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11.07.14. Many commentators feared the introduction of the RDR at the start of 2013 would have an Armageddon-like impact on the sector. And while last.

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Presentation on theme: "11.07.14. Many commentators feared the introduction of the RDR at the start of 2013 would have an Armageddon-like impact on the sector. And while last."— Presentation transcript:

1 11.07.14

2 Many commentators feared the introduction of the RDR at the start of 2013 would have an Armageddon-like impact on the sector. And while last year was certainly an eventful one in terms of regulation, for many advisers (if not providers) it was more business as usual than expected. That said, a year in there is still little certainty around how the industry will shape up in 2014 and beyond. There is no doubt that it’s a lower, slower world and that costs that were insignificant now stick out like rocks through water in a higher risk environment. But RDR won’t kill businesses – poor business plans will. Pressure is being felt across the entire financial value chain which continues its disaggregation. With client fees moving south of 2% and the advice fee around 1%, some parts of the chain may feel the heat more than others. The shift to passive funds, increased uptake of platforms and move to centralised investment propositions place particular pressure on providers as advisers see many products as becoming increasingly commoditised. Providers’ ability to protect their position in the market and thrive post-2013 will likely be dependent on their ability to successfully innovate on their key territories. This report seeks to pull together the strands of the key industry developments and paint a clear picture of where we stand now in the areas that matter most to Providers and advisers. Every week we will explore the challenges the industry is facing, taking an incisive 360 degree view of what is going on in the markets relevant to your business. Covering RDR developments, the distribution landscape, key competitor activity, consumer insight and wider regulation and taxation, the weekly review will provide a robust but concise outline of where the opportunities and challenges lie in light of market developments. The Macro Picture Distribution landscape Provider / platform developments Consumer insights Wider regulation & taxation FOREWORD RECORD AS 30 minutes UNSTRUCTURED CPD

3  News review.  Confidence in adviser operating models.  Strength of adviser firms & business challenges.  Provider developments.  News review.  Adviser capacity to take-on budget pension clients.  A need for education & access in the ETF market.  Firm developments.  News review.  6 month summary of the investment markets  The role of price in the growth of passives.  Provider developments  News review.  The need for advice at-retirement is evident (1)  The need for advice at-retirement is evident (2)  News review.  Have the objectives of the RDR been achieved?  Fee disclosure – FCA requirements.  Things are a whole lot NISA.  Tax avoidance – accelerated payments Market Review Table of contents The Macro View 1. Distribution Landscape 2. Provider & Platform Activity 3. Consumer Trends 4. Regulation & Taxation 5.


5 1 2 34 5  Last week, Aegon UK decided to end long-standing trail agreements with advisers that the insurer believed no longer service certain clients, but this move may “not be supported by the rules”, a legal expert has claimed. Robbie Constance, at Reynolds Porter Chamberlain, said that through its actions AEGON might be “misinterpreting the rules” by removing servicing rights for those advisers who have been out of contact for 12 months.  The advice journey should be defined from the consumer’s perspective, not by advisers “pushing” old models of service, Chris Williams has said.  The Association of Professional Financial Advisers (APFA) has warned the industry could yet lose more small firms as advisers say they are lacking confidence in their business models.  With transparency at the forefront, an increasing need to demonstrate value to clients, and charging rules changing, technology has never been more central to advisers' work, says IRESS executive general manager (wealth) Mark Loosmore.  Prudential’s head of business consultancy, a division of the insurer that works with adviser firms to help them develop their businesses, said a “by-product” of RDR was that IFAs had become better organised in managing their time and had clarified their service for clients. The Macro View News review “While face-to-face may still appeal to some, we cannot, and should not, assume that clients will not change their behaviours or their minds about how they want to be serviced.” “We have noticed that IFAs are focusing on how to run efficient businesses. They are using paraplanners more effectively, looking to recruit more staff and considering their ongoing service for clients.”

6 Source: APFA Adviser Operating Models Confidence in getting it right  Research company GfK NOP Limited has been monitoring adviser sentiment since RDR was implemented. Whilst the majority of firms are confident that they have developed their final operating model, and that they will sustain a healthy flow of revenue by the end of 2014, there is still a significant minority of firms that are not so confident.  When asked by GfK how confident they were that they had developed their final operating model, on a scale of 1 (totally confident) to 7 (not at all confident), 72% of advisers said they were confident (scored 1 to 3), 12% were neutral (scored 4) and 16% said they were not confident (scored 5 to 7).  When asked how confident they were that this operating model will sustain a healthy flow of revenue by the end of 2014, 80% said they were confident (scored 1 to 3), 9% were neutral (scored 4) and 11% said they were not confident (scored 5 to 7). Despite the expected RDR Armageddon failing to materialise, it is evident that some firms are still struggling with implementing a sustainable business model. The lack of confidence among some seems to scream out for support. Aggregated financial data for the industry only tells part of the story with regards to how the RDR has affected advice firms. A recent report from APFA details research that highlights there are still a not insignificant number of firms struggling to get the right business model in place.

