,
back in February, by
a report from Oxford
University analysts
that had accused him of
kissing goodbye to 7.5
billion of tax revenues
with his tax incentives

up to that point.
Predictably, its reaction
after the 8 July Budget
was that he was
now risking protests
from other European
governments about
his aggressive and
unfair race to the
bottom policy on
taxation. (Incidentally,
you can find KPMGs
own comparison of
international corporate
rates at http://tinyurl.
com/bj5d7wk)
Will the Chancellor
mind stirring up the
dust in Europe? It
seems doubtful as long
as Ireland is able to
defend its own 12.5%
corporate rate, which
has been decried
from Brussels as
outrageously piratical
for the last ten years
at least. Bring it
on, George.
Taxman with Teeth

One of the less widely noted
clauses in the Budget
which didnt make it into the
Chancellors speech is that
HMRC is to be given greater
powers to recover money from
bank and savings accounts,
including cash ISAs. This
government will introduce
legislation to modernise and
strengthen HMRCs powers
to recover tax and tax credit
debts directly from debtors
bank and building society
accounts, including funds
held in cash Isas, the small
print confirmed. Expect
more detail in the autumn.
Yield
4.03%
as at 31.12.14
web: delity.co.uk/mai
call: 0800 368 1732
Ins Date: 01.03.15
Proof no: 1
Tel: 020 7291 4700
IFAmagazine.com
News.indd 9
03/08/2015 10:09
July/August 2015
SOAPBOX
China looks at
Latin America
The regions battered economy is about to get a major boost from the
other side of the world, says Michael Wilson. But will it be enough to
make a difference? And what of the geopolitical implications?
Let me start with an apology.
An apology for intruding on
your thoughts at this nervewracking time of Greek
and Chinese disaster with
a deliberation about a part
of the world thats hardly
figured in our consciousness
for five years at least.
Well, most of us anyway.
Just over two years ago, IFA
Magazine ran a leader article
about how the bright hopes for
Latin America that had started
the century had been giving
way to pessimism, confusion
and gloom. The troubles
greeting Brazils new president
Dilma Rousseff were largely
of her own making, we said
corruption, social discontent
and a lack of investment but
many of the bigger issues
came down to the actions of
the US Federal Reserve.
By threatening to
reintroduce a strong-dollar policy
with the end of quantitative
easing, we said, Fed
Governor Ben
Bernanke was
effectively
siphoning
out all the
hot money
that had
once
flooded
into not
just Brazil
but also
Argentina,
Mexico and
10
Ed's Soapbox.indd 10
the whole of Latin America in

search of better interest rates
destabilising the fixed interest
markets and undermining
the stability of many of the
regions governments.
Where We Got It Wrong
And that, we said, was a
foul in economic terms.
Mexico and Argentina
were growing their
respective industrial
outputs by 3.5% a year,
we said, thanks to
booming demand from
the United States which
was creating enormous
opportunities for domestic
producers. Meanwhile,
we said, growing Chinese
demand for foodstuffs
such as soya, wheat
and beef was at
least partially
Xi Jinping has
said that Chinese
companies will be
investing $250 billion
in Latin American
economies during
the next decade
IFAmagazine.com
03/08/2015 10:14
July/August 2015
compensating for the undeniable

plunge in mining industry prices.
In retrospect, our assessment
was too hasty. Firstly, because
the Feds wind-down of
quantitative easing came much
more slowly than we expected,
and because even today there
have been no immediate
indications of the feared interest
rate hike. (Things may change
in the autumn, of course.)
Protest marches in dozens of cities

across Brazil have put pressure on
Rousseff over unpopular budget cuts
and a corruption scandal that has
snared leaders of her political coalition
And secondly because

we didnt (and couldnt have)
expected the bigger-picture
drivers that have crushed both
the hopes and the illusory
confidence of many South and
Central American states.
The first driver, of course,
has been the crashing fall in the
oil price, which has weakened
the power of oil producing
states like Mexico, Brazil and
Venezuela thus putting an axe
through their ability to import
the goods they want, or even to
sustain their own government
budget balances. (Its been
calculated that Venezuela
needs an oil price of $110 to
balance its books by which
reckoning todays $50 a barrel
for West Texas Intermediate
looks like a knock-out blow.)
The Left Disappoints
But then there are the political
considerations. Yes, Dilma
Rousseff has made a bigger mess
than expected of running Brazils
economy with a growing
chorus of dissent and outrage
over corruption in high places
that has swamped the nations
biggest oil producer Petrobras.
(The company is alleged to have
supplied kickbacks of at least
$1 billion toward politicians in
her ruling Workers Party (PT)
and its coalition partners.) In
Argentina, the government of
Cristina Fernandez de Kirchner
goes into this Octobers general
elections with its reputation
deeply sullied not least,
because the international
organisations such as the IMF
flatly refuse to accept the
authenticity of its economic
records. (Ms Fernandez de
Kirchner is not standing
because her maximum two
IFAmagazine.com
terms are up.) And in Mexico the

authority of President Enrique
Pea Nieto, of the Institutional
Revolutionary Party (PRI) of
Mexicos president, has faced
unprecedented pressure from a
political opposition which has
lost no time in exploiting a public
disaffection with the status quo.
If the governments of the
region have not exactly been
covering themselves in glory,
wed have to add that the
main bastion of leftist support
have been left hanging and
powerless n their own right.
The key mover here has been
the death of Venezuelas hugely
influential left-wing president
Hugo Chavez who was replaced
by a stool-pigeon who has since
failed to spread his wings. If
youre wondering why, consider
what we just said about the
impact of a falling oil price on
Caracass state revenues.
Now, theres no doubt that
chavismo had once exerted
a powerful influence over
impoverished states like Peru,
Bolivia and Cuba, all of which
had been happy to embrace the
battle against the evil tentacles
of US imperialism for as long as
Mr Chavez was on the platform
doing all the shouting. But
you might have noticed that
things have moved on a bit
in the last twelve months.

America has reopened its
embassy in Havana and has
eased the travel restrictions
that used to prevent the citizens
of both countries from free (or
even legal) passage. In April
the US Congress voted to
remove Cuba from its terror
list. By the time you read this,
Washington and Havana should
have resumed full diplomatic
relations. And even the Chinese
are now starting to pull their
money out of a traditionally
socialist country to which they
once felt distinctly protective.
The Commodities Slump
But by far the biggest factor
in the bigger picture, it seems,
is the change of economic
direction in China. Last
autumns re-orientation of the
Chinese national economy,
from export-intensive toward
domestically-focused strategies,
has coincided with a crackdown
on local government spending
and has combined with other
factors to drive down commodity
prices throughout the world.
Thats bad news for much
of Latin America, which does
much more than simply supply
oil and mineral products to
Beijing. Brazil and Argentina
are massive exporters of maize,
11
03/08/2015 10:14
July/August 2015
soya and pigmeat products

to Chinas domestic product
and thats dealt a crushing
blow. Overall, Brazils exports
to China are reckoned to
have fallen by a quarter since
the first quarter of 2014.
Back to China
Is there light at the end of the
tunnel? Very possibly, but from
an unexpected quarter. China
itself is now pumping foreign
investment into South America
SOAPBOX
and not just into oil, gas and

mining, as you might have
supposed a few years ago.
(A model thats worked well
enough for Africa, but which
somewhat misses the point
in a continent thats geared
for manufacturing.)
Chinas President Xi
Jinping announced in January
that Chinese companies will be
investing a whopping $250 billion
in Latin American economies
during the next decade almost
quadrupling the current level of
investment. More to the point,
perhaps, Beijing is getting into
a wider range of activities,
including food manufacturing,
farming, consumer goods
manufacturing and transport
and energy infrastructure. (By
improving the regions rail links,
it believes, it can significantly
lower the cost of moving
anything else that it requires.)
China has ended its ban on
Brazilian beef imports, and its
shopping for Embraer jet aircraft
Thats not all, because
Chinese loans are fast becoming
the most attractive option for
Latin American development
projects. The fading of US
interest in developing the
south, and the declining
importance of the major
multilateral development
banks, have coincided with a
very real Chinese wish to get
involved in foreign growth.
By improving the
regions rail links,
China believes, it can
significantly lower the
cost of moving anything
else that it requires
12
And Chinese institutions

lent a whopping $24 billion
last year - much of it to Brazil
and Argentina, but also to
Venezuela, Ecuador and other
destinations. Unsurprisingly,
Washington is slightly
unsettled to see that so many
of the recipient governments
are left of centre. Could that
perhaps be why Barack Obama
is loosening up on Cuba?
Thats an open question.
But Chinas Premier Li Keqiang
declared in May that he wants
to see his countrys annual trade
with Latin America passing
the half trillion dollar mark
predicted that annual bilateral
trade could hit $500 billion.
News reports in the US are
not treating that prospect with
any great enthusiasm. But how

will things pan out in reality?
The Bigger Picture
Well, the least worst thing to
say is that Latin Americas
collective economies have not
deteriorated by very much in
the last six months. Despite
flatlining growth in Brazil and
Argentina, and a probable 4-5%
collapse in Venezuela this year
(possibly much more), the overall
picture has remained in the
positive numbers, with some
positively good-looking growth
in the region of 3% expected for
Mexico, Chile and Colombia.
Where its going wrong
at the moment is that Janet
Yellens intimations of a US
rate rise at the Fed have been
sucking speculative money
out of the regions currencies.
Venezuela recently revised
its methodology for economic
growth but hasnt released
any official figures for inflation
since last year - which leaves
the market suspecting that
its current rate may well have
exceeded 120% in the last
year. Mexicos peso has been
sliding for a year now, and is
now estimated at 20% below
the levels of a year ago.
All of this may, of course,
make the regions exports
more attractive for importers
in the United States, but
its also likely to feed into
steeper import bills for Latin
Americas manufacturers
and, by implication, a squeeze
on profits and wages.
For what its worth,
we know that last months
LatinFocus Consensus Forecast
produced an expectation that
the regions economy will grow
by just 0.5% in 2015, followed
by perhaps 2% next year.
That, of course, will be good
news if it comes to pass. But
at present, with so much else
to worry about on the global
stage, global investors may
struggle to find the incentive
to reinvest in a region which
is being badly tossed around
by external factors. Nothing
new there, then.
IFAmagazine.com
03/08/2015 10:14
03/08/2015 10:14
July/August 2015
B R I A N TO R A
A Turbulent
Month
July has always been
a tough month to call,
says Brian Tora.And this
year more than usual
Deadlines can be a
blessing and a curse to
financial journalists and
others writing any form of
commentary on those issues
that can be affected by
events on a daily basis. They
act for the good in ensuring
what you are writing is
delivered on time. The less
good aspect of deadlines
is that circumstances can
change between the time
you commit your thoughts
to paper and when these
same thoughts are available
to be digested by an eager
(I hope) readership.
Seldom has the opportunity
existed for considered comment
to be overturned by events
taking place between the
deadline and publication dates
14
Brian Tora.indd 14
as now. In the investment

