Robin Keyte : Independent Financial Adviser

Slow Money for Social Investments

2007-05-01T08:01:00.001Z

Here is the press release recently sent out for a project I have been working on for 18 months now, which is finally coming to fruition. It is about establishing a new financial mechanism to raise social investment capital for small local social enterprises.

PRESS RELEASE
'Slow Money' scheme announced in the South West

A scheme that will be the first of its kind in the UK is being launched in Dorset, Devon and Somerset this April, to help channel local money in to community projects. Wessex Reinvestment Society (WRS) is leading the initiative, which will not only provide small community enterprises with a simpler way of accessing funds, but will also give people in the South West the opportunity to invest in projects that are closer to home, and possibly more in line with their ethics.

Tim Crabtree, Director of WRS, comments: "Research undertaken over the last 18 months has identified that many businesses incur high costs when raising investment for new ventures through existing routes. These include high fixed interest rates and the expense attached to issuing a prospectus because of due diligence requirements. For most community projects these costs can be prohibitively high and so WRS has designed two new models that fit hand in hand with the needs of small, local initiatives."

The models adopts the concept of 'Slow' Money'[i], a term inspired by the Slow Food Movement, and anticipates that just as people now question the traceability of their food, in a similar way, so are they more concerned about where the money they invest is being spent. By investing 'Slow Money', as opposed to 'Fast Money' which fits in the anonymous world of global finance, investors may have to commit their funds for longer, but they will know where their money is going, how it is being used and will experience both a financial and social return - known in financial terms as 'blended value'.

Tim continues: "Our research backs up the theory of 'Slow Money'. It shows that as much as investors want to gain financial return, so do they value seeing the local social benefits of their investment, and importantly to achieve this, they are willing to commit funds for longer periods of time. I hope that people will view this new means of investment as a refreshing and more personal way to go about using their money and that it brings a sense of ownership to local projects."

WRS has worked alongside the Financial Services Authority (FSA), with grants from Friends Provident Foundation and Esmee Fairbarn Foundation, to develop, negotiate and register new legal structures for two categories of projects seeking investment: 'enterprise projects' and 'community asset' projects. 'Enterprise projects', such as local food initiatives, will be established by WRS as Industrial & Provident Societies (IPS) so that investment capital received directly by the enterprise can be used to develop new ventures. The benefit of this structure is that a tax reducer, equivalent to 20% of the investment made, compensates for higher risk factors. On the other hand, WRS will on-lend finance to 'community asset' projects, such as housing schemes, which although don't receive the same tax relief, are regarded as lower risk.

Using these two models, local investors will easily be able to become involved in nearby eco friendly and low cost housing schemes and community food initiatives. Four local businesses have been identified; Ecos Fund, Local Food Links, High Street Organics and Wessex Community Assets, and WRS will join forces with them to help them raise funds for future projects.

Ecos Fund has been formed to enable investors to support sustainable and zero carbon projects, built by Ecos Homes. The Company won a national award for its first development, Great Bow Yard, with investment from Ecos Fund and plans to embark on four more projects in the next two years.

Local Food Links has been set up to make good local food accessible and affordable to everyone. Its mission is to provide a range of catering, distribution and retail services which supply high quality and affordable food to the local community, especially children. Local Food Links is reintroducing hot school meals to local primary schools in Dorset that have had no kitchens for 25 years.

High Street Organics is a community co-op that provides organic fresh foods and wholefoods from local producers and co-operatives. It has evolved from a voluntary run shop, open for only half the week, to one which is now open six days a week, providing part time employment for six staff. High Street Organics now has the opportunity to purchase its premises and so needs to raise capital.

Wessex Community Assets (WCA) supports affordable housing in rural communities by setting up Community Land Trusts (CLT). CLT allow communities to make affordable housing available to local people through rent and shared ownership, and ensure there are affordable homes for future generations. WCA is seeking investment to support several housing schemes in Dorset, Devon and Somerset.

