Compliance Calling 7th February 2017
Written on 10/08/2018

FCA report on IFA takeovers

Firms taking over other IFAs need to read the contents carefully.
FCA was disappointed that none of the firms assessed were able to consistently show that clients' needs were suitably considered.  The FCA found that while firms looked at the commercial benefits (surprise surprise) they did not focus enough on how clients were impacted by the acquisition.  

Even where firms had considered potential disadvantages to clients and designed their practices to mitigate these, this approach was not consistent.  This all resulted, FCA tell us, in potential detriment for clients whose needs had not been appropriately considered.  The failings are really obvious - as is so often the case

  • Transferring trail without telling the client or getting new ToB signed
  • Replacing all contracts as part of the deal
  • Over use of CIPs.

But avoiding this criticism is harder than you might think.  As ever, it is all about documenting the risks in a plan, rather than just considering them over a glass of after dinner Cognac.

Key Fact:  Once again a paper from FCA without any mention of enforcement.  
FCA supervision-review-report-acquiring-clients-other-firms.pdf

Headhunter corner 
I have two excellent CVs in the north – Bolton and Manchester.
One is a former IFA who went to Singapore and is now returned, with an AFPC from the 1990’s.  And the other is a lady with three years own practice with SJP with SPS but looking for more security / clients to deal with.  Let me know if you are interested and i will forward their CV -subject to a fee of just 5% of first year’s pay if you do employ them.

Staff intranet available for Bat users

Responsible Life and Equity Release
Are doing a series of 7 events around the country to non-equity release advisers, where they may wish to either get involved in the Later Life Lending market or to refer. Their first event is in Southampton on the 28th February.  

Sale and rent back enquiry
We had an enquiry last week – person in Cardiff wants to do sale and rent back - he asked us to recommend an adviser for him.  Of course only a tiny number of advisers advise on this, and no providers provide - the market is truly dead. 
The FCA said in 2012 that following a review of the sector, the market had stopped taking on new business.
"Effectively, this means the entire SRB market is temporarily shut," it said in February 2012.
Five years on and the "temporary" appears to be permanent.  
The best is the enemy of the good.

Non Doms
The Government plans a radical shake-up of the taxation of long term UK resident non-doms from 6 April of this year. Planning opportunities exist ahead of the changes so here's your primer on the key issues, in the latest blog from Helena

QROPS list
On 2 February HMRC published its updated list of QROPS schemes.   These schemes meet the conditions to be a Recognised Overseas Pension Scheme.  The list is published twice monthly, and each one replaces the list posted before, so take great care to keep historic lists and post them on your client files.
25% of all occupational pension transfers are going to QROPS according to FCA figures.

Heard it around and about
I was lucky enough to sit next to the former compliance director for Bankers Trust (now Deutsche Bank) last week. Conversation soon drifts onto a common denominator of regulation.  (Compliance is the new C word, they say).  In many years at the bank this informant only uncovered one outright rule breach.  The ultimate irony is that it was discovered inside their own bank compliance department where one member of the compliance team was discovered to be trading from the “deal team list” – hot securities protected by inside information.

Beaufort Securities: FCA advise us that Beaufort Securities DFM has had its Discretionary Fund Management permissions withdrawn and they can no longer accept new investment funds or carry out any discretionary activity already invested into their DFM business.  If you have any client monies invested with Beaufort DFM (Formerly HB or Hoodless Brennan) then you will potentially need to contact these customers. Contact  IFAC for guidance.

Premium bonds now benefit from a £50,000 limit.

By law, all workers must be paid at least the NLW of £7.20 per hour if they are aged 25 years and over, or the NMW rate relevant to their age if they are younger. The NLW rate will increase to £7.50 per hour from 1 April 2017. According to my calculations, that err on the generous in terms of holidays etc, this amounts to £60 per day, or £13k pa.

2016 – IFA sales down, Alternative assets up
Judged by net inflows of cash to funds, last year was a shocker – and the worst since 1998. The Investment Association (IA) statistics just published show net retail sales for the year 2016 at £4.69bn, a 72% drop on 2015. stats1216-12.pdf

According to them this large drop in net retail sales over 2016 makes it the lowest of net retail sales since a least 1998. 
Where is investor’s money is going instead?
Well since the largest inflow for the year at £6bn was the “Other Asset” class, this Sherlock has one clue at least to follow up on.  

Fund managers are filling their pockets with assets held off recognised exchanges. 
The assets are things such as private equity, hedge funds, aircraft leasing, public private partnerships (eg hospital funding) junk bond type loans to private firms and EIS / VCT schemes. In general the area is free of many of the regulatory restrictions that have tightened up the regulated fund sector.

The usual controls around front running, insider dealing, conflict of interest are not relevant in this private world. FCA rules for listed securities are casually cast aside in favour of “our partners like to have “skin in the game” – heard that one before?  
The valuations of these alternative assets are, of course, clip board opinions without an open marketplace.

You could say that this is an inevitable consequence of regulation, or you could say that it is a sad story of City corruption – take your pick. Or maybe it is the new dawn.  However for IFAs, we need to pay attention to the fund assets investments, because many high performing absolute return funds (such as Ruffer) are heavily into this sector – and you wouldn’t know it from their pronouncements of being risk averse.

Defaqto Engage Research has been added to the IFAC Bat suite

Half price to IFAC members!  IFAC strongly recommend this for IFAs as a stable way of troping audit trails, Defaqto Helping advisers deliver compliant, professional and efficient advice through comprehensive research, panel support and unbiased insight.
Defaqto is renowned for the unique breadth and depth of independent product, fund and platform data - all integrated in one place. Access over 2,700 life, pension and investment products across more than 100 product types; over 60,000 share classes across more than 15,000 funds; and more than 40 platforms across 30 providers.
If you do use Defaqto you will get a report that looks like this attached word document at the end of a simple process to filter the correct product choice.

February 2017 Market Report
Extract….I continue to recommend JP Morgan Global Emerging Markets Income Fund, despite the 59.4% increase over the last twelve months…

from the IFAC team

Charlie Palmer, John Downs, Mark Ellis, Andy Smith, Alastair Frame, Dan Rey, Ken Baksh and Nick Hall.

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