world we are assailed with
a whole raft of fast moving
events with little certainty of
what the final outcome might
turn out to be. Greece, China
even the first Conservative
budget in the UK for close to
two decades all have the
capability of turning perceived
wisdom into irrelevancies.
Greece and the Euro
Take Greece. By now we
doubtless know whether a
deal was reached allowing
this over-indebted country
to remain part of the biggest
financial experiment in recent
times the creation of a single
currency to accommodate a
wide and varied group of nation
states. Nobody yet knows what
the real consequences will be

for whichever route is taken,
but there were plenty of highly
qualified people arguing on both
sides of the fence in the run up
to the to the final decision.
Indeed, the debate ranged
thick and fast in the days
following the result of the 5ty
July referendum. On the one
hand, allowing Greece to exit
the Eurozone would result in
massive losses to creditors
and might open up an option
to others anxious to reassert
control over monetary policy
and the level of their domestic
currency. On the other,
saddled with such a stifling
amount of borrowing, perhaps
the only sensible solution is
Grexit and the establishment
of a new drachma, despite
IFAmagazine.com
03/08/2015 10:15
July/August 2015
the short term chaos and

pain. Only time will tell.
Chinas Panic
China is a longer-running
saga which is unlikely to have
reached a conclusion this
summer although, as I write
these words, I realise what a
dangerous comment that is.
That a bubble developed in
Chinese equities is clear. It
burst in a way reminiscent of
the crash of 1987 or arguably
1929. Having peaked in early
June, it fell 30% in just three
weeks a fall that qualified
as a proper bear market and
was sufficient to prompt the
authorities to step in with
stabilising measures, which
had yet to prove effective
at the time or writing.
As with many bubbles, the
real issue for China is that it
was fuelled on borrowed money.
Those that were late on board
for this latest surge will have

suffered comprehensively,
which could well have knock-on
effects for the Chinese economy.
Presently the expectation for
this year is growth of 7% - down
from last years 7.5% - but
this may not be achievable
either if Chinese consumers
start drawing in their horns.
Quite why those responsible
for setting the tone in what is
after all a command economy
allowed this bubble to develop
unchecked is hard to assess.
Perhaps they hoped to sell off
more state assets to an eager
investing public at premium
prices? But the fact is that
a number of new flotations
have been cancelled as a
consequence is an indication
of the seriousness of the
situation. Slower growth in
China will impinge on world
economic performance and will
do little for commodity prices.
The Summer Budget

Perhaps the one positive event
recently has been the budget.
The plans put forward for
our financial wellbeing by
successive Chancellors have
usually exerted little real effect
on market behaviour, though
just occasionally a measure
here or there sets pulses
racing as when Nigel Lawson
announced the ending of joint
mortgage interest tax relief and
prompted a spike in house prices
a quarter of a century ago.
Nothing from George
looked likely to provoke a
similar reaction this time. [Ed
- The 3.5% rise in the Footsie
during the two post-budget
days was more probably due
to optimism over Greece than
any profound sense of a change
in Britains own the economic
wind.] But then I still have
the gap between writing and
publication to get through.
An individual
approach
At JM Finn & Co, we understand the importance of treating you and your
client as an individual. This is why our Tailored Platform Solution is a
discretionary service that can integrate seamlessly into your proposition.
Mike Mount
T 02920 558800
E mike.mount@jmfinn.com
www.jmfinn.com
LONDON
BRISTOL
LEEDS
BURY ST EDMUNDS
IPSWICH
CARDIFF
JM Finn & Co is a trading name of J. M. Finn & Co. Ltd which is registered in England with number 05772581.
Registered Ofce: 4IFAmagazine.com
Coleman Street, London EC2R 5TA. Authorised and regulated by the Financial Conduct Authority.
Brian Tora.indd 15
15
03/08/2015 10:15
July/August 2015
PRODUCTS
80s Revival
After success in the 1980s, Japan has endured a
couple of tough decades, says Nick Sudbury. But, like
a long forgotten pop group, it is hoping that a radical
new front man will bring about a revival of fortune
The election of Prime

Minister Shinzo Abe in
December 2012 provided
a much needed shot in the
arm for Japans moribund
economy. His threepronged strategy of fiscal
expansion, monetary easing
and structural reform
was designed to kick start
domestic demand and put an
end to 20 years of stagnation.
Abenomics was a real leap
in the dark at the time, yet it
is hard to see how anything
less radical could ever hope
to succeed. Japan has never
really recovered from the end
of the economic boom of the 80s
and is also now having to deal
with the worst demographics
in the Western world.
Some Risk
The new policies have been
broadly welcomed, but they
are not without risk. In April
2014 the government felt
16
Products - Japan.indd 16
impelled to raise its sales tax

for the first time in 17 years
in an effort to reduce the fiscal
deficit. Unfortunately, however,
this undermined consumer
confidence just when they were
trying to encourage people
to increase their spending.
One of the most tangible
benefits is that the massive
programme of Quantitative
Easing has sent the yen sharply
lower on the foreign exchanges.
This has made Japans
exporters more competitive
and boosted profits, although
much of the extra cash is
being hoarded on the balance
sheets rather than passed on
to investors or the workforce.
In order to encourage
greater investment in the
stock market, the Government
Pension Investment Fund,
which manages more than $1
trillion of assets, has reduced
its target government bond
weighting from 60% to 35%,
with the money reallocated into

Japanese and overseas equities.
It is expected that other public
pension funds will follow suit.
Nobody knows whether
Abenomics will have the desired
effect, but it has certainly
provided a welcome boost to the
local stock market. When the
first round of QE was announced
in April 2013 the Nikkei 225
index was trading at around
the 12,000 level, but by early
July it was up above 20,400.
The sharp increase has
enabled Japan to be the second
best performing sector of the
market in the last 12 months.
According to FE Trustnet,
the average Japanese fund
returned 20.5% over the year
to July/August 2015, despite
the considerable depreciation
in the value of the yen. But
in the light of the summers
tumbles in China it remains
to be seen whether the revival
can continue - or in what form.
IFAmagazine.com
03/08/2015 10:16
PRODUCTS
July/August 2015
Baillie Gifford
Japan Trust
(BGFD)
Premium Rating
There are only four
investment trusts operating
in the sector, but the
performance of these closedenders compares favourably
with their more numerous
open-ended peers. The most
successful over the last 5
years has been the Baillie
Gifford Japan Trust, with
a return to shareholders
of 160.7%. And partly, this
was down to the fact that
the shares have moved from
a discount to NAV of more
than 15% to a premium
of 2.5%, as a result of the
improvement in sentiment.
The manager, Sarah
Whitley, invests in a portfolio
of 4070 medium to small sized
Japanese companies that she
believes have above average
growth prospects based on a 3
to 5 year view. It is about as
far from a closet tracker as you
can get, with the fund having
an Active Share of 88%. (This
is calculated by subtracting
IFAmagazine.com
Type:
Investment Trust
Sector:
Japan
Fund
Size:
314.6m
Launch:
January 1981
Yield:
0%
Ongoing
Charges: 13%
Manager: Baillie Gifford
bailliegifford.com
the percentage of the portfolio

that overlaps with its Topix
benchmark from 100.)
Whitley controls the stock
specific risk by limiting the
size of each weighting, with the
largest holding only making
up 3% of the fund and the top
10 just 25.1%. There is also a
decent spread across the sectors
with Commerce & Services
the biggest exposure at 25.7%,
followed by Manufacturing &
Machinery 19.6% and Electricals
& Electronics 14.6%. Its an
approach that has really paid
off as over the decade to the
end of April the shares are
up 195.8% compared to the
increase in the index of 84.2%.
Recent economic growth in
Japan has been disappointing,
but the manager is encouraged

by more positive trends, such
as the increase in wages, the
recovery in property prices
and the strength of exports.
The weak yen has led to many
companies moving production
back into the country and
there are other welcome signs
including a greater emphasis on
shareholder returns via share
buy-backs and higher dividends.
Decembers snap election
that saw Prime Minister Abe
returned to power with a bigger
majority has given him the
green light to continue with
his economic reforms. This
suggests that the policy of QE
will continue and that there
will be more reductions in
corporate taxes, which should
be supportive of higher shares
prices. If that is the case the
Baillie Gifford Japan Trust
should carry on delivering
healthy returns especially
given its 13% gearing and low
ongoing charges of 0.9%.
17
03/08/2015 10:16
PRODUCTS
July/August 2015
Legg Mason
Japan Equity
Local Know-How
Indisputably, the top
performing open-ended
fund in the sector over
the last 5 years has been
Legg Mason Japan Equity
with an impressive gain
of 185.7% - more than 80%
better than its nearest
rival. Most of these excess
returns came at the start
of 2013, however; since
then the numbers have
been more in line with
the rest of the peer group.
Its an interesting fund,
as it is managed by Hideo
Shiozumi of Shiozumi Asset
Management, with Legg Mason
providing the means of access
for UK investors. Shiozumi is a
growth orientated stock-picker
and has built the portfolio
around three main themes:
n The ageing society
and the opportunities
that this creates;
n The use of the internet
as a sales channel; and
18
Type:
UK OEIC
Sector:
Japan
Fund
Size:
276.2m
Launch:
October 1996
Yield:
0%
Ongoing
Charges: 1.85%
Manager: Legg Mason
Global Asset
Management
leggmason.co.uk
n Healthcare, which
is seen as one of the
countrys last remaining
growth industries.
The fund aims to
generate capital growth and
is benchmarked against the
Topix index, which it has
beaten hands down except over
the last 3 months. Shiozumi
has a highly idiosyncratic
approach, which explains why
the returns are so different to
the rest of the sector. The end
result is a highly concentrated
portfolio of just 33 holdings,
with almost 40% of the assets
invested in the Health Care
sector and a further 24% in
Information Technology.
Shiozumi looks for