Charles Couzens, Chairman of WRS, concludes: "Each business initiative will benefit its local community and creates an excellent opportunity for local investment. WRS welcomes other community groups looking to embark on new projects to come forward and adopt the new investment model. Investors in the South West now have a new way of investing that will be of direct benefit to their surrounding community and environment. We hope that in the future, once tried and tested, this model will be applied elsewhere in the country."

For more information about WRT please contact Charles Couzens on tel: 01458 259400, email: charles@sustainablehousing.org.uk or visit: www.wessexrt.co.uk

For more press information please contact Abbie Tinsley at Positive PR on tel: 01935 389497 or email: abbie@positivepr.co.uk (001) April 2007

Background information:
WRS is part of the Wessex Group, which was formed in 2002/2003, following research across Dorset, Devon and Somerset which sought to identify gaps in the provision of finance to small businesses, social enterprises and voluntary organisations. This research identified the intrinsic link between employment, enterprise and property and revealed demand for locally delivered loans to develop enterprise, enable access to affordable housing and workspace and improve housing conditions.

[i] Woody Tasch, Chairman of Investors' Circle, initiated the concept of 'Slow Money'.

Investment Joke

2007-03-20T13:13:00.001Z

Q: What's one of the fastest ways to lose money?

A: Ask a bank for investment advice.

A client with a keen sense of humour recently got in touch to tell me about a conversation that took place recently between him and an investment adviser in the branch of one of the top 5 high street banks.

When discussing a lump sum of capital the adviser tried to sell an investment bond to my client, with one of the key features being that it would not have any initial charge. However the product illustration clearly showed it would pay initial commission of 7% to the bank.

Furthermore, it showed that if the investment was encashed within a year of being established, a 10% penalty would apply.

If my client had accepted the sales pitch and bought the investment, in real cash terms he would have immediately lost 10%.

It may seem like a radical idea, but shouldn't investments be designed to make you money, and NOT the financial adviser?

Ethical Investment in 8 March 2007 edition of Money Marketing

2007-03-20T13:05:00.000Z

Hi John,

How interesting to read Chris Salih's article titled "Green piece" on page 36. The content was primarily negative talking about how an ethically screened universe of shares, removing many of the large caps, must lead to long-term underperformance.

Whilst I think informed opinion now recognises there is little or no difference in long-term performance, can I say that really this piece misses the point entirely.

It is for the customer to decide whether they want an ethically screened investment.

It is for the adviser to give the customer a satisfactory level of comprehension (financial capability) where the customer is able to decide whether they are prepared to accept any perceived potential investment underperformance (or outperformance going by 2006) or not.

Do financial advisers do this?

Or do they shy away from this whole area and instead tell the customer they don't sell ethically screened investments, because they are not on their panel etc etc

How does that stack up with treating customers fairly?

So let's go back to the results from the F&C survey, out of 2,193 people interviewed, 87% said companies should be taking social, ethical and environmental issues seriously.

Let us assume that is a hugely inflated figure, and really of those interviewed, only half will put their money where their mouth is. That is still a massive 43%.

How many financial advisers routinely ask their clients if they want social, ethical and environmental issues taken into account, and then arrange ethical investments in ALL cases where a positive response is received?

My guess would be 1% or less.

So I say again, how does that stack up with treating customers fairly? Not to mention you are missing an awesome new business opportunity dealing with all of that 'unmet demand'.

Kind regards,

Robin

Ethical Fund "Tops League Table"

2007-02-23T13:35:00.000Z

Of all the investment funds investing in UK shares during 2006, the best performing fund was an ethically screened fund, the Co-Operative Insurance Sustainable Leaders fund.

http://news.bbc.co.uk/1/hi/business/6345767.stm

I have always known that investing ethically does not mean having to accept lower returns, and this is the ultimate proof of that.

Given the trouble experienced by online gaming companies during 2006, and the related drop in share price, any funds with a screen on gambling will have been helped.

