July 2019

M&G Sustainable Multi Asset Fund

PlanPlus Global - Friday, 12 July 2019

We are pleased to announce that M&G Sustainable Multi Asset Fund is now mapped to the FinaMetrica risk tolerance scores.

The M&G Sustainable Multi Asset Fund is likely to be suitable for investors aiming for attractive returns over the long-term and who wish to demonstrate increasing responsibility in how their savings are invested.

Fund manager, Maria Municchi, aims to invest the fund responsibly, to help reduce the negative or detrimental impact that some investments can entail. In addition, the fund looks to invest in opportunities that uphold and promote high standards of company behaviour, improve the environment and prevent its further harm and provide meaningful benefits to society at large.

“Financial returns should remain the foremost objective of investing. However, the way in which we choose to invest can make a difference beyond just those returns. Some of the biggest challenges the world is facing, from climate change to population growth, from corruption to pollution, need addressing urgently. By considering how our investments might affect society and the environment, we can choose to contribute towards a sustainable future.” Maria Municchi.

M&G’s sustainable multi-asset strategy integrates the benefits of flexible and diversified asset allocation, applying M&G’s Episode approach with a responsible investment process.

The fund aims to provide a combination of capital growth and income of 4-8% per annum, net of the ongoing charge figure, over any five-year period, while considering environmental, social and governance (ESG) factors.

Click here for more information on the fund.

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

SVS Cornelian Risk Managed Passive (RMP) Range is Now Mapped

PlanPlus Global - Friday, 12 July 2019

We are pleased to announce that SVS Cornelian Risk Managed Passive (RMP) Range is now mapped to the FinaMetrica risk tolerance scores.
 
The SVS Cornelian Risk Managed Passive (RMP) Range offers an outsourced multi asset investment solution that combines active asset allocation decisions made by our highly experienced investment team with predominantly passive underlying investment across a wide range of asset classes.
 
These are brought together in a competitively priced product that is designed to align seamlessly with adviser client suitability processes. Launched in November 2016, the RMP Range consists of five funds (one for each risk level), and presents a lower-cost investment solution that can be tailored according to investors’ attitude to risk, leaving advisers free to focus on their client relationship and supporting their overall goals.
 
In line with Cornelian’s focus on investing for client outcomes, each Fund targets a specific level of net total return ahead of inflation, and has a specific maximum upper expected volatility (risk) limit.
 
The RMP Range aims to balance overall cost control with the implementation of asset allocation views in order to generate returns ahead of inflation, and dynamic risk management over the market cycle. The Range is competitively priced, with a G (platform) share class Annual Management Charge of 0.30%. The Funds are easily accessible both on a wide range of platforms, and directly through the Cornelian Portfolio Service – to find out more, please visit the Cornelian website.

Freezing of UK Fund Triggers Global Liquidity Risk Alarm

PlanPlus Global - Wednesday, 26 June 2019

Questions are being asked around the world about the liquidity risks of funds invested in unlisted or illiquid assets, after a major UK fund was forced to suspend trading when it could not sell assets quick enough to meet redemption requests.
 
The £3.6 billion Woodford Equity Income Fund was suspended on 3 June, due to rising redemptions after a long period of underperformance — it was down 22% in the past year. The fund had been known for holding unquoted stocks and other illiquid investments which means the most liquid investments must be sold to meet redemptions.
 
It's a fall from grace for well-known UK stock-picker Neil Woodford, who made his name over 26 years with Invesco Perpetual where he helped build up around £33 billion of assets.
 
In his first year alone the Equity Income fund gained 16%. Initially the fund was focused on picking large, liquid stocks. But the fund had been performing badly for a number of years, dropping from £10.2 billion to £3.7 billion in assets in just two years.
 
Part of this decline was due to the fall in popularity of this style of fund, but bad stock selection and redemptions played a big part. In May 2019 alone the fund suffered a £560 million drop in assets. To avoid becoming a forced seller of shares at fire-sale prices the fund froze redemptions at the start of June.
 
UK funds are allowed to hold a maximum of 10% of assets in unlisted securities. But the Financial Conduct Authority (FCA) says the Woodford fund breached that limit twice in early 2018. Some companies in which the fund held shares later listed on the International Stock Exchange on the island of Guernsey, which helped the fund stay within the 10% limit.
 
The FCA has announced a formal investigation into the Woodford suspension, which may prove to be uncomfortable for the regulator. It admits it knew since February 2018 of the liquidity problems faced by the fund, and made errors in communications with the Guernsey authorities.
 
Meanwhile, the FCA has been forced to withhold a report on funds that buy illiquid assets that has been six months in the making. Consultations were held in January 2019, with the final report due for release before the end of June. That plan has now been abandoned, with no due date for release scheduled.
 