companies with annual earnings
growth of more than 20%,
but that he considers to be
attractively valued. Because
of this the portfolio has a very
high weighted average PE
ratio of 32 and a price to book
of more than 11. There are no
household names that we would
recognise here in the West and
although the majority of the
stocks are not all that small
there could be liquidity issues
in the event of a forced sale.
Legg Mason Japan Equity
was launched in October 1996
with a separate hedged share
class created in February 2014
and has attracted modest
AUM of 276.2m. It is an
extremely unusual fund and
might be suitable for clients
with a high tolerance for risk
who are looking for long-term
capital growth. It could also
make a good second holding in
the sector alongside one of the
more mainstream options.
IFAmagazine.com
03/08/2015 10:16
PRODUCTS
July/August 2015
iShares MSCI
Japan GBP
Hedged UCITS ETF
Type:
ETF listed in
London
Sector:
Japan
Fund
Size:
608.2m
Hedge your Bets
Launch:
July 2012
Yield:
0%
Passive investors have also

done well recently, because
there are plenty of ETFs
in the sector that have
delivered healthy returns
over the last few years.
Cost -conscious clients who
like this sort of approach,
but who are concerned
about the risk of a further
weakening of the yen, might
be interested in the iShares
MSCI Japan GBP Hedged
UCITS ETF, which was
created in July 2012 and
which is up by an impressive
130% since inception.
TER:
0.64%
The ETF uses physical

replication to track the MSCI
Japan index, which is a free
float weighted benchmark that
provides exposure to 85% of the
leading Japanese companies.
There are currently 314 holdings
and these include many wellknown businesses such as
Toyota, Honda, Mitsubishi,
Canon, Sony and Hitachi, as
well as numerous others. The
IFAmagazine.com
Manager: BlackRock
Advisors
ishares.com
three main sector weightings

are Consumer Discretionary
21.75%, Industrials 19.25%
and Financials 19.22%
IJPH has attracted a
considerable 608.2m in assets
under management. It is
unusual because it incorporates
a monthly hedge using one
month forwards to reduce the
impact of currency fluctuations
between the yen and sterling.
This has really paid off over
the period since inception,
with the yen down around
36%, but it remains to be seen
whether it will continue to
work in the investors favour.
Despite the extra cost of

the hedge the TER remains
extremely competitive at 0.64%,
due in part to the return from
securities lending of 0.02%. The
charges are further minimised
by using sampling rather than
full replication with the rebalancing of the index taking
place on a quarterly basis.
Exchange rates are
notoriously difficult to forecast,
so it is hard to know whether it
is sensible to use a hedged ETF
given the extent to which the
yen has already depreciated.
If you dont think it advisable
there is an unhedged version
available with the code IJPN.
Since the end of July 2012 this
is up less than 50% compared
to the 130% achieved by
its hedged equivalent, but
it is possible that situation
could reverse in the future,
especially as the governor of
the Bank of Japan has said
that it is unlikely that the
currency will fall further.
19
03/08/2015 10:16
G U E S T F E AT U R E
July/August 2015
Mind the Gap

Todays platforms need to include direct-to-consumer
offerings, says Defaqtos Gill Cardy
As Im sure readers will

know, Defaqto is an
independent financial
research company,
specialising in collecting,
researching and sharing
financial product
information. What may
be less well known,
though, is that we collect
information on all financial
products available to
retail consumers.
20
Guest Feature - Defaqto.indd 20
This means that the data

we collect is not just about
propositions which are available
through insurance brokers,
mortgage brokers and financial
advisers. It means that our
process includes products
which are solely available
direct to the consumer. Defaqto
currently monitors data on 65
propositions from 46 providers,
of which 27 propositions are
direct to consumer offerings.
What is also interesting

is that, when we consider
other product types which
are only available in the
direct-to-consumer market,
there tends to be a marked
difference in the quality
of the product. Products
designed for distribution by
intermediaries typically offer
more features, or features
with more comprehensive
definitions. Yet, when we
IFAmagazine.com
03/08/2015 10:24
July/August 2015
the total net sales, 55% came

from retail advised channels
and 20% came from direct
to consumer channels.
But this market
information needs to be
considered in the light of
trends in the adviser space.
n There are around 9,300
firms authorised as
Appointed Representatives
of networks or other
associations, and
around 5,200 directly
authorised firms.
n The number of advisers
working within financial
adviser firms is currently
reported at around
23,600 whilst the number
based on professional
standards data (including
bank, building society,
and wealth manager
investment advisers)
totals 41,500.
look at platform propositions,

the difference in the breadth
and depth of the proposition
does not vary according to
the distribution channel.
Development of Todays
Platform Market
Historically - and you
wouldnt need the memory
of an elephant to trace the
development of the platform
market - advisers first
accessed fund supermarkets
which offered access to a
wide variety of unit trusts
and open ended investment
companies (OEICS).
Increasingly, wraps were
then brought to market which
offered access to a significantly
greater variety of tax wrappers
and investment products.
And today, assets on platform
continue to increase - by a
massive 17% in 2014. And of
IFAmagazine.com
That represents a drop in

the total number of advisers
of around 25% over the last
five years, and a 12% drop
in the number of advisers
working in adviser firms.
Yet average revenues per
firm and per adviser have
increased dramatically over
the last 5 years - up by 53%
and 70% respectively.
Orphaned Clients?
Some more facts. Around 70%
of product sales are currently
attributed to pensions, 10%
to annuities and drawdown,
9% to bonds and 7% to ISAs,
OEICS and investment trusts.
And the vast majority of these
are facilitated on platforms.
Now, while many
advisers publish profiles on
adviser finder sites hinting
at minimum investible
assets in excess of 250,000,
research published by Fidelity
Worldwide Investment showed
an appetite for advising clients
with considerably lower
levels of investible assets.
24% of the respondents
told Fidelity that they would
advise clients with 50,000
- 74,999, while just 1 in 10
were prepared to advise clients
on sums between 5,000

and 24,999 (which is, after
all, two ISA allowances).
Equally, there has been
increasing discussion around
the availability of advice, client
capacity to pay fees for ad
hoc or initial advice, and the
advice gap. Indeed, the level
of provider contact in the early
days of pension reforms advice
does suggest a large number
of clients who - rightly or
wrongly - are seeking to make
their own financial decisions,
without access to an adviser.
Confusingly, personal
investment firms report that
only around 50% of their
business is advised - the
balance being categorised as
non-advised, a market statistic
which may interest the
regulator and which puts the
issue of advised or non-advised,
intermediary focused or directto-consumer front and centre of
any discussion about achieving
good consumer outcomes.
What is clear to any
industry observer is that
consumers with assets
on adviser platforms are
increasingly likely to be
orphaned. In addition, as
the popularity of corporate
platforms designed to
facilitate auto-enrolment
alongside ISA investing
increases, more and more
clients will find themselves
investing on platforms and
forced to make potentially
complex and life-changing
financial decisions without
access to personal advice.
A Seismic Shift
So, we at Defaqto see a number
of trends developing which
on their own may not be very
significant, but which taken
together could represent a
seismic shift in the dynamics
of the platform market.
More statistics. A report by
Cass Business School indicates
that 94% of adviser firms will
use at least one platform, with
27% using a primary platform
and 69% using a number
of different platforms.
21
03/08/2015 10:25
July/August 2015
But would advisers ever

include a direct-to-consumer
brand in their advice
proposition? Just because a
client does not meet the usual
wealth segmentation criteria
does not mean that they either
dont need advice, or would not
pay for it if they needed it.
Furthermore, if clients
are paying fees for advice,
why does it actually matter if
the recommended and most
suitable solution is a brand
traditionally associated with
a direct-to-consumer offering,
or a white-labelled product, or
the direct-to-consumer version
of an adviser proposition?
Cost Considerations
So the introduction of a
number of direct to consumer
offerings, including some from
brand names better known in
the adviser space, suggests a
greater willingness amongst
product providers to deliver
solutions to consumers who
either wish to make their
own investment decisions,
or who find themselves
without an adviser.
The Cass Business School
Research also indicated that
functionality is typically the
most important selection
feature for users (46%) with
only 20% of advisers ranking
cost as the most important
factor in choosing a platform.
Costs are not, and
are unlikely to ever be
the primary driver in the
platform recommendation
- especially in the adviser
space, where breadth and
depth of comprehensive
solutions are considerably
more highly prized. Yet cost
can sometimes be correlated
with the comprehensiveness
of a proposition.
22
Two Levels?
So, rather than simply
observing market distinctions
in terms of distribution
channel, we can identify
a distinction between two
levels of service offering:
a full, open architecture
platform and one with a more
restricted range of services
and investment options.
Defaqtos own Platform
Service Review published in
December 2014 revealed that
adviser firms, on average, are
using 2.6 platforms, and that
30% of firms changed at least
one of their platforms in the
12 months prior to the survey.
Conclusion
Platform use was, and
remains, a key question
for advisers who still seem
to struggle with how to
incorporate a limited number
of platforms which deliver
administrative efficiencies
to their clients and to
their businesses, with the
comprehensive and fair
analysis requirements for
demonstrating Independence.
Equally, delivering
suitable platform strategies
at a fair cost to clients who
are likely to be investing
without advice, for whatever
reason, at a number of
points in accumulation or
decumulation, may need
advisers to develop a solution
which accommodates
this varied journey.
Assuming that clients
are always advised and
never need or want a directto-provider approach could
just be the assumption
that truly does make an
ass of you and me.
IFAmagazine.com
03/08/2015 10:25
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03/08/2015 10:25
July/August 2015
24
IFA View - Barings Asset.indd 24
I FA V I E W
IFAmagazine.com
03/08/2015 10:27
July/August 2015
Still a Powerhouse
Neil Martin interviews
HyungJin Lee, Head of
Asian Equities at Baring
Asset Management,
about the prospects
for a regional market
thats been rattling
nerves recently
Its good to report that the