7 Source: APFA Firm Performance Strength and challenges  NMG segment their survey respondents into “Thriving”, “Aspiring”, “Surviving” and “Declining”. Whilst the number of firms in the first two categories has grown over the last year (from 65% in Q2 2013 to 69% in Q1 2014) there still remains a significant minority - 31% - in the “Surviving” and “Declining” categories.  This group is significantly less confident about the state of the market and the prospects for their own business, and make less use of paraplanners and social networking than those in the “Thriving” and “Aspiring” categories. Those in the “Declining” category (11% of respondents) are also more dependent on commission from pre-RDR investment business than the other groups.  As part of its research, GfK asked firms what the biggest challenges are that they now face. As the chart shows, regulation, new business development and charging fees were the top three concerns. Profitability and managing workload/maintaining service standards also featured for a number of firms. While the proportion of firms seemingly thriving post-RDR is on the rise there remains a significant minority seeing business decline. The challenges being faced reflect the ‘new world’ adviser firms are now living in. ” “ THRIVING OR ASPIRING BUSINESSES DECLINING BUSINESSES 69% IN 2014 (up from 65% Q2 ‘13) 31% IN 2014 (down from 35% Q2 ‘13) Adviser perceived challenges for the coming year This split between those firms that are doing well and those that are struggling could lead to more small firms deciding to join a larger one, or to exit the industry altogether.

8  Cofunds has said it will be offering clients a discount on the Multi-Index fund range run by parent company subsidiary Legal & General Investment Management.  The Multi-Index 3, 4, 5, 6 and 7 funds will be available on the platform for an ongoing charge of between 0.24% and 0.27%, the platform said. The usual ongoing charges for the funds range from 0.31% to 0.34%.  Platform provider Alliance Trust Savings is making four of the six employees in its marketing team redundant as it looks to outsource the majority of marketing functions.  Staff were informed of the move last week following a review although ATS says there may be the opportunity for redeployment in some cases.  It is unclear as yet who ATS will outsource marketing to.  Cofunds is set to offer funds from parent-company Legal and General at a discounted price.  Legal and General Investment Management will launch a ‘C’ share class on its multi-index funds, priced at a 0.07% discount for Cofunds clients.  The standard annual management charge on the funds is 0.25% but is discounted to 0.18% for Cofunds customers.  Standard Life will remove commission from all auto- enrolment pension schemes from April 2015 if the payment brings the charge above the Government’s 0.75% cap.  Steve Webb revealed plans to place a 0.75% price ceiling on all auto-enrolment default funds from April next year.  In response, Standard Life will remove all funded initial commission by the end of 2014 before cutting off commission on schemes with a charge above the cap in April 2015. Source: David Hobbs, chief executive at Cofunds Source: An ATS spokeswoman Source: Cofunds chief executive David Hobbs Source: Statement This fund means that we’re able to deliver a highly attractive option to Cofunds clients, which could be very useful with the significant changes to retirement provision just around the corner. “ The Macro View Provider developments ” Alliance Trust Savings confirms that it has conducted a review of its marketing operations and has taken the strategic decision to outsource the majority of this work going forward. “ ” This fund, when combined in a pension proposition, means that we’re able to deliver a highly attractive option to Cofunds clients, which could be very useful with the significant changes to retirement provision. “ ” To support advisers on their transition to fee based remuneration we will in some cases offer fund based commission in its place until the ban comes into force. “ ”