This example highlights the importance of knowing what assets are within an actively traded fund, versus an index fund. The proportion of assets in the Woodford fund estimated to take over 180 days to liquidate had increased from 25% in June 2018 to 33% by April 2019.

SEC's New 'Regulation Best Interest' Rule Sparks Controversy

PlanPlus Global - Wednesday, 26 June 2019

The SEC's new 'Regulation Best Interest' standard requires broker-dealers to act in the client's 'best interest' which, it is argued, is a higher standard than the FINRA suitability rule. But critics are not so sure.
 
There are a number of opponents lining up to attack the new SEC rule. They generally argue that the rule fails to actually protect investors while also diluting and undermining the significance of the fiduciary standard.
 
The SEC's Regulation Best Interest (often called just 'Reg BI') was adopted on 5 June 2019 and will take effect on 30 June 2020. It requires Broker-Dealers to:

• Act in the best interest of the client when making any recommendation of a securities transaction or investment strategy
• Place the customers' interests ahead of their own interests

In addition to these broad obligations broker-dealers must satisfy four specific obligations:

1. Disclosure obligation - full disclosure of fees, charges & costs; limitations on advice and conflicts of interest.

2. Care obligation - must exercise reasonable diligence, care and skill to understand the risks, rewards and costs of a recommendation and have a reasonable basis to believe that the recommendation could be in the best interest of 'at least some customers'. Additional care and competency is required to tailor advice to a specific customer.

3. Conflict of interest obligation - identify and disclose or eliminate all conflicts of interest and material limitations associated with recommendations.

4. Compliance obligation - establish, maintain and enforce written policies and procedures to achieve compliance with the overall regulation.

The rules apply to 'retail customers' who receive a 'recommendation'.
 
A retail customer is a 'natural person' who used the recommendation primarily for personal, family or household purposes. High net-worth clients are not excluded, with no presumption of sophistication attached to wealth. This contrasts with FINRA rules, which treat many high net-worth clients as institutional investors.
 
A new battle over fiduciary standards
 
Reaction from industry was generally favorable, with some misgivings about the additional compliance costs associated with the new obligations.
 
But others were quick with their criticism of the new rule.
 
Their first problem area is the definition of 'best interest', which is vague. The second key problem is that some conflicts, such as higher incentives to sell certain products, will not be caught in this rule. Third, they argue that disclosing conflicts is very different to not having them.
 
The SEC's on-staff investor advocate, Rick Fleming, recognises this concern, saying the new rule weakens the existing fiduciary standard by suggesting that liability for nearly all conflicts can be avoided through disclosure.
 
Consumer groups, meanwhile, do not believe the rule is tough enough and share concerns about a blurring of the lines around fiduciary standards which may leave consumers confused. They say this rule will merge best-interest and fiduciary in consumers' minds, leading them to think they are the same thing when they are actually different standards.
 
The SEC adds to the confusion with its new Client Relationship Summary (CRS) form, which compares brokers and advisers side-by-side stating you can get advice from either — essentially making them the same to consumers. 

Tracking, Monitoring, and Maintaining Suitability

PlanPlus Global - Wednesday, 26 June 2019

Suitability is judged at a point in time — but things can change! Suitability has to be tracked, monitored and maintained as required.
 
On the client-side, the change could come in a number of ways.
 
The client might have had a change in their financial objectives, which means previous arrangements are no longer suitable. Their capacity for loss might have changed due to life-events, changing their risk-profile. Or their investment timeframes may have shifted.
 
Reviewing the client's circumstances does not, generally, mean reinventing wheels. Rather, it is about identifying, documenting and responding to changes.
 
On the investment side, there is almost infinite variability with an immense universe of investments constantly and rapidly changing in value — and sometimes in nature! For example, a fund may have changed its underlying assets which changes its product risk characteristics.
 
The challenge for advisory firms is in handling the massive data flows required to properly track and monitor a sea of potential investments carved up into hundreds, or thousands, of individualised portfolios. It is not a task that can be attempted manually and will require sophisticated data exchange between outside sources and the advisors own planning software.
 
But building these data exchanges is every bit as complex as you might imagine — assuming, that is, that the advisory firm's IT systems actually know what to do with this new pipeline of data.
 
The IT systems advisory firms need allow them to:

• Create an accurate, reliable risk-profile
• Centralise hard and soft facts about the client
• Tailor their advise process to reflect professional judgements
• Map risk scores to asset allocations
• Accept and process incoming data about investments
• Track and monitor suitability
• Allow adjustments to maintain suitability

Our new SuitabilityPro product suite delivers all of these capabilities. Last month we launched the first of three SuitabilityPro components — the new FinaMetrica profiler. Soon we will be able to tell you more about our ProPlanner financial planning software and our ProTracker ongoing suitability dashboard.
 
Keep your eye out for more details!