Chinese investment scene
is making a comeback
after six weeks of price
uncertainty that rattled the
bars of the international
markets in no uncertain
fashion. Two precarious
weeks in June and early
July briefly knocked almost
a third off the Shanghai
stock exchange, as sudden
uncertainties about the
economic re-orientation
and the recent crackdown
on local authority spending
created a frisson of sudden
fear among an international
public that had only recently
been allowed access to it.
So it was a relief to see the
Shanghai Composite staging
a 15% comeback during the
middle two weeks of July.
And what better time to catch
HyungJin Lee, the manager of
the Baring Asia Growth Fund
and the Baring Korea Trust,
during a quick visit to London?
Lee doesnt seem too fazed
by the recent gyrations. Yes, he
agrees, its generally true that
Chinas economic growth has
been slowing down over the last
few years. China used to grow
at around 10% - not so long ago.
But obviously, the scale of the
economy is such that it cant
continue to grow at that pace.
IFAmagazine.com
And actually it doesnt

probably want to grow at
that pace, because growing
at that pace likely will create
more stress on the economic
and social systems than is
necessary. We think that the
Chinese economy will slow a
bit more - but thats probably
a good thing in order to have a
more balanced growth profile.
But its important to
remember, he says, that China
is only one constituent of a
much wider Asian region,
some of which have what
Barings regards as even better
investment opportunities.
The backdrop here consists
of three fundamental trends
which are fuelling growth: rising
consumption, positive political
and market reforms, and the
strength of the technology sector.
In the long term - and
we are very much focused on
the long term - we still like
the faster-growing economies
in South East Asia, as well
as India - and actually,
even in markets where the
economy is not growing as
quickly, such as Taiwan,
or Korea, were still finding
exciting places to invest in.
Attractive Valuations
The really good thing, tough,
is that despite all these
positive factors the region is
not currently being priced at
a premium rather, he says,
its roughly one standard
deviation below the historical
norms. This, says Barings, is
lower than it has been for years
and indicates an attractive
opportunity for investors.
Rising Asian consumption,
driven by supportive
demographics across the region,
is a key theme that underpins
many of the companies we favour
in the Baring Eastern Trust. As
Asian consumers spend more on
travel and leisure, as well as on

cosmetics and healthcare, were
find companies with attractive
valuations and good execution
potential that are benefiting
from these growing markets.
Lets look at travel and
leisure. As an example of
the recent Chinese thirst for
travel, Lee cites one company
which took 6,400 of its 12,000
employees for a 20th anniversary
bash: four days in France!
The bookings for this trip
alone included 4,700 hotel
rooms, 7,500 high-speed tickets
and 146 tour buses. The Chinese
visitors spent around 33
million in Paris and the south
of France, and that didnt even
include shopping. The upmarket
department store Galeries
Lafayette closed its doors to
all other shoppers for a whole
morning to cater for them.
Perhaps unsurprisingly, French
Foreign Minister Laurent Fabius
was on hand to greet them.
As the economy matures
and incomes rise, he says,
the average Chinese is able
to go on overseas trips for the
first time. But not all of the
Chinese tourism market is
so far-flung. When Chinese
tourists select their own holiday
destinations, Lee says, we find
that Thailand is one of the
top destinations at present.
I mean, when youre going
overseas for the first time,
youre probably not going to go
to Rio de Janeiro. Instead you
tend to stay close to home - first
going to Hong Kong, which is
an easy one - and then a little
further away to countries like
Korea, Taiwan, or Japan. And
once you are more comfortable
with that, and you are looking
at more places in South East
Asia - and especially Thailand,
one of the more developed tourist
destinations in the region.
25
03/08/2015 10:27
July/August 2015
I FA V I E W
Kong listed stocks. Generally, the

opening up of Chinese financial
markets to the outside has
been done in a very controlled
and measured fashion.
A Favourable View
Barings is well aware that
events in the Asian region are
being closely followed by the
UK investment community.
The companys own research
indicates that 82% of IFAs in the
second quarter of 2015 said they
were favourable towards Asian
equities - an increase of 23%
since the first quarter of 2015.
With his series of meetings
and presentations over in the City
of London, Lee was off to catch a
flight to Hong Kong and his home
base, no doubt keen to get back
in the middle of what he regards
as one of the most dynamic and
exciting regions in the world.
Technology
And then theres the technology
angle. The potential of
technology has been a longterm theme across Asian
markets in general, he says,
but this time the companies
are global brands and the
opportunities are larger. Recent
falls in commodity prices have
allowed Asian manufacturers
in some industries to benefit
from improved profit margins.
Add to this the effect of
structural change in the
region, and we think the
outlook for earnings growth
for companies is favourable particularly when compared
with emerging market peers.
Regarding technology,
the focus is on key technology
subsectors on the next wave of
growth; globally competitive
manufacturers; the global brand
footprint and the rise of the
Asian brand; and, productivity
gains and industrial automation.
Specifically, its the rise of
Web 3.0 and Big Data which
is proving of most interest.
Lee is aware of Big Datas
potential: Data consumption
on the internet is growing
exponentially, so we are invested
26
in companies which will benefit

in the creation and consumption
of data. For example, everyone
uploads pictures of their lunch, I
dont know why, and the people
are watching YouTube on the
train. All this consumes a lot of
data and it all has to be stored,
transmitted, and then filtered.
And then theres the
associated potential for structural
development: infrastructure,
financial and SOE reforms,
and of course, environmental
development and clean energy.
There is still a huge amount
of infrastructure needed says Lee.
Especially in economies such
as India and Indonesia, theres
a shortage of basic roads, ports,
railways and so forth - and certain
companies will benefit from
the increased spending of their
governments on infrastructure.
Lee also reminds us of the
growing opening-up of financial
markets in the region. The new
Hong Kong Shanghai Connect
programme is a route for foreign
investors to buy domestically
listed shares on the Shanghai
index - very measured, and with
daily quotations. And of course,
conversely, it allows domestic
Chinese investors to buy Hong
A Thirty Year History

The Baring Eastern Trust
was first launched back
in 1985 and sets out to
investing in economic
sectors in Asia and
the Pacific, excluding
Japan, through securities
in any country.
It currently has
around 50 holdings
and the top ten (which
account for just over
40% of the portfolio)
are AIA Group, Baring
China A-Share Fund
plc, Largan Precision,
Tencent, Baring India
Fund, China State
Construction, Huaneng
Renewables, SK Hynix,
Ping An Insurance and
PAX Global Technology.
As of 17 July 2015,
the fund was up
18.5% year-on-year.
IFAmagazine.com
03/08/2015 10:27
03/08/2015 10:27
July/August 2015
I FA V I E W
A Perfect
Swing
Neil Martintalks to
Michael Beveridge,
Head of UK Wholesale
Sales at Standard
Life Investments, who
sees a lot of positives
in a busy sector.
When your employer

sponsors one of the key
competitions in a sport you
love, then, says Michael
Beveridge, Head of UK
Wholesale Sales at Standard
Life Investments, it can be
absolutely fantastic.
More shortly on how
Beveridge keeps busy during
his hours out of the office.
But first, as he told IFA
Magazine, he believes the
28
IFA View - Standard Life.indd 28
IFA sector to be in rude

health - especially when you
consider that there used to
be so much speculation about
adviser numbers after RDR.
Recent statistics have shown
that the number of regulated
financial advice firms is up
5.9 % since December 2011.
Its really robust at the
moment, he told us. There
are more directly authorised
firms, and there is definitely
a trend in the regions for a

lot of M & A. Some of the
regional firms are getting
pretty strong, to be honest.
Maybe thats just
where we are in the cycle at
the moment. But there are
definitely challenges. Firms
have to deal with the new
regulatory framework and
getting new people through
the system, of course. And all
thats before we get to the new
IFAmagazine.com
03/08/2015 10:28
July/August 2015
called Intuition. Essentially

whether you are studying for
CFA, or its your first day in
the industry, there are online
generic investment modules
that people can access 24/7.
Learning Gateway,
originally launched in June
2011, is what Beveridge
describes as a dedicated,
content-rich, online training
resource which operates
as a solutions-based
educational portal, aimed
at helping intermediaries to
maintain the professional
standards requirements of
the day. The point, he says,
is that advisers can use it to
access up-to-date training
thats free of charge and
which will be relevant to
their role but still flexible
enough to fit around
their busy schedules.
Statistics show that
there are about 5,500 people
have who signed up to join
so far, says Beveridge.
We complete around 1,700
modules a year - they take
about half an hour to do,
and there is testing at the
end of it, so its a structured
CPD. Were aiming to help
the next generation of
people, obviously, but also
to work with those who have
been in the industry for
longer, to keep their skills
relevant and up to date.
A Wider Remit
pension freedom rules, which