10 Distribution Landscape News review 1 2 34 5  Skipton Building Society has revealed it is launching a retirement service, with the strapline ‘Skipton – For Life Ahead’. The service will include an online retirement planner for an indication of their retirement readiness in minutes and pension analysis and advice service through subsidiary Skipton Financial Services.  CTC Software is set to begin testing a new retirement planning tool in response to this year’s radical Budget reform. The financial services software provider says the tool, which allows users to compare outcomes of different retirement strategies, will be trialled with a set of advisers over the summer with a view to rolling it out later in the year.  An academic study has suggested that a ‘restricted licence’ approach could be implemented to enable lesser qualified financial advisers to give financial advice and that chartered and more qualified advisers can deal with more sophisticated clients.  Business volumes in financial services were up in the three months to June fuelling optimism in the industry, despite an unexpected fall in profitability, according to a survey by the Confederation of British Industry (CBI) and PwC.  Key Retirement Solutions picked up the award for best large adviser firm website for the second consecutive year at this week’s night’s FTAdviser Online Service Awards. In the small adviser category, covering firms with less than 20 employees, RJL IFA’s website was adjudged best. “There should be a place for those who want to stay with their diploma or learn in their profession, with a lesser risk consequential element to their advice while they’re still developing.” 37% of financial services firms said they felt more optimistic about the overall business situation compared with three months ago, while 9% said they were less optimistic. Almost half (48%) of firms said business volumes were up, while 15% said they were down.

11 Source: APFA Budget Pension Clients Advisers have capacity but… More than 80% of advisers have capacity to take on new clients seeking pension decumulation advice following the Budget, Apfa research shows. But the research also found a fifth of advisers would not advise on pots below a certain level. Whilst there may be capacity within the market, advisers may only take clients on if they consider it economic to do so – both for the firm and for the client. NMG research from January 2014 found that just over half of advisers had turned away clients during 2013, with profitability to the firm mentioned almost as often as cost to the client.  There is something of a mixed picture when it comes to the ease with which consumers can access advice post RDR.  A report from Apfa on the impact of the RDR shows 83% of advisers would be willing to take on more pension clients following the radical pension reforms announced in the Budget, based on a poll of 300 advisers.  However, 19% said they would not advise on pots below a certain level and a further 50% said they may turn down pots of a certain size depending on the specific case. ” “ Capacity of advisers to take on new pension decumulation clients

12 Source: Vanguard ETFs Need for better access & more education Better access and more education are needed to increase ETF usage according to vanguard adviser poll.  Vanguard Asset Management released the findings from a poll taken at its June Investment Symposium showing that advisers believe that lower costs (32%) and better availability on UK platforms (32%) are the most likely reasons to start or increase their usage of Exchange Traded Funds (ETFs).  A further 26% of those polled said more education was needed to help inform ETF asset allocation decisions.  Nearly all of the respondents in the poll plan to maintain (47%) or increase (50%) their ETF allocation over the next 12 to 24 months. We are seeing increased appetite for ETFs as many more advisers are recommending them for clients’ portfolios. However, it comes as no surprise that more education and better availability on UK platforms is needed to encourage greater usage. ” “ Expected change in adviser ETF use over the next 12 months 50% What will help drive increases? 3% 47%

13 Distribution Landscape Firm developments  Brewin Dolphin is considering a rebrand in its effort to push into the direct-to-consumer space.  The firm says it is currently in discussions over how best to serve direct clients with branding one element under consideration.  It is understood one option being considered is the dropping of “Dolphin” which would see the firm just known as Brewins by consumers.  Succession plans to expand corporate solution business.  Bernadette Briggenshaw has joined Succession Group as national development director responsible for its corporate benefits proposition, Succession Benefit Solutions.  Ms Briggenshaw will lead the Succession Benefit Solutions Board and plans to double the size of the team of corporate specialists within six months.  Gemini will take on Lichfield- based Simple Finance Solutions' 450 pension and investment clients after director William Cooper decided to "change his focus" due to "the ever increasing costs and pressures of being a sole practitioner".  The deal - the firm's seventh since its inception in 2006 - will see Gemini's client base grow to 2,000 clients and its total client funds under management jump from £200m to £230m.  Chase de Vere has set aside £4.1 m to cover the cost of complaints and redress related to legacy advice on distressed assets, its annual report for 2013 has revealed.  The firm said it had been experienced an increased number of complaints related to legacy sales associated with investments classed as distressed.  Reports have suggested that these complaints relate to unregulated collective investment schemes. Source: Brewin Dolphin head of investment management Stephen Ford Source: Simon Chamberlain, group chief executive of Succession Source: Gemini director Amanda ReidSource: Stephen Kavanagh, chief executive of Chase de Vere It is a matter of record that we see the advice gap widening and that we would explore and evaluate how best to address the demands for a direct to client offering. “ ” Legislative change has created significant challenges for employers and we have created a specialist small employer solution, aimed at SMEs with up to 50 members of staff. “ ” These acquisitions continue to emphasise Gemini's strategy of actively growing for the future with the aim of becoming one of the top IFA firms in the West Midlands. “ ” It is right that we have made additional provisions for legacy product sales. This means we have funds available to recompense clients if they are entitled to any form of redress. “ ”


