Member Update 23rd November 18
Written on 23/11/2018

Quote of the Week

“A no point was the undertaking of “investment due diligence” mentioned.“ 

John Moret commenting on FCA regulation of SIPPS up to the end of 2012.  John has a ringside seat on the emerging BBB Sipp scandal, where a High Court has held that the SIPP provider had a duty to conduct due diligence on the products held inside the SIPP.

Although subject to appeal this has changed the landscape for SIPPs, that were unregulated until 2007, and accepted almost any investment into their trust on the caveat emptor principal until only the last couple of years.  The fall out will be a flight to quality for pension IFAs – which means insured schemes with big providers.  

Test question from Financial Exam in Bat

How does tapering of the annual allowance affect individuals who have adjusted income of £220,000?
a. it r educes the annual allowance to £10000
b. it wipes out the annual allowance all together
c. It is reduced by 1 pound for every 2 pound over £150,000

answer is a)- The tapering of adjusted incomes of £210,000 and over will still be left with a £10,000 annual allowance


The FCA has confirmed plans to extend access to the Financial Ombudsman Service to more SMEs. Under the ‘near-final’ rules, around 210,000 additional UK SMEs will be eligible to complain to the ombudsman service.  SMEs with an annual turnover below £6.5 million and fewer than 50 employees, or an annual balance sheet below £5 million, will now be able to refer  complaints to the ombudsman service. This measure works alongside the published proposals which will see the FOS more than double its maximum payout from its current limit of £150,000 to £350,000.

What the FOS say….
“Reputable firms have nothing to fear from an extension in the powers of the Ombudsman...”

What the industry says: â€œPercival warns FCA could be heading for failure”.

 IFAC say: 
This is likely to increase the number of HIGH COURT appeals against decisions.  It only costs £154 to appeal and firms are welcome to use IFAC

Black Rock Commodities Income Investment Trust –ISIN GB00B0N8MF98-BRCI

Oil remains one of the strongest major commodities this year and despite recent exemptions from Iranian sanctions, looks likely to stay well supported.   

The major companies themselves Royal Dutch, BP, Total, Eni,Norsk Hydro etc have been major beneficiaries of the stronger spot price and, with greater capital discipline,have rebuilt balance sheets and engaged in shareholder friendly actions whether dividend increases or share buy-backs.

One way of accessing this sector is through the Black Rock Commodities Income Investment Trust.  The object of this investment trust is to achieve an annual dividend target, (currently 4p), and over the long term, capital growth, by investing primarily in securities of companies operating in the mining and energy sector.

  • The fund predominantly invests in large quoted equities, the split between oil and mining being approximately oil, majors plus exploration/production 42%, and mining 56%, as at end September 2018.
  • Underlying major mining companies, have for the large part responded to the historic weaker trend in resource prices, maintaining balance sheet discipline and adjusting their cost bases. There have been some examples of spectacular self-help stories e.g. Glencore and Anglo-American Mining.
  • •Recent mining conferences have highlighted the need for increased use of Lithium, Cobalt, Nickel and Copper relating to Electronic Vehicles.BRCI has been building exposure to these elements over the last couple of years. For example, Glencore (5.2% of assets) is now one of the leading global suppliers of Cobalt, a vital component for rechargeable batteries.
  • Rising economic growth projections, supply constraints and a changing OPEC stance have significantly helped the prospects of the major oil companies held. Royal Dutch and BP have both recently announced good third quarter figures and both have annual dividend yields near 6%. Statoil and Total also confirmed the more favourable trend for oil majors.
  • As at End September 2018, the Fund ‘s major holdings featured BHP (8.9%), Royal Dutch (6.7%) Rio Tinto (6.2%), First Quantum (5.7%), Glencore (5.2%), Exxon (4.2%), and Teck Resources (4. 5%). The top ten holdings represented over 55% of the total portfolio, a relatively concentrated stance. 
  • The global nature of these companies provides exposure to non-sterling currencies, especially the US dollar. This can benefit both capital and income when sterling is on a weaker trend. In this regard, the instrument may be seen partially as a no-deal BREXIT hedge.
  • On a TECHNICAL NOTE, it should be noted that energy and material stocks represent about 27% and 24% of the FTSE100 index and the FT All-Share index respectively. If using these as benchmarks, the weighting in these sectors can materially affect the relative performance of UK active and passive funds.
  • As well as targeting financially strong dividend paying equities the company also employs option writing strategies and an element of gearing, currently near 10%, to further improve the sources of income.
  • On an annual yield, over 5.5%, (payable quarterly), this trust represents a high-income longer-term value play, but investors should be aware of the volatility of the underlying sector-maybe another reason to adopt a pooled approach. The trust currently trades at a current discount to net assets of near 8%, near the ten year’s low, compared with the premium on which it traded for most 2008-2016 period (see graph below). The company operates a discount management procedure from time to time.