Beveridge considers have been
a real stimulant to the industry
The Learning Gateway
Thats where Standard Life
Investments training and
skills upgrading programme
comes in, he says. We offer
asset class training via an
online CPD solution called
Learning Gateway which
we partner with a company
IFAmagazine.com
But all this, he says, is just

a part of the Standard Life
Investments campaign to
attract IFAs and add value to
their businesses. This includes
a team in Edinburgh which
builds CRM systems and
teaches the dos and donts
of using such systems.
As for communicating with
IFAs, Beveridges team is proactive in getting themselves
out there amongst the advisers.
Beveridge the group has a
20-strong force of regional
sales teams who offer support
and organise industry events,
which he says are always
very popular. And then we
have an organised conference
call schedule with key fund

managers and key thinkers
throughout the business.
Standard Life
Investments also organises
paraplanner events which
try to provide generic help
in terms of investments and
educational training.
The Pensions Challenge
Although Beveridge believes
that the outlook for the sector
is bright, he admits there are
a number of key challenges,
and one of those is the new
pension changes. The problem
is having the right number of
advisers to cope with the new
changes, he says - something
thats proving tricky. And
another other worry, on the
regulatory side, is a lot of angst
about the FSCS levy which is
proving tough to deal with.
Beveridge does not see
the rise in pension interest
as a blip. I think in the UK
theres around 700 billion in
DC plans and 1.4 trillion in
DBs. So much is dependent on
how things go, and on whether
the government might change
the rules - but if people were to
move their assets from DBs to
DCs, thered be a huge market
that needs to be supported
with ongoing advice. I know
that some people talk about
using online advice, but if
youre making a decision like
that you really do want to
have face to face advice from a
chartered financial planner.
That Golfing Connection
Beveridge has spent his entire
career at the Standard Life
Group and joined the main
business after graduating
from University in 1994. He
moved across to Standard
Life Investments in 2000.
People forget that Standard
Life Investments only started
as a standalone entity in
1998 and its been a great
journey from where it was
then to the global business it
is now. Its tremendous to be
a part of it, a real privilege.
When not commuting
between the headquarters in
29
03/08/2015 10:28
July/August 2015
Edinburgh and the groups

office in London (hes usually
in London between two to
three times a week), and when
not helping out with his three
children, Beveridge tries to
play as much golf as possible. A
useful attribute, given that in
February 2013, Standard Life
Investments became the firstever Worldwide Partner for the
Ryder Cup. A ground-breaking
30
I FA V I E W
agreement with the Ryder Cup

Europe and the PGA of America
meant that the global asset
management company became
a Worldwide Partner to both
the 2014 and 2016 Ryder Cups.
The reasoning behind the
choice of the Ryder Cup was
clear, explains Beveridge:
The whole firm is incredibly
proud of it and it fits with
our ethos within the firm a

leading global asset manager
with strong performance and
a distinctive team cultureBut
I guess the thing that makes
me really think that is that
it is broadcast to around 544
million homes around the
world. The actual reach is
phenomenal - which is of course
a great boon for us all.
IFAmagazine.com
03/08/2015 10:29
ADVERTORIAL
Peter Georgi of Halo Films talks about why

IFAs needs an About Us Video
The About Us page is the second most important page on your
website only behind the home page. This is your one chance
to talk about yourself, and not about your customers. This is the
opportunity they give you to impress them. Your About Us is
your audition - Seems self-evident to make it quality, right?
1 Make your Branding Message
Who are you? What do you do? Clients want to have a
deeper understanding of the people who they will be
dealing with if they select your company. And remember, its
also a chance for you to talk about areas of speciality and
identify who your ideal client is this can be a good way of
weeding out the unsuitable clients at an early stage.
2 For Potential Employees
When people hear about your companys job openings, they will
almost assuredly visit your website and check out your About Us
page. Having a video that prospective applicants can watch is a
great idea. They can get a feel for who you are and who you serve.
They should also gain a greater understanding of your values and
your mission. Its also a great idea to include your staff in the video
so that the job seekers get a feel for your companys diversity and
the attitude and demographics of the people working there.
Prospective clients and job seekers should also learn the history of
the company. Through all of this subtle information, the applicant finds
out whether they might be a good fit for your company and whether
your company is a good fit for them. Todays employers realize the
value of recruiting someone who feels at home and will stay. The
About Us video is another tool for engaging prospects and helping to
reduce the wasted time of interviewing someone who really wouldnt
be a good fit and doesnt realize it until they show up at your office.
3 For Current Employees

Having an About Us page isnt just about new employees.
Its to help focus and align your current ones as well. A good
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With thanks to Kirstie of WarroomInc.com
For more information on how we can help with

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You can also view examples of our work at: www.halofilms.co.uk
03/08/2015 10:29
July/August 2015
E X I T S T R AT E G Y
Looking for
the Door
Marked Exit
Choosing the right exit
strategy is probably the
biggest decision an IFA
will ever have to make.
In the third of our series,
Neil Martin talks to Andy
Cowan, Head of Private
Client at Towry Limited
Having just acquired

Ashcourt Rowan, its fair to
say that Towry has had its
hands full of late. Thats not
to say that Andy Cowan, who
looks after acquiring IFAs for
Towry, has closed the door
to new advisers, or to firms.
But for the next few months
at least, he thinks that what
Towry is after are individuals
with businesses which would
be really easy to integrate
into the Towry model. Cowan
cites one example recently of
a one-man-band IFA who was
able to walk right into the
Glasgow office and, because he
was such a good fit, effectively
started work from day one.
So whats a small business?
I mean anything from one
guy to maybe 20 advisers.
Anything in that spectrum we
would see as a relatively small
firm - and we are potentially
interested actually in all of
them, and really interested
where there is the right talent.
32
Exit Strategy - Towry.indd 32
The Consolidation Imperative

What Cowan notices is that,
without question, even small
firms are favouring operating
on a larger scale these days.
And they welcome the chance
to drive down costs through
greater efficiencies. Add to
that the recent changes in
technology, and he thinks
we have a dramatically
changing environment
for the smaller firms.
Those small firms who are
not thinking about selling their
entire businesses, says Cowan,
may have a different plan in
mind: They are looking at
outsourcing more of what they
do - so that could be investment
platforms or investment
management services, or CRM
systems, or even compliance.
How can they manage the
transition? They could join a
network of advisers, of course
- maybe not quite as popular
now - but with the idea being
to pool resources, but to also
maintain a profile of their own
business above the door.
Another option for firms,
says Cowan, is to consider
using a consolidator, which
has the attraction of having
a greater degree of central
control and support but
still allows them their own
identity within a franchise.
A Different Approach
Towrys approach and
sales pitch for those firms
joining the fold is different.
Our vision is to be a scaled
national brand, he says,
where consistency is a really

important part of that brand.
Our argument to small
firms is that if you join us either
as a practitioner with a long
term career ahead of you, or
even as someone who might
only be looking for a couple of
years to reallocate his client
book and then retire off into
the sunset, or whatever, we are
a really good place to be. And
heres why: we have a huge
amount of central support.
Before the Ashcourt
Rowan deal we had about 180
advisers, but now its about 240.
And we also have around 70
paraplanners who write reports
for advisers, and about 90
client service administrators.
The objective for Towry
is to get the IFA spending as
much time with his clients
as possible, and not to get
tied down in the back-end
administrative processes.
Does Towry insist that
the IFA stays around after
the deal? Not exclusively so,
says Cowan. But generally its
true, and the reason its true is
because of the huge importance
and value that we place on the
[existing] relationship between
the adviser and their clients.
Towry are happy to welcome
a wide range of advisers, as long
as the clients are put first in
any deal. An adviser who might
be into his late 50s, early 60s,
might want to stick around on
a really good package, with the
knowledge that theres a good
career here for the next couple
of years, and simply talk to his
IFAmagazine.com
03/08/2015 10:30
July/August 2015
clients. Then gradually we will

involve other longer standing
advisers, so as to securely
integrate the client into Towry.
Then again, admits Cowan,
they also had an adviser who
just wanted to hand over his
clients and, because they
were a good fit, Towry did
the deal. The adviser got
his cheque and withdrew.
Whats the Business Worth?
As for what Towry is prepared
to pay, it all does depend
on the individual involved,
the client list - and of course
whether the adviser is looking
to build a career, oversee a
lengthy transition, or head
off for the beach. In the case
of the latter, payment would
usually be spread over a
number of years and still
involves a detailed transition.
Cowan is clear on what
Towry is prepared to offer. It
really is bespoke, we dont have a
formulaic approach to this. What
were really asking is, what is
the value of this business to
Towry? Its not a question of the
intrinsic value, nor the market
value, nor the floating value.
Where there are

great synergies around the
propositions and methodology,
etcetera, there might be huge
value to Towry - in which
case we would be prepared
to pay more than what
would be deemed the market
price. And other occasions
where there is less value to
Towry and wed pay less.
What sorts of formulas
are applied? It can vary from
2% to 3% of assets under
influence, he says, or it might
be five or six times the profit
number. Or three to four
times the turnover figure.
Unsurprisingly, Cowan says,
they always think that they are
worth an awful lot more. But
we explain the rationale behind
the pricing, and in some cases
we do pay very well if the book
of clients looks very similar
to our kind of sweet spot.
And that sweet spot, says
Cowan, is where they find that
they are able to deliver most
value to the new clients.
As for the client profile,
Towry looks for middle
market clients which
are not those with less than
100,000 investable assets,

but probably with between
250,000 and 1m.
The Current Situation
Asked whether Cowan thinks
the market for selling, or
retiring IFAs is competitive
at the moment, he gives an
honest answer. Im not really
sure thats true. I know that
businesses are very often quite
attractive, but how many firms,
without blowing our trumpet
too much, are in our position?
We are a pretty strong firm,
with a pretty strong balance
sheet, plenty of cash, very
profitable, and we can pay
well for these businesses.
How many other firms are in
that fortunate position?
Our younger advisers have
a great career path, and the
framework to support them. We
are a very attractive proposition,
we are keen to grow, and know
that its all about people.
Just because there are
issues in the sector and people
are struggling with regulation
and other issues, it doesnt
mean to say that its not
brimming with talent.
Towry IFA Retirement Offer At a Glance

n Towry are quite particular about who they are looking for
n Can handle very large firms as well one-man-band deals
n Vision is to be a national brand with a
comprehensive proposition
n IFAs are preferred who can seek a career path within Towry,
or at least facilitate a smooth client transition into Towry
n Towry needs to see synergy with advisers clients
n We are very happy to talk with businesses
where we recognise a strong cultural fit.
For more info or for a confidential introduction to Towry, please email hr@ifamagazine.com
or speak to our Publishing Director on 07974 708771
IFAmagazine.com
Exit Strategy - Towry.indd 33
33
03/08/2015 10:30
Compatibility: Requires IOS 6.0 or later. Compatible with iPhone, iPad, and iPod touch. This app is optimized for iPhone 5. Available on Android.
Aviva
Investment
Doctor.indd
34
IFA Magazine
App.indd
1
Twenty Four Seven