15 Provider & Platform Activity News review 1 2 34 5  Platforms have responded to Budget changes to the Isa regime by improving rates on cash and introducing new cash savings products. In the Budget, the Isa limit increased to £15,000 and restrictions on moving between cash and stocks and shares Isas have been removed from 1 July.  Total equity released in the first six months of this year soared 26% to £641.8m from £508.4m in the first half of 2013, according to data from provider Key Retirement Solutions.  Plans to mitigate the potential tax avoidance opportunities offered by the proposed new pension freedoms are unlikely to meet the three key features of being proportionate, simple and sustainable, warned AJ Bell’s chief executive Andy Bell.  Zurich has launched eValue’s Funds Risk Assessor tool through its retail platform, to help advisers and customers select funds that match their risk profile and timescale. The insurer claims to be the first UK platform to offer this tool, which covers a wide range of on-and off-platform assets, to advisers.  Financial Services Compensation Scheme (FSCS) chief executive Mark Neale is "increasingly concerned" by the rising number of claims the service is receiving that are linked to advice to move pensions into risky assets held in self invested personal pensions (SIPPS). “The government may attempt to adapt current recycling rules to restrict the possibility of tax avoidance but I would suggest that these are not robust enough to deal with the issue.”  The electronic Transfer and Re-registration saw continued steady progress during the second quarter of 2014. The overall volume of electronic transfers rose by close to 10%, over the first quarter of 2014 and at the end of the quarter around 83% of AUA on adviser platforms and 91% of FUM are now supporting electronic Transfer and Re-registration.

16 Source: Technical Connection Investment Markets 6 month summary The first half of 2014 is over for the investment markets. There was not a great deal of movement in the equity markets and the big surprise was in the bond markets, where yields fell, confounding many forecasts. 30/12/1330/06/14Change to 30/6 FTSE 1006,749.096,743.94-0.1% FTSO 25015,935.3515,723.56-1.3% FTSE 350 HIGHER YIELD3,653.203,677.680.7% FTSE 350 LOWER YIELD3,333.443,291.76-1.3% FTSE ALL-SHARE3,609.633,600.19-0.3% S&P 5001,848.361,960.236.1% EUO STOXX 50 (€)3,109.003,228.843.9% NIKKEI 22516,291.3115,162.10-6.9% BANK BASE RISE0.50% 10 YR UK GUILT RISE3.04%2.68% 10 YR T-BOND YIELD3.03%2.52% 10 YE GERMAN BOND YIELD1.94%1.25% £ / $1.65631.70993.2% £ / €1.20201.24893.9% £ / ¥174.080173.216-0.5% BRENT CRUDE ($)110.80112.361.4% GOLD ($)1,201.501,315.009.4% IPD UK PROPERTY914.5997.79.1% NATIONWIDE INDEX£174,566£186,5126.8% RPI INFLATION2.6%2.4% CPI INFLATION2.1%1.5% A few points to note from this table are:  The UK stock market has gone virtually nowhere in the half year, despite the resilience of the economic numbers.  The US market has done better in the face of a very difficult (and cold) first quarter and that relentless tapering process.  The Eurozone overall outperformed the UK, mainly due to the peripheral markets, such as Spain.  The dog that didn't bark was bond yields: the predicted rise turned out to be an unexpected drop.  Sterling has strengthened against both the dollar and the Euro. The flip side of the rising pound is that it has taken the edge off overseas equity market performance for UK- based investors.  UK property, both commercial and residential, did well over the period. On the commercial side, each of the last 13 months has seen a rise in values according to IPD.  Gold recovered some of its lustre after a bad 2013, but oil was little moved, despite various supply issues such as the problems in Iraq.

