In the good old days, deciding to invest ethically was simple. All you had to do was to avoid putting your hard earned cash into companies involved with tobacco, alcohol, pornography or armaments and certain pharmaceuticals. Your conscience could be clear if you invested anywhere else.
Gradually the definition of ethical investments has changed from excluding certain funds to only including those investments that pass through the various screening processes put in place by fund managers who wish to describe their funds as ethical.
The link between today’s ethical fund definitions and the original position are the funds which are known loosely as being environmentally-friendly. The are investments that can demonstrate that they are sensitive to the environment and have policies which encourage recycling or that minimise the use of natural resources or have reduced contamination in the way they carry out their business. In fairly recent times the terminology has changed again to “Socially Responsible Investments” and a new breed of ethical investments has appeared.
Taking Centre Stage
These are investments in alternative energy sources and it is these which now appear to have taken centre stage. If you want to invest in socially responsible funds, all you have to do is to select funds that are described by their managers as being socially responsible investments. However, all this means in practice is that the funds meet the fund managers’ screening criteria. Whether the fund meets the widest possible definition of ethical investment, including the carbon footprint of the fund, may not be known.
While anything that encourages responsible investing can only be a good thing, this needs to be balanced by an equal if not greater focus on the market opportunities and skill of the managers in charge of the funds, if investors are to achieve the returns they are looking for.
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While a flat rate 18% tax on capital gains may be bad news for basic rate tax payers, it is likely to be good news for City private client investment operations and, in the longer run, for most investors as well.
The Chancellor is regularly besieged by calls for the abolition of Capital Gains Tax on shares. It will never happen, though, for the intention of the tax is less to raise revenue than to stop investors protecting their total returns through capital appreciation.
The tax has become highly complicated, however, tying up valuable resource in expertise, computer power and time while generating no real wealth for the nation. Many private client investment firms have invested heavily into systems that overcome these complexities to produce reliable reports and estimates of tax payable.
Loading client details on to a tax system can be highly labour intensive particularly where a client has had a penchant for scrip dividends. The reports themselves are only as good as the information loaded into the system. The cost of administering these systems is borne, ultimately, by clients.
So while abolition may not have been an option, simplifying the tax via a flat rate removes many of its disadvantages. Before we get to that happy state, however, firms will have to take their clients’ portfolios and un-index them: stripping back holdings to their base cost, ex-indexation and taper relief.
With indexation, taper relief and pooling gone, calculation will be far simpler heralding a longer term reduction in costs, fees and angst.
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Providers planning a long-term future in the adviser platform market will need to respond positively to IFAs’ requirements to achieve success, according to Defaqto’s latest report, ‘Adviser Platforms in the UK 20081- Stand and Deliver‘. The report identifies key areas of focus for those wishing to deliver successful propositions within this ever-changing marketplace.The report suggests that despite experiencing some growth, the platform market is essentially still in its infancy. IFA networks and support groups, which have yet to take a stance on platforms or commit to preferred partners, will need to be the target of platform providers. These providers will need to cite the positive experiences of those who have bought into the concept of platform technology and are conducting business online.
In the report, Defaqto uses feedback from IFAs conducting business in the UK investment market to deliver a qualitative dimension to the findings. This includes an insight into IFA business habits, IFA opinion on pertinent industry issues and IFA perception of service standards within the platform arena. This gives important insights to providers by allowing a better understanding of the IFA community’s behaviour and needs in this developing market.
Matt Ward, Defaqto’s Principal Consultant for Pensions & Wealth Management, comments: “It would appear from our research that many IFAs are still trialing platform solutions ahead of further commitment to one or two partners. One of the reasons for this would seem to be a confusion surrounding the USPs of each proposition and it is vitally important for providers to ensure that IFA supporters are clear about the capability of the services and systems on offer.
“Everyone who is involved in the market, whether as an active or potential participant, will benefit from understanding more fully how the market is moving and how propositions are developing, as well as finding out what the likely impact of regulatory directives on the platform market will be.”
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Notes to Editors:
1The report ‘Adviser Platforms in the UK 20081- Stand and Deliver‘ is on sale priced £1,200 excluding VAT for a PDF version and £595 (No VAT payable) for a single printed copy. For further information please contact Chris Johnston on 01844 295457, or the Sales Department on Freephone 0808 1000 804 or visit http://www.defaqto.com/
For further information contact:
Defaqto Limited
Matt Ward, Chris Johnston or Luci Mylward
01844 295 454
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The investment industry is awash with statistics on fund performance. If you want to know how a fund has performed over three months, six months, one year, five years or ten years, the information is readily available. While past performance is not a guide to future performance, it is another part of the fund’s jigsaw of information that helps complete the picture along with asset allocation, fund manager details, investment policy and the like.
The situation radically changes though if you are interested in investing for income and you set about finding out how much a fund has paid out in the recent past. Now the position changes from the historical performance of the accumulation fund to the future expectation of distribution of the income fund.
If past performance is not necessarily a guide to future performance, how can expected performance be a guide to actual performance? And what is the point of showing fund performance figures that include the very distributions that people seeking to compare income funds want to identify?
Performance figures would make some small sense to people who want information about income distributions if they were stripped of the income reinvestment element of the performance. At least the claims of funds who say they aim to pay a reasonable income while at the same time delivering asset growth could be tested.
Investing for income appears to carry the same health warning that investing anywhere else does. Do your own research about the fund composition, management style and future likely economic conditions and come to your own conclusions.
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Defaqto’s independent updated guide designed to help financial advisers improve their understanding of multi-manager fund management has just been produced and is downloadable free of charge from: http://tinyurl.com/2f623bCalled “Blending Talents1: A guide to multi-manager investing in the UK”, Issue 6, Defaqto’s latest guide explains how the different types of multi-manager funds can work for financial advisers and their clients. It is also designed to deepen appreciation of the various ways in which multi-manager funds are managed and the report provides a template which if followed by multi-manager fund managers will ensure that advisers will be able to place the appropriate funds in front of their clients.
The guide is issued at a time when the level of fund manager moves in this section of the industry has been unprecedented and it contains the full listing of fund manager moves in 2007.
The guide enumerates the advantages to the adviser of outsourcing investment decisions to multi-manager investment specialists including how this can help improve client relationships and increased business levels.
Fraser Donaldson, Principal Consultant - Investments at Defaqto and co-author of Blending Talents, says: “With upwards of 300 multi-manager OIECs and unit trusts in the UK, advisers can be overwhelmed by the amount of information they would otherwise need to research without a guide like ours to help them. By following the route map to successful investment selection that the guide provides, advisers will be well placed to meet their customers’ requirements appropriately and with confidence.”
The guide is available as a free download from the Defaqto website at: http://tinyurl.com/2f623b
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Notes to Editors:
The guide “Blending Talents” is sponsored by AXA Framlington, Cazenove Capital Management, Credit Suisse Asset Management, Fidelity International, MLC and Schroders.
For further information contact:
Defaqto Limited
Fraser Donaldson, Chris Johnston or Luci Mylward
01844 295 454
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