IFA Magazine, Britains premier online
portal and print publication for
financial advisers, has launched its ver y
own app designed to help you stay
up to date with all the latest financial
and economic news as it happens.
Main
Features:
Reviews
Features
Funds
Market and Economics
Trading Expert
FCA
Compliance
Jobs
03/08/2015
21/11/2014 10:31
09:43
INVESTMENT DOCTOR
July/August 2015
Cyclically Speaking
We take a closer look at a different way of assessing price/earnings ratios
IFAmagazine.com
09:43
Aviva Investment Doctor.indd 35
And heres the surprise. Although

its absolutely true that the CAPE
on the S&P is pretty high, thats
simply the level its been at for
most of the last five years. While
the headline S&P index itself has
Whats the reality? Well try

not to sway your mind unfairly
either way, because like we
say there are two camps. But
if weve whetted your appetite,
do take a closer look.
Shiller PE Ratio Value 2005-2015
Source: Robert Shiller
30
25
20
15
10
Jul
Feb
Dec
Oct
May
Mar
Aug
Jun
Jan
Apr
Nov
Sep
Jul
Feb
Dec
Oct
May
Mar
Aug
Jun
Jan
5
Apr
Strictly speaking, CAPE

wasnt entirely Prof Shillers
idea. Some 75 years ago, Ben
Graham and David Dodd
were bemoaning the fact that
The Awkward Truth
But the sceptics insist that

the jury is out. They agree that
CAPE did a marvellous job of
warning in 1999 that the markets
were set for a terrible fall and
that the rally of 2001 would end
in tears. But, they say, it has
twice failed to tell us notably
in early 2011 that stocks were
cheap and that a major upgrade
of equity markets was on the
cards. The enormous bull market
since then has been something of
an embarrassment. The failure,
they say, was due to other
short-term factors like inventory
cycles getting in the way.
Nov
And, according to the

CAPE fans, the headline ratio
for the S&P 500 in mid-July
was heading for 28, which they
reckon is the stuff of bubbles.
Especially since the long term
CAPE average is closer to 16.5.
What does this tell us? On

the face of it, that there is no
runaway bubble happening
here. Wed have more cause to
be worried if the CAPE were
heading for the startling 44 that
it hit during the dotcom boom of
the late 1990s to be followed,
in due ignominious turn, by the
stone-cold bottom of 14 that it hit
in 2006. (Illustrated in our chart.)
Shillers refinement established

the 10 year yardstick for
comparisons, although youre
always welcome to apply different
terms for your own averages, or
course. There are no shortages
of rival calculations, but Shillers
own downloadable spreadsheet at
www.econ.yale.edu/~shiller/
data/ie_data.xls gives his own
fascinating view of how the
US market has behaved since
1880, while http://tinyurl.com/
omw6463 offers an illuminating
view of the near term, also using
Shillers own data.
Sep
So what do they mean

by a real average? In most
cases theyre referring to a
10 year average of inflationadjusted price/earnings ratios,
according to a formula originally
calculated by Professor Robert
Shiller of Yale University back
in the 1980s. By eliminating
the distorting effects of shortterm factors such as inflation,
the advocates say, the CAPE
calculation can give us a clearer
picture of whats really going on.
been rising inexorably, its TTM

p/e has rarely been more than 7
points short of the CAPE during
the whole of that period. Indeed,
if anything the gap between the
two appears to be narrowing
slightly at the moment.
The Figures
Jul
Every other popular indicator

you can name trailing p/es,
forward p/es, even dividend
yields is currently telling us
that shares are fairly valued in
mid-July, the trailing twelve
months (TTM) p/e on the S&P
500 index was running at 20.8,
which was above its historical
mean of 17, but not high enough
to denote a bubble. But the
CAPE boys are insistent that
the stock market recovery has
gone quite far enough, thank
you, and that the real level
of share prices in relation to
corporate earnings is 70% higher
than its long-term average.
conventional trailing p/es could

be kicked about quite mercilessly
by the changing fortunes of the
business cycle for instance,
because a market emerging from
a period of low profit would throw
unnaturally large p/es at us,
while a market entering recession
might sustain attractively low
p/es for much longer than was
sensible. Dodd and Graham
proposed that, instead of focusing
on the last years profits, we
should improve the calculations
by building in a five or ten year
average of prices and earnings.
Feb
Lets get this straight.

Cyclically Adjusted Price/
Earnings Ratios (CAPE)
are a Marmite thing. Either
you think theyre the most
reliable indicator in the
stock market, or else theyre
the work of the very devil,
and fit only for fools.
35
03/08/2015 10:31
July/August 2015
The Crackdown
Continues
Compliance officers accountability is being rigorously enforced, says
compliance consultant Lee Werrell. But it isnt all bad news
Recent regulatory
investigations within
the financial arena have
generated headlines on a
global scale - along with
fines measured in billions
of dollars. Worldwide, and
particularly in benchmark
investigations, we have seen
an expanding directory
of individuals in various
jurisdictions now facing
criminal prosecution.
The powers of holding
individuals accountable have
been in existence in FSMA
since implementation, and also
in its predecessors legislation.
Increasingly, however, the FCA
- following the FSA as part of
its credible deterrence strategy
- has exhibited a passionate
desire for continuing taking
action against individuals. This
has generated action against
individuals who were actively
working in the investigated
area of wrongdoing, with
such individuals holding
full or delegated CF10
responsibility. Obvious since
2008 is the development of
increased focus on compliance
officers who are being held
accountable for failings
within their oversight role.
SMR 2016
The incoming Senior Managers
Regime (SMR) from March
2016 brings finer delineation
of the responsibilities of Senior
Managers. Now may be the
opportunity to consider features
of the decisions regarding those
36
Compliance Doctor.indd 36
not just with CF10 oversight but

also delegated responsibility.
There are lessons from recent
events that suggest best practice
for compliance officers when
confronted with increased
scrutiny of their actions.
Although the SMR is
affecting Solvency II Firms
(Banks & Insurers), it is also
applying to small firms (Credit
Unions and smaller Building
Societies) and there will
undoubtedly be a cascading and
reflection of expectation to the
present Controlled Functions in
non-solvency II firms over time.
The SMR has produced
criticism from various quarters
regarding the controversial
presumption of responsibility,
whereby compliance officers are
considered guilty of misconduct
unless they are able to present
to the FCA that they took
reasonable steps in order to
avoid the relevant breach.
However, one potential
benefit for those with
CF10 compliance oversight
responsibility (in its new
SMF16 form) will be the
greater clarity in respect of
the responsibilities of that
role, both with the statement
of responsibilities and, as
regards those of other Senior
Managers, with the mapping of
responsibilities that the FCA
is to require. This should go
some way to delineating more
clearly the nature and extent
of the compliance oversight
role - and how that plays out
in practice, only time will tell.

Individual Accountability
With the recent wave of global
investigations for rate fixing,
there have been vocal media and
political calls for individuals
accountability. Clearly, the focus
on individual accountability
has been identified as a key
priority by the FCA in its
Business Plan 2015/2016, in
which it stated:... We must
ensure that senior individuals
in positions of responsibility are
held personally accountable for
how their firm operates, and for
the consequences of misconduct.
This resonates with the Fair and
Effective Markets Review issued
in June 2015 by HMT, the BOE
and FCA, with a key principal
recommendation being to raise
standards, professionalism and
accountability of individuals.
Commensurate with such
individual accountability is
the so-called moral dimension,
described by Tracey McDermott
(Director of Enforcement and
Financial Crime at the FCA)
in the following terms: ... Our
focus is on how we, and you,
ensure that your firm does the
right thing if not every time
then almost every time not
because the rules say you should
but because that is the way
things get done around here.
It is unsurprising, given
the above context, that
compliance officers find
themselves the subject of
greater individual attention.
IFAmagazine.com
03/08/2015 10:32
COMPLIANCE DOCTOR
The figures for cases against

CF10 authorised individuals
clearly reveal a trend. The
old FSA issued only 12 Final
Notices In the period 2005-2009
(inclusive) in relation to persons
who held CF10 responsibilities,
but it increased to 48 during the
2010-2014 period and six during
the first half of 2015 alone.
In some of the Final Notices,
the CF10 responsibility was
ancillary to the principal
breaches by the individual. Even
so, this demonstrates a clear
trend towards the regulators
focusing on compliance officers
when problems have been
discovered within a firm.
The Evidence
Within these Final Notices,
there are common themes
that you can draw guidance
on the areas of interest to the
regulators. Some will be more
obvious than others but all bear
some review. From here you
can glean approaches to ensure
that you do not fall foul of the
regulators increased scrutiny.
EVIDENCE 1:
Appropriate Expertise
Critical to success is to have
expertise in both the broad
and narrow areas in which the
CF10 authorised individual
operates, and to understand
the entire legal and regulatory
footprint of the business
of the regulated entity.
The regulators naturally
expect compliance officers to
have expertise in the area in
which their firm operates and
also in respect of the products
which the firm provides.
One recent example
concerned ignorance of the
IFAmagazine.com
statutory and regulatory

restrictions on the promotions
of UCIS to retail customers,
to the standards required
for CF10. The fact that the
compliance officer in that
particular case had reported
his inadequate knowledge
to the board was insufficient
to exonerate him, as he was
expected to go further and to
seek the withdrawal of the
CF10 responsibility from him.
The regulators have little
tolerance of an over-reliance
on systems and controls and
a lack of such challenge. The
FSA has commented that
individuals approved to hold
the Compliance Oversight
(CF10) significant influence
function are a fundamental part
of the regulatory system and
provide front line protection
against market abuse for the
firms for which they work
and the wider market.
July/August 2015
responsibility for [the Firms]