17 Source: IMA The Popularity of Passives The role of price in growth  Figures from the Investment Management Association (IMA) show the number of available tracker funds is up 11% on the start of the year, rising from 63,921 to 70,852 by the end of the third quarter, comprising 9.6% of the industry total – a record high.  Their increasing prominence has led investment services provider Morningstar to issue a ratings system for passive funds as a reaction to their growing popularity.  Yet, a survey of advisers carried out by Schroders indicates the industry may be approaching a "ceiling" where passives are concerned.  Two thirds of the 328 advisers asked have increased their use of passives this year, however, just 25% expect to increase the proportion during the next 12 months. This "indicates we may be reaching a ceiling on passives", according to Schroders head of UK intermediary Robin Stoakley. % advisers expecting an increase in passive over the next 12 months … however, PRICE is the factor that could continue to drive the use of passive funds GREATER PRICING TRANSPARENCY EXCLUSIVE PREFERENTIAL SHARE CLASS TERMS ABOLITION OF STAMP DUTY ON ETF’S  A Barclays research note indicated that the RDR environment, and the greater pricing transparency that comes with it, is conducive to passive growth.  CWC Research director said a consequence of exclusive preferential share class terms might be to motivate those who cannot obtain them to rely more heavily on passives.  Additionally, stamp duty on EFTs will be scrapped from April, increasing the probability of new, domestically-domiciled funds coming to market. A more competitive market will drive down costs, adding to the allure of passive options.

18 Provider & Platform Activity Firm developments  Transact is considering taking more stakes in software companies after the platform acquired a 15% interest in Sprint Enterprise.  The deal, announced in May, saw the firm’s chief development officer Jonathan Gunby join the board of Sprint.  Sprint provides software called Fastrak, which is designed to aggregate data from advisers’ back-office systems and platforms to produce enhanced reporting and portfolio analysis capabilities.  Aviva Investors has launched the Aviva Investors Multi- Strategy Target Return fund, the first offering in its new outcome-oriented fund range.  The Aviva Investors Multi- Strategy Target Return fund is managed by head of multi- asset Peter Fitzgerald and global head of rates Dan James, with extensive input from a company-wide Strategic Investment Group chaired by chief executive Euan Munro.  Zurich is not interested in participating in a platform price "race to the bottom", its head of retail platform strategy has said.  Alistair Wilson said the apparent trend among operators of under-cutting their rivals was tantamount to obsessing over a "level of comparison that is not a lot of money in some cases".  The industry, he suggested, was competing over as little as 20p a day.  Old Mutual Wealth’s acquisition of network Intrinsic has officially completed today (1 July) after receiving regulatory approval.  The deal will see Skandia platform and protection products, as well as a range of Old Mutual Global Investors’ funds, available via Intrinsic’s selected panels. Source: Chief executive Ian TaylorSource: Chief executive Euan Munro Source: Alistair Wilson Head of Retail Platform Strategy Source: Paul Feeney, chief executive of Old Mutual Wealth If we come across companies that we think are interesting, we will have a look at them. Often we think early involvement and co-operation works to everyone’s advantage. “ ” We aim to deliver simple and specific outcomes that clients will value combining our considerable expertise in real estate, fixed income and equities together into compelling solutions. “ ” Is price the right focus? I don't believe so, which is why we are very focused on protecting people's future going forward in different ways. “ ” The acquisition of Intrinsic is an important part of our integrated customer proposition that now covers financial advice, actively managed portfolios and wealth management products. “ ”


20 Consumer Trends News review 1 2 34 5  People do not want general guidance on retirement products but individual face-to-face guidance over multiple sessions as they lack a basic understanding of retirement products, according to Axa Life Invest. Most participants did not understand how the income stream from their pot would be calculated.  Research from the Department for Work and Pensions showed that pensioners have enjoyed modest real terms income growth over the past three years and substantially more significant income growth than between 1999 and 2013, attributed to the triple lock protection of the state pension and more older people choosing to stay in work.  An Aegon-commissioned survey has revealed that 44 per cent of UK adults intend to take advantage of the radical pension changes in the Budget.  Savers are becoming increasingly frustrated by the poor returns available on cash ISAs. In the run up to the end of the tax year, Fidelity Personal Investing commissioned a poll of ISA savers, where people were asked about their priorities for their annual allowances “They want face-to-face individual guidance over multiple sessions and tailored to their individual situation and needs. Guidance should be a stepping stone leading towards personalised advice.” 44% Would put the money into a bank account 33% Would invest the money into an ISA 81% Interested in a guaranteed income for life, but could cash in if circumstances changed 73% of people holding Stocks & Shares ISAs say that they do so in order to get a higher rate of return on their savings 40% want to take advantage of the current higher tax allowances available to Stocks and Shares ISA savers 24% of people currently hold Stocks and Shares ISAs because they’ve already used up their cash ISA allowance.

