Weekend Digest for IFAs and Financial Planners (20th & 21st Oct)

In this instalment of Weekend Digest, we cut through the maze to give you a summary of the interesting stuff so far this week. Click on the title to read the article in full (opens new window). So here goes…                                                                                                                                        


Side Stepping  RDR: Clever But Nutty

One of the worries around RDR is that we are going to see more and more vertically integrated models trying to side step the rule. It came to light this week that BarclaysWealth has been talking to the regulator about receiving ‘administration fee’ from fund managers whose funds are sold for its clients.

I’m missing something?  Didn’t FSA recently send out so-called Dear CEO letters to providers and large advisory firms warning against such vertically integrated models? Is it safe to assume BarclaysWealth didn’t get one then?  ..ehrrr… ehrrr…  I think this looks like one of those… and calling it ‘administration fee’ or any other name doesn’t change anything.  If it looks like a duck, quacks like a duck, then surely it’s a duck!

Anyone mind betting the regulator won’t approve this? But if they did, then you can count on similar deals between advisoryfirms  and fund management groups popping up everywhere and we are back to the dark age!


Tax Planning Dirty Deals

In his FTAdviser column this week, Dennis Hall of Yellowtail makes an important point about tax planning schemes;  not just about Jimmy-Carr-type schemes but also  widely accepted tax planning strategies such as VCT/EIS schemes that that seem to ‘rely on the tax relief alone to generate the bulk of the returns, with the manager taking a big slice of the investment returns. The fee structure pays the manager handsomely whereas if there was not any tax relief, the investor would make a loss. In my mind, the poor old taxpayer is being duped into supporting just one business, the VCT/EIS manager, rather than the UK’s small companies’

However, according to Dennis, the award for the grubbiest lot in the tax planning world goes to  ‘tax consultants’ who charge clients an arm and a leg for the privilege of using their schemes which may turn out to be a complete goof!


Daniel Kahneman on Financial Planners’ Mental Hiccups

This piece in US-based Journal of Financial Planning features a Q & A session with the renowned economics professor and Nobel Memorial Prize in Economic Sciences Winner,  Daniel Kahneman.   

Kahneman, whose work in behavioural finance informed many risk tolerance questionnaires planners use with clients questioned whether there is such a thing as ‘a consistent number of parameters’ that describe people’s risk attitude.

For example, people become quite risk loving, risk seeking when they’re in trouble.’ he said. ‘When they have to choose between a sure loss and a gamble, they tend to gamble.  Whereas, when they deal with gains, they tend to be risk averse. So my sense is that the hope of getting a single number isn’t a very good idea

However Kahneman believes that planners should pay particular attention to subject of risk aversion when working with, that is ‘what is the biggest loss that you would be willing to tolerate before you change your mind….? What would shake you…? How committed are you to your course of action…?

 Kahnman  pointed out that like advisers are equally prone to the behavioural biases as clients and  have a tough time making sense of statistics, often wanting to see causation where there is only chance. ’How much can you infer from the fact that a fund has done very well in the last four years?’ he quipped. ‘The answer is, very, very little.’

He stressed that ‘ it’s almost irresistible, when somebody has done well for four years, to think that they’re on to something; they know what they’re doing…..  So knowing that we tend to see patterns where there are none, and that we tend to attribute success to skill when in fact it is due to chance, that is useful mental discipline that people find very difficult to acquire

I have to say, I particularly enjoyed reading  Kahnman’s piece and his book ‘Thinking, Fast and Slow’ is a must read for financial planners.


Gold Rush In Platformland

Following news that Cofunds now has £45bn AUA, you will be forgiven for thinking that everyone is platformland is laughing to the bank.  Every lifeco and his dog want one. Infact, lifecos are betting their farm on their platform-horse!  In this article, Consultant Campbell Macpherson makes the point that a platform, at it’s core is essentially a utility and  ‘ any platform that wishes to succeed in the inevitably lower-margin world must itself be “low cost”; it must be as automated and efficient as it possibly can be.’  He urged advisers to look out for these qualities when they choose platforms.
That’s it this weekend. Take a  look at our Midweek Digest (17th Oct) to catch up with the other summary of articles and debates earlier in the week. As always, we welcome your thought and comments.


That’s it this weekend. Take a  look at our Midweek Digest (17th Oct) to catch up with the other summary of articles and debates earlier in the week. As always, we welcome your thought and comments.







Abraham Okusanya
Abraham is the founder of FinalytiQ, a research consultancy for platforms, asset managers, and advisory firms. Recognised as one of the country’s leading experts in retirement income, platforms and investment propositions, Abraham has authored several papers on these subjects and delivered talks to the Personal Finance Society, The FCA and several conferences across the country.

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