compliance with regulatory
requirements lay with him as
the significant influence holder.
He did not take adequate steps
to ensure that [the Firms]
regulatory obligations were met
after delegating the performance
of certain tasks to others.
It is manifest that the
person with CF10 responsibility
will be expert in the compliance
area. It should be similarly
manifest that the members of
the compliance team will also be
experts in their areas. With the
recent increase in demand for
compliance resources, securing
compliance team members with
appropriate experience and
expertise will be a challenge.
In any event, having recruited
the correct people, there is then
an expectation that they will
be trained and monitored.
EVIDENCE 2:
Delegation of Compliance
Functions Within Firms
The nature and boundaries of
any internal delegation must be
clear and properly monitored.
EVIDENCE 3:
Resources and Recruitment
The individual with CF10
responsibility must ensure
that he has sufficient
time to devote to the role
and that he has adequate
resources to support him.
Delegation to junior
members of staff is
commonplace. It is inevitable
in all but the smallest of firms
that the person with CF10
responsibilities will need
to delegate some of those
responsibilities to others.
Legally, care must be taken
not to equate delegation with
transfer. Ultimate responsibility
cannot be delegated. As the FSA
commented in 2012: Although
[the compliance officer] was
entitled to delegate certain
tasks to other individuals,
Individuals need to be
able to demonstrate that they
are able to - and do - dedicate
sufficient time to compliance
matters. In one of the very
earliest cases against a
compliance officer (in respect of
his compliance responsibilities)
the FSA commented that it was
inappropriate for [the defendant]
to have sought to discharge
[the responsibilities of jointly
managing the business and the
role of compliance officer], and
it should have been obvious to
[him] that in the circumstances
37
03/08/2015 10:32
July/August 2015
[he] could not properly discharge

[his] controlled functions.
Complaining that
compliance officers do not have
adequate resources to assist
is accorded little sympathy by
regulators, particularly where
that is offered as an excuse
for failings in communication
with the regulator.
In bringing together
your team, the adequacy of
recruitment processes has
also been an area of focus
for the regulators. Simply
bringing in people to fill a role
is not sufficient; they must
be experienced and capable.
In this regard, employing an
individual to perform the role
of compliance assistant even
though he had no previous
compliance experience or
qualifications and had never
worked in the financial services
industry was an obvious failing.
EVIDENCE 4:
Outsourcing Compliance
Responsibilities
Engagement of external
consultants must be
properly managed and
relied upon prudently.
Sensibly, the regulators
acknowledge the merit in
outsourcing some compliance
work to external consultants,
and the Final Notices show
that they welcome the seeking
of external comments and
validation of internal compliance
work. However, they sound
a note of caution as well.
As the FSA noted in
2013: A regulated firm may
seek advice from a specialist
compliance consultancy on
compliance matters and may
reasonably rely on that advice.
However, as the regulated
firm remains ultimately
responsible for ensuring
requirements, the FSA does
not consider it reasonable for a
regulated firm to rely entirely
on an external consultancy
to manage its internal
compliance process without
oversight or supervision from
the regulated firm itself.
38
COMPLIANCE DOCTOR
When instructing external

advisers, the regulators have
expected to see a degree of
structure to the process, and
an organised and documented
engagement with the external
consultant. In addition, if
the regulators have been
involved (e.g. following
discussions at the supervisory
level) in the appointment
of external consultants,
they will expect to be kept
informed of developments
regarding progress in that
consultants work.
Finally, having engaged
external consultants for
advice or other roles, the
compliance team is expected
to take the recommendations
and act upon them. As the
FCA highlighted of one case
in 2015, When he did receive
compliance advice ... he did not
pay adequate regard to it.
EVIDENCE 5:
Robust Interaction and
Challenge With Management
Compliance oversight requires
robust engagement and
challenge with management
on compliance issues
regardless of resistance.
Regulators expect those
with CF10 responsibilities to
stand up to management where
standards and requirements
is at risk. In the words of
Tracey McDermott, ... your
job ... is to force the board to
ask the difficult questions
how do you positively reward
those who highlight problems,
do you take whistleblowing
seriously, do you use the wealth
of information from complaints
to drive improvements, do
you really learn from the
mishaps of your peers?
Increasingly, failure to
do so is being focused on by
the regulators and being
punished. Fear of an adverse
reaction to raising the alarm
is no excuse for not doing so.
As a practical issue, where
there is doubt as to such
challenges having been made,
evidence may be required. In
a 2012 case, the FSA relied on
the fact that Mr Lawton could

not recall any specific examples
of where he challenged any
of the Board directors during
the Relevant Period ...
EVIDENCE 6:
Co-operation with Regulators
It is critical to maintain
openness and transparency with
regulators and to implement
promised remedial actions.
The expectation of
transparency with ones
regulator has received recent
prominence in some recent
decisions. In the context of
compliance officers, the FCA
has emphasised its reliance on
them for such transparency;
Compliance Officers have a
significant influence on the
conduct of a firms affairs, and
the Authority must be able to rely
upon any confirmations received
from a Compliance Officer that
actions have been completed
and risk mitigated or resolved.
Therefore, and obviously,
where remedial actions are
requested by the regulators,
they will expect to see
demonstrable evidence of
compliance. This was
particularly so where an
undertaking had been given
to the regulator indicating
that remedial steps (following
a Final Notice in respect of
the firm) had been taken and
that the compliance officer
was satisfied of that when
that was not the case.
Given the resource
constraints which compliance
officers face, it is notable that
the regulators consider the level
of cooperation and transparency
expected from compliance
officers to be unaffected by the
circumstances of the compliance
officer and his firm. The FCA has
recently stated (in the context
of actions mandated by the FCA
following supervisory visits) that
the defendant had suggested
that he was not provided with
sufficient resource to conduct
his role as Compliance Officer
at [the Firm], that at times he
felt under pressure from senior
management to be careful
in his communications with
IFAmagazine.com
03/08/2015 10:32
COMPLIANCE DOCTOR
the Authority and that he was

not given licence to explain
issues fully to the Authority.
Nonetheless, as Compliance
Officer, Mr Wills was under a
personal regulatory requirement
to be open and cooperative
in all of his communications
with the Authority.
Conclusions
With all of the above actions,
ensure that actions taken are
recorded in files which are
maintained to demonstrate
control of the compliance
team and processes.
The trend towards

individual accountability and the
heightened regulatory scrutiny
of the work of compliance officers
is set to continue. The failings
identified by the FCA in the
increasing number of Final
Notices fit largely predictable
subjects, but the increasing
frequency with which such cases
are appearing would suggest that
there are still lessons to learn.
There is a ray of sunshine
in navigating the challenges of a
compliance officer with the FCA
suggesting a collaborative approach.
Tracey McDermott recently said:
July/August 2015
It is important to work
through the challenges
together ask us for advice,
tell us what is on your worry
list, and we will tell you
ours. Start writing!
If you need to review your
arrangements and test
their functionality, contact
an external compliance
consultancy with qualified and
experienced staff or go to
www.complianceconsultant.org
See also the listings of the latest
FCA Publications on Page 40
Regulators expect those with CF10 responsibilities to stand up

to management where compliance with regulatory standards
and requirements is at risk and failure to do so is being focused
on by the regulators and being punished. Fear of an adverse
reaction to raising the alarm is no excuse for not doing so
IFAmagazine.com
39
03/08/2015 10:32
July/August 2015
F C A P U B L I C AT I O N S
FCA Publications
OUR MONTHLY SUMMARY OF THE LATEST OFFICIAL PUBLICATIONS

Pension Wise
Recommendation Policy
Policy Statement
Ref: PS 15/17
3 July 2015
18 Pages
is detailed and is intended

to provoke an industry-wide
conversation about
the relevant issues.
Reform of the Legacy
Credit Unions Sourcebook
This Policy Statement reports

on the main issues arising from
CP15/12 (Pension Wise, April
2015) and publishes the FCAs
recommendation policy. The
initial introduction of Pension
Wise was something of an
interim affair, with many of the
finer details and regulatory
points being left until June to
be explained in more detail.
Consultation Paper
Although this policy

primarily affects the
designated guidance providers
delivering Pension Wise, it
will also be of interest to:
The PRAs proposed

responsibilities deal exclusively
with matters affecting the
financial safety and soundness
of credit unions, whereas the
FCAs proposals concern the
ways in which credit unions
conduct business. The FCA
does not envisage any
significant changes to the
existing sections of CREDS,
whereas the PRA wants to
delete CREDS in its entirety,
replacing it with a new Credit
Unions Rulebook Part.
n Consumer
representative
bodies interested
in the outcomes
of Pension Wise
n Charities and other
organisations with a
particular interest in
retirement advice
n Individual consumers
n Pension scheme
trustees, advisers
and providers.
Smarter Consumer
Communications
Discussion Paper
Ref: DP 15/5
25 June 2015
The FCA is signalling a
wish to signal its appetite
to explore opportunities
and initiate change in how
firms communicate key
information to consumers.
The discussion paper,
at http://tinyurl.com/qfrhqlt,
40
FCA Publications and IFA Calendar.indd 40
Ref: CP 15/21
24 June 2015
72 Pages
The FCA is consulting jointly
with the Prudential Regulation
Authority (PRA) on reforming
some of the rules for credit
unions, which were inherited
from the former FSA.
Consultation period ends