21 Source: Pensions Policy Institute / MGM Advantage / Friends Life At-Retirement The need for advice is evident Over the past few days there have been a number of different surveys and reports looking at attitudes of both individuals and companies into the pension changes due to be introduced from April 2015. Each of these surveys highlights the need for more than just guidance at retirement. The Financial Resilience of the Recently Retired The main findings of the report are that:  For those individuals and couples reliant on the state pension, the triple-lock guards them well against the risks of inflation throughout retirement.  Those more reliant on private pension income, and in particular DC pension income, could see a significant fall in their actual income against their income requirement, a fall from receiving 95% of required income in 2012 to 76% of required income in 2022).  Even those with a DB private pension find their income is no longer sufficient to meet their income requirements and cover the additional spending needs of their disability, a fall from receiving 114% of required income in 2012 to 92% of required income in 2022). The Proposed at Retirement Guidance Guarantee The main findings of the report are that:  83% of over 55s believe that the pension guidance guarantee announced in the Budget should be impartial and independent from pension providers. Regarding provision of such a service, 24% said that they would trust an existing organisation such as The Pensions Advisory Service.  Perhaps more worryingly, only 23% of those questioned said they would trust professional finical advisers to provide the guidance. The main findings of the report are that:  7% of people plan to be 'Lamborghini' retirees, taking the entire fund as a lump sum.  25% of people plan on taking 50% or more of their fund as a lump sum.  33% was the average lump sum withdrawal being considered by those questioned.  Of those taking the lump sum 24% were planning to reinvest elsewhere, typically:  22% The new ISA (NISA)  21% Buy-to-let property  14% Stocks and bonds New-Found Financial Freedom Changes Behaviour in Retirement

22 Source: The Pensions Trust / Axa Wealth / Towers Watson At-Retirement The need for advice is evident Pension Confusion is Rife Among Retirees The main findings of the report are that:  A poll of 500 members and employers by The Pensions Trust (provides pension solutions for over 2,400 not-for-profit organisations and administers more than 200,000 members) has found a lack of understanding of the options both in retirement and leading up to retirement. Key areas of confusion amongst individuals included whether they could:  stop working before the age of 65 and still draw their pension,  draw both a private and a state pension, and  how much can be taken as a tax free lump sum, and if so, how much. Poverty in retirement top concern for Brits The main findings of the report are that:  The research, conducted by YouGov for AXA Wealth, which looks at attitudes toward and preparations for retirement among UK adults, identified the top concerns:  38% are nervous of a shortage of funds to achieve retirement ambitions  29% are really worried about not having enough money to cover essentials such as food and heating  5% are worried about becoming financially reliant on others.  Demonstrating their absence of preparation, three in 10 (30%) respondents admitted to not knowing how much money they will need to live on. The main findings of the report are that:  Around two-thirds of employers anticipate that workers will place more value on their DC pension as part of their reward package.  79% believe the Budget introduces a need for greater support above and beyond Guidance.  40% believe that DC will now be more effective at managing workers into retirement than it used to be. 2014 Defined Contribution Strategy Survey Individuals need help on their retirement journey almost from the minute they're ready to start contributing into a pension. It will be interesting how many who receive the proposed 'guidance' will then feel the need to seek further specific and tailored advice and then if they realise they should have got advice earlier and whether they will pass those thoughts on to the next generation.


24 Regulation & Taxation News review 1 2 34 5  Freedom to access pension savings could see one in 10 retirees lose their exemption from care costs, nursing agency warns. Jonathan Bruce, managing director of Prestige Nursing Plus Care, said it is vital that moves to revolutionise pensions and care systems do not add to the financial fog that clouds decision making in later life.  Monies investment firms hold within stocks and shares Isas are to be held as client money in the wake of changes made in the Budget to the savings vehicle, the Financial Conduct Authority has confirmed. The policy statement also clarified that it will be allowing money held within cash Isas managed by investment firms to be held as client money.  The FCA is increasingly requiring senior individuals to put their name to compliance guarantees without making it clear their signature will be used against them in the event of enforcement action. Lawyers say there has been a significant increase in the use of attestations by the FCA in the past six months and predict enforcement proceedings in the coming months as a result.  The Financial Conduct Authority (FCA) has confirmed advisers' regulatory fees for the next year will be £68m - a near-19% reduction on last year, in its latest policy statement. “It’s a genius idea – the regulator asks the chief executive to sign a piece of paper saying everything is fine and then six months down the line, if something goes wrong, they can put that back in front of them and ask why they told an untruth.” The FCA dismissed claims from trade bodies the 15% of total annual funding allocated to the adviser fee block, A13, is too big a share and calls to split A13 to reflect 'retail' and 'wholesale' sales. It also fought back calls for a reimbursement of the fees it was deemed to have 'overcharged' advisers, saying the cut to fees "does not mean that some firms have been historically ‘overcharged' any more than others have been ‘undercharged'".