FCA monthly bulletin last week November 15th

included the immortal lines in the section marked 
Investment Managers & Stockbrokers

"There is nothing to report from this area."

If you seek comfort in that, or even amusement - then re-read the quote of the week, where SIPP providers face decimation following High Court judgement on past practices.  We look at today through the prism of tomorrow.  Everything is historical, and point of view is crucial.

FCA warns motor finance firms to comply with CONC 3

On 15 November 2018, the FCA published its regulatory round-up for November 2018. 
Among other things, in the November 2018 issue, the FCA highlights its concerns that some motor finance firms are not complying with the financial promotion rules in chapter 3 of the Consumer Credit sourcebook (CONC 3). This is particularly in relation to posts on social media platforms such as Facebook, Twitter and Instagram. 

The main issues the FCA is aware of include:

  • •Not displaying a representative example when triggered.
  • •Not making the representative annual percentage rate prominent.
  • •Not mentioning the legal name of the firm.
  • •Not displaying, or a lack of prominence, of the credit broker statement.
  • •Displaying monthly costs for a vehicle without indicating whether this is based on a credit or hire agreement.

The FCA reminds firms of their obligations under CONC 3. In particular, it encourages firms to revisit CONC 3.3.1R, CONC 3.5.3R, CONC 3.5.5R, CONC 3.5.7R, CONC 3.7.5R and CONC 3.7.7R, and the guidance related to those rules. The FCA also encourages firms to look at its financial promotions social media guidance (FG15/4), which was published in March 2015 

Get it checked – submit to IFAC for checking on BAT.

Want to feel vulnerable?

Go to the top of King Power Leicester City Man’s tower in Bankok – that stands higher than the Cotswold Hills 

Treasury Committee review Vulnerable Clients
On 9 November 2018, the House of Commons Treasury Committee published a press release announcing the launch of a new inquiry into consumers' access to financial services. 
The inquiry will look at how some consumers are excluded from financial services providers and from insurance products.  The inquiry will also focus on vulnerable consumers and how they are helped by our industry.
The committee wants to see evidence on:

  • •How financial services (that’s us folks) should define "vulnerability". The committee will look at the FCA's definition of a vulnerable customer and the wider merits of having a “duty of care” Hippocratic Oath for financial services providers.
  • •Whether some consumers are excluded – how do we ensure that their marketing, communications and support services are accessible to vulnerable consumers
  • •How do FCA hold us to account for the treatment of vulnerable customers?
  • •Whether vulnerable consumer pay more for financial services products. 
  • •The committee wants evidence by 14 December 2018.

The FCA defines a vulnerable consumer as "someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care".

Focus your efforts in 2019 on the vulnerable.  
Be sure you can show outsiders how you treat customers fairly.
Be sure you can show how you treat the vulnerable in business.
Be sure you understand that everyone is vulnerable in some way.
Your policy has to be able to demonstrate compliance.

Footnote: It is a well known fact that Russian spies target wealthy married men aged 45-55 with attractive female profiles  on social media.

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