30 September
Developing General Insurance
Add-ons Market Study
Remedies: Value Measures
Discussion Paper
Ref: DP 15/4
24 June 2015
42 Pages
This paper marks the fourth
and final stage of the former
Financial Services Authoritys
extended study into general
insurance (GI) add-ons. The
study looked at the effect of
the add-on mechanism in
GI markets and found that
competition for add-ons is

not effective. This part of the
process examines options
for introducing a measure,
or measures, of value in
General Insurance markets.
Of interest to firms involved
in the underwriting, sale and/
or distribution of general
insurance products and
the wider financial services
industry. It will also be of
interest to consumers who buy
general insurance products.
Consumers may want to
consider what indicators of
value they might find useful.
Strengthening the Alignment
of Risk and Reward:
New Remuneration Rules
Policy Statement
Ref: PS 15/16
23 June 2015
122 Pages
The FCA and PRA released
new rules for remuneration
of banking staff, following
recommendations made by
the Parliamentary Commission
on Banking Standards (PCBS).
The FCA says that the
behaviour and culture within
banks played a major role in
the 2008-09 financial crisis
and in conduct scandals
such as PPI mis-selling and the
attempted manipulation of
LIBOR. One of the key drivers
of this was reward incentives
that drove excessive risk-taking
and poor conduct in firms
and which collectively gave
rise to significant detriment.
The new rules seek to
strengthen the alignment
between risk and reward by
introducing measures including
longer deferral periods and
clawback for all risk takers.
They are primarily directed at:
IFAmagazine.com
03/08/2015 10:39
July/August
n Banks
n Building societies
n PRA-designated
investment firms (which
are dual regulated)
n Branches of nonEEA banks or
building societies
setting of interest rates,

our concept of a bona
fide co-operative society
and our names policy.
Restrictions on the Retail
Distribution of Regulatory
Capital Instruments
Policy Statement
FCA Regulated Fees

and Levies
Ref: PS 15/14
Policy Statement
16 Pages
Ref: PS 15/15
The report looks into

whether general insurance
intermediaries and insurers
provide information to their
customers, when arranging
premium finance. The regulator
says that it was concerned
that, if firms are not meeting
the information needs of
their customers, then those
customers might not be
achieving fair outcomes when
choosing to pay in instalments
when buying insurance.
23 June 2015
67 Pages
The regulator is publishing
rules on its 2015/16 regulatory
fees and levies for the FCA,
the pensions guidance levy,
the Financial Ombudsman
Service general levy, and
the Money Advice Service.
They will also enable
the Pension Wise service,
provided by the Treasury,
to be funded in 2015/16.
12 June 2015
For further details of the

proposed fees, see CP15/14
Guaranteed Asset
Protection Insurance:
Competition Remedy
Investing in Authorised
Funds Through Nominees
Policy Statement
Consultation Paper
10 June 2015
Ref: CP 15/20
39 Pages
22 June 2015
This statement reports on

the main issues arising
from Consultation Paper
14/29 (Guaranteed Asset
Protection Insurance: a
Competition Remedy) and
publishes the final rules.
14 Pages
In this consultation, the
regulator proposes to
revoke rules and guidance
in the Conduct of Business
sourcebook that are currently
scheduled to come into
force at the end of this year.
Consultation period
ended 17 July 2015
Proposed Guidance on the
FCAs Registration Function
Under the Co-operative and
Community Benefit Societies
Act 2014
Guidance Consultation
Ref: GC 15/14
18 June 2015
67 May 2015
This draft guidance sets
out our views on the
Dates
Diary
for your
AUGUST 2015
7
European Securities and

Markets Authority (ESMA)
revised guidelines on
the Markets in Financial
Instruments Directive
(MiFID) come into force
To be superseded
by MiFID II in 2017
Ref: PS 15/13
The new rules, the FCA

says, will empower customers
when making decisions about
purchasing add-on GAP
insurance, and limit the pointof-sale advantage of add-on
distributors. The rules come into
force on 1st September 2015,
and firms will be expected
to comply from that date.
Firms distributing GAP
insurance in connection
with the sale of a motor
vehicle (add-on GAP)
will be required to:
n Provide customers with
prescribed information
to help them shop
20-24 The Ashes, Fifth Test

England v Australia
The Oval, London
SEPTEMBER 2015
4-9
IFA Consumer
Electronics Fair
Berlin, Germany
12
St Legers Day Race

Doncaster, UK
15
Parliamentary elections
in Denmark (date TBC)
27
Consultation period
ends for CP 15/21
(Reform of the Legacy
Credit Unions Sourcebook)
Continues overleaf
IFAmagazine.com
41
03/08/2015 10:39
July/August 2015
F C A P U B L I C AT I O N S
around and be more

engaged when
making decisions
about purchasing
the product.
Dates
Diary
for your
OCTOBER 2015
1
New permanent
rules under PS 15/14
(Restrictions on the Retail
Distribution of Regulatory
Capital Instruments) come
into force
5-7 Institute of Financial

Planning annual
conference
Newport, Wales
31
Tax assessment deadline

for paper forms only
n Introduce a deferral
period, which means
GAP insurance cannot
be introduced and
sold on the same day.
Proposed Changes to
Pension Transfer Rules,
Feedback on CP15/7
and Final Rules
Policy Statement
Ref: PS 15/12
8 June 2015
55 Pages
This Policy Statement also
fulfils the regulators promise
in March to overhaul the
change in the Financial
Services and Markets Act
2000 (Regulated Activities)
Order 2001 (RAO), which
make advising on the
conversion or transfer of
safeguarded pension
benefits into flexible benefits
a regulated activity
Although primarily
aimed at financial advisory
firms, pension providers
receiving transfer business
and employer sponsors of
defined benefit (DB) schemes
and employee benefit
consultancies, the statement
is also likely to be of interest
to retail consumers seeking
to transfer benefits from DB
schemes, or from pension
policies with Guaranteed
Annuity Rates (GARs),
to defined contribution
(DC) arrangements.
31
Rugby World
Cup Final
Twickenham, UK
HAVE WE FORGOTTEN ANYTHING?

Email editor@ifamagazine.com
The new rules came into

effect on 8 June 2015.
Buy-to-Let Mortgages
Implementing the
Mortgage Credit Directive
Order 2015, Feedback on
CP15/3 and Final Rules
Policy Statement
Ref: PS 15/11
5 June 2015
48 Pages
42
This Policy Statement broadly

confirms that the feedback
received to the proposals
contained in CP15/3 was
supportive of the FCAs
proposals in the light of the
Mortgage Credit Directive
Order 2015, and that the
final Handbook rules and
guidance on implementing
the Governments legislative
regime for consumer buy-tolet (CBTL) mortgages have
accordingly been prepared.
Under the new legislation,
firms wishing to lend,
administer, intermediate,
arrange or provide advisory
services in relation to CBTL
from 21 March 2016 will
need to be registered by
the FCA to do so. The FCA
aims to start accepting
applications later this summer.
Fair, Reasonable and
Non-Discriminatory Access
to Regulated Benchmarks
Consultation Paper
Ref: CP 15/18
3 June 2015
18 Pages
This Consultation Paper is
aimed primarily at benchmark
administrators but is
considered to be of interest
to financial institutions and,
ultimately, consumers too.
PS15/6, published earlier
in the year, contained the
regulators final rules for
regulating and supervising the
seven additional benchmarks
coming into regulatory scope,
following recommendations by
the Fair and Effective Markets
Review and the Treasurys
subsequent consultation on
the recommendations.
However, concerns
have persisted regarding
the unconstrained ability
of administrators to set
the prices of benchmarks,
and accordingly the FCA
has called for comments
about further amendments
and additional rules.
Consultation period ends
on 3 August 2015
IFAmagazine.com
03/08/2015 10:39
Professional Clients only

1Defined as CCC bonds directly exposed to the shale oil market
Jan14
MARKET BOOMING
for American Shale Oil
Fledgling companies continue to issue
low-rated, high-yield bonds1
Investors see benefits despite
high risk, with attractive income
opportunities on offer
The team decided

NOT TO INVEST
We felt that the level of risk did
not reflect the yield available at the time.
The team focused on other asset classes
Jan15
Oil supply increased, plummeting

sale prices and devaluing these bonds
by more than 23%
We know
WHEN TO INVEST
and when not to
Global Multi Asset Income from BlackRock

No one can predict the future, but there are ways to see several steps ahead.
With knowledge and expertise from the best of BlackRock, backed by industry
leading risk management capabilities, our team has the foresight to know
when to invest and when not to.
This strategy is now available to UK investors via the
BlackRock Global Multi Asset Income Fund
For a compelling balance between income and risk,
visit: BlackRock.co.uk/GMAI
Trusted to manage more money than any other investment firm in the world4
This material is for professional clients only and should not be relied upon by retail clients. Sources: 2. Info Energy Agency Q1 2015. 3. Barclays High Yield Oil Field Services Index 01/01/14 31/01/15,
CCC bonds fell by at least 23% (USD). 4. BlackRock as at 31/12/14, AUM based on $4.525 trillion. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial
Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded.
BlackRock is a trading name of BlackRock Investment Management (UK) Limited. 2015 BlackRock, Inc. All Rights reserved. BLACKROCK, BUILD ON BLACKROCK, are registered and unregistered
trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. Ref: RSM-0547
Cover.indd 3
03/08/2015 15:00
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Cover.indd 4
03/08/2015 15:00

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For today s discerning financial and investment professional

Seven Things The Chancellor

STILL THE PLACE TO BE

Editorial advisory board:

Latin Americas unlikely saviour

Editor: Michael Wilson

Art Director: Tony Merlini

Publishing Director: Alex Sullivan

A Busy M&A Scene

returned from the August

And to think, we didnt

it was notable how the

There are few

For authorised financial advisers only

IF YOU DONT SECURE

that the papers got.

Apologies all round for

can offset 1 million

because a pension gets

Changes in the Buy

The Dividend Raid

Yes, the decision to

The removal of the

The same as the

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presents a considerable challenge. Our Multi Asset Income Fund

guided by our proven multi asset approach. All are independently

may hold the solution:

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Job No: 49694-3

Publication: IFA Magazine

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with his tax incentives

Taxman with Teeth

Ins Date: 01.03.15

Tel: 020 7291 4700

the whole of Latin America in

compensating for the undeniable

Protest marches in dozens of cities

And secondly because

terms are up.) And in Mexico the

in the last twelve months.

soya and pigmeat products

and not just into oil, gas and

And Chinese institutions

any great enthusiasm. But how

as now. In the investment

the real consequences will be

the short term chaos and

for this latest surge will have

The Summer Budget

The election of Prime

impelled to raise its sales tax

with the money reallocated into

the percentage of the portfolio

but the manager is encouraged

Shiozumi looks for

Hedge your Bets

Currently yielding 4.03%, or 5.02% gross in a SIPP

Less volatile than the best-selling multi asset income funds*

Outperformed its comparative index over 3 and 5 years, and