25 Regulation & Taxation Other stories passing the desk  New powers which will see HMRC seize £7bn in disputed tax could trigger a wave of misselling complaints against advisers.  When the 2014 Finance Bill is given Royal Assent this month, HMRC will begin issuing “accelerated payment notices” – demands to pay tax within 90 days – to tens of thousands of individuals.  Regulatory experts say the notices will trigger a torrent of complaints against advisers for recommending the schemes and failing to give clients sufficient warning that they may have to pay upfront.  Property searches by HM Revenue & Customs (HMRC) to target tax evasion jumped by 12% to 500 in the last year, according to official data obtained by law firm Pinsent Masons.  The figure, which covers the year to 31 March 2014, marks an increase from 445 property raids in 2012/13.  This is more than triple the number of property raids that HMRC undertook each year between 2008 and 2011.  Experts have warned proposals to merge income tax and National Insurance contributions will be a “nightmare” to deliver.  This week, it was reported combining the taxes would be included in the Conservative manifesto for the 2015 general election. However, sources close to the party have poured cold water on the idea.  The Office of Tax Simplification, established by Chancellor George Osborne in 2010, has previously suggested merging NICs and income tax although the Government has not taken up the recommendation.  New intestacy rules, which apply when individuals die without a valid will and govern the distribution of assets, will come into force from 1 October, it has been announced.  Under the new rules, the surviving spouse will now receive the full estate and other changes include a change to the definition to “chattels”, which may impact some existing wills which refer to this definition.  Members of the Standard Life self invested personal pension who have investments in the collapsed Catalyst Investment Group Limited have been affected by a delay in receiving compensation from the Financial Services Compensation Scheme due to a potential tax liability.  The FSCS said it is working with Standard Life to ensure that those Sipp members who make a successful claim are not subject to any adverse tax and HM Revenue and Customs reporting requirements

26 Source: APFA RDR Have the objectives been achieved? Below APFA consider each of the FCA’s desired outcomes in turn, and give their view on whether they have been achieved. OBJECTIVEMET / UNMETRATIONALE Outcome 1: An industry that engages with consumers in a way that delivers more clarity for them on products and services MET IN PART Whilst there may be more disclosure by advisers, it is not yet clear whether consumers fully understand the different types of services and the related costs and levels of protection. Advisers’ understanding of the disclosure requirements will be helped by stability of the rule framework. Outcome 2: A market that allows more consumers to have their needs and wants addressed NOT MET The evidence suggests that whilst there may be sufficient capacity within the market, not all consumers who want face-to-face advice may be able to access it, as advisers decide it is not economic to take them on. Those consumers with smaller amounts to invest are likely to be the most affected. Outcome 3: Standards of professionalism that inspire consumer confidence and build trust MET Overall the advice sector is becoming increasingly professional, as increasing numbers of advisers hold qualifications beyond the level required by the rules, and adviser firms continue to have one of the best records on complaints in the industry. Outcome 4: Remuneration arrangements that allow competitive forces to work in favour of consumers MET IN PART While advisers are becoming more transparent about their fees, it is too early to tell what impact RDR will have on competition within the market. As many advisers get new clients through referrals, and for many clients it is the long term relationship with the adviser that is more important than the cost, greater disclosure may not have a significant impact on consumers shopping around. Outcome 5: An industry where firms are sufficiently viable to deliver on their longer-term commitments and where they treat customers fairly REMAINS TO BE SEEN Overall the sector has adapted to the changes brought about by RDR, and firms continue to offer their clients a valued service. However over the longer term increasing numbers of firms, particularly smaller ones, may struggle to operate sustainably, particularly in the face of significant costs of regulation. Outcome 6: A regulatory framework that can support delivery of all these aspirations and which does not inhibit future innovation where this benefits consumers REMAINS TO BE SEEN Evidence of whether the regulator really has changed depends on the outcome of the various reviews and consultations that are currently underway or planned. It is therefore too early to conclude that the regulator is able to get the balance right between consumer protection and a thriving, competitive and innovative marketplace.

27 Source: FTAdviser Fee Disclosure FCA requirements According to the FCA, if you are unable to answer the questions below positively, you may not be meeting the requirements. 1) Can your clients understand your charging structure? 2) Do you disclose your initial and ongoing charges in cash terms? 3) If your charge is a percentage, do you provide cash examples? 4) If you charge an hourly rate do you provide indicative examples? 5) Do your clients receive your charging structure before you provide any advice services? 6) Where initial charge for regular premium business is paid in instalments, do they end when the initial charge is paid off? Source: Money Marketing The results of FCAs second paper, Supervising retail investment firms: being clear about adviser charges and services showed 73% of firms failed to provide the required information in at least one of the areas specified. Failings around upfront generic information on how much advice might cost. Failings around how much advice would cost clients as individuals. Firms failed to give additional information on charges, for example, not highlighting that ongoing charges may fluctuate. Firms offering a ‘restricted’ service were not being clear that they were restricted, or the nature of the restriction. Firms failed to explain clearly to clients the service they offer in return for an ongoing fee and/or their right to cancel this service.

28 It will be possible to hold £15,000 in cash, stocks and shares or any combination of the two – this means there is no restriction on the amount that can be held in cash as there was under the previous rules. Those aged 16 and 17 will be eligible to hold a cash NISA in the same way as they could previously, and will now benefit from the increased £15,000 subscription limit. However, they cannot hold a stocks and shares NISA. Any contributions made since 6 April 2014 will count towards the £15,000 limit – whether or not it will be possible to add to an account will wholly depend on the terms and conditions of that account. Current year ISA savings must be transferred in full – so if contributions have been made since 6 April 2014 the whole amount must be transferred into a NISA. It will also be possible to transfer previous years' ISA savings between stocks and shares and cash, in whole or in part. This was not previously permitted and transfers can now be made as many times as required Source: Technical Connection Individual Savings Accounts Things are a whole lot NISA  From a tax perspective, while saving into a pension provides a client with upfront tax relief and the benefit of tax free roll up in the pension fund, not all savers can afford to tie their money up until retirement age as they may require it before then.  For these clients, saving into a NISA can provide the answer as they benefit from tax free roll up and investment flexibility, with no tax on funds when withdrawn. Moreover, it can also provide a solution for those who have already maximised their pension. “ “ As of July all existing ISAs will become NISAs. With this in mind, how many clients understand the implications for them in relation to any savings already made and the ability to transfer funds? We provide a reminder of how these rules will apply. 1 2 3 4 5

29 Source: Technical Connection Tax Avoidance Accelerated payments New provisions, which will probably apply from sometime in July 2014, are designed to remove the cash flow advantage for the taxpayer that currently exists in relation to most direct tax disputes; and to help HM Revenue & Customs (HMRC) to clear the backlog of disputes relating to past tax avoidance schemes. HMRC will be able to give an 'accelerated payment notice' to a taxpayer if a tax enquiry or tax appeal is in progress and: 1. A follower notice has been given or is given at the same time in relation to the same return and same tax advantage. 2. HMRC has issued a DOTAS reference number in relation to the arrangements (or similar arrangements where the promoter is required to notify a scheme reference number to the taxpayer). 3. a general anti-abuse rule (GAAR) counteraction notice has been given in a case where the stated opinion of the Advisory Panel was that the arrangements were not a reasonable course of action. In relation to financial advisers (i.e. not accountants, not lawyers and not out-and-out tax specialists), one would question just how many of these will have actively promoted tax schemes carrying a DOTAS number. We may be wrong and we have not carried out formal research but the answer may well be possibly not so many. ” “  The accelerated payment notice will be discharged by a settlement of the dispute with HMRC, and so for those who have also received a follower notice, will only be relevant to those who decide not to comply with the follower notice and to continue with their own dispute.  The proposals are particularly controversial in relation to DOTAS schemes. A DOTAS scheme user could have to make an accelerated payment of tax in relation to a scheme entered into many years before these provisions become law, even though their use of the scheme is still under enquiry or being litigated and despite there being no other judicial ruling in respect of the scheme in question.  There are penalties if you fail to pay the accelerated payment within 90 days of the issue of the notice.

30 Impossible … or nearly impossible? [Seth Godin] Is as big as any difference we encounter. All we need is 'nearly' and we have completely transformed the problem, changing it from one to avoid to one to commit to. Here's the hard part: having the ability to see (and to announce) the 'nearly' part. Almost every breakthrough comes from someone who saw nearly when no one else did.

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