For more information on ethical investing visit my website:

http://www.towersoftaunton3.co.uk/srinotes.htm

Credit Card Cheques

2007-01-04T09:52:00.000Z

For nearly a year now I have had a credit card with Abbey.

Before that I had used an HSBC credit card for 12 years but eventually gave up on them due to chronicly poor service.

What I do not understand about the Abbey credit card is why they are always sending me credit card cheques (something HSBC never did) and encouraging me to use them for paying people and companies who won't accept a credit card. I have never asked for a credit card cheque.

Moreover in the same letter they have encouraged me to use a credit card cheque to put some extra money into my bank account.

I can't think of anything more non-sensical than taking money out on your credit card to put into your current account.

Presumably there are a significant number of customers who struggle with the small print and do not understand how unhelpful this all is, and who offer a nice return to Abbey in interest charges and transaction charges.

Is this really how major high street banks should be behaving?

Robin

Absurd Advice

2006-12-23T12:21:00.000Z

By co-incidence a new client (let's call him MM) has recently been in touch about their experience with the same high street bank as my last entry.

MM is 65 and has recently emigrated to the UK with his wife and they have no more than £40,000 to their name.

MM has found employment and they are presently renting and reviewing their options. MM is a basic rate taxpayer and his wife a non-tax payer.

When considering what to do with their £40,000, they visited the bank to seek advice. The adviser in the bank recommended that the whole amount was invested into an investment bond, which by the way would have paid the bank commission of £2,800 (i.e. 7%).

MM was a little uncomfortable about this advice and decided to seek a second opinion from me.

I told MM not to proceed with the investment on the grounds that:

a) this was all the money they owned and it needed to be kept safe, and hence should be in a high interest building society account in MM's wife's name, so the interest would be received without being taxed.

b) even if they were to invest any of it, an investment bond was completely the wrong vehicle as:

i) the underlying life assurance investment funds were taxed within the fund at broadly the basic rate. Why invest in a taxed fund? It is far better to invest in an unit trust (perhaps via an ISA) where the fund is not taxed internally.

ii) the investment bond has hefty surrender penalties over the first 5 years (due to the big upfront commission payment). It is much better to invest in something with no surrender penalties and a small initial charge. Indeed, there are some products with no initial charge called stakeholder savings (http://www.stakeholdersaving.gov.uk).

The message that is becoming clear is that anyone seeking advice from a high street bank on the investment of a lump sum, should always consider seeking a second opinion from a fee-based adviser that works on an hourly rate.

The other message appears to be that investment advice provided by high street banks is driven by the products paying the best commissions, which is rarely (if ever) in the best interests of customers.

Absurd Commissions

2006-12-21T14:40:00.000Z

Earlier this week a client (let's call him BH) telephoned me to tell me about his experience with one of the top 4 high street banks.

BH is approaching retirement and will have sums of around £200,000 available to invest to supplement his income in retirement. He thought he would test the bank to see what they had to say before asking for my advice.

The financial adviser in the bank recommended that BH should invest £150,000 of that sum into an investment bond.

BH took care to look through the product literature and was shocked to see that such an investment would give rise to a commission payment to the bank of £10,500, equating to 7% of the investment.

We joked that, based on my hourly rate of £130, I would have to do 80 hours of work for BH (equivalent to 2 whole weeks) to justify such a payment.

By comparison the bank adviser was hoping to do no more than perhaps 3 or 4 hours.

In short, the amount of commission that would have been paid is completely disproportionate to the amount of time that would have been spent by the adviser working for BH.

Needless to say, by consulting a fee-based adviser working on an hourly rate, BH is going to save thousands of pounds in unnecessary costs.

The message here is that if you need advice regarding a large lump sum, you should only be speaking to fee based advisers that work on an hourly rate.

TCF Mantra

2006-12-14T12:12:00.000Z

To: john.lappin@centaur.co.uk
Sent: Friday, December 08, 2006 1:13 PM
Subject: TCF Mantra

Hi John,

I have been reflecting upon my letter in your 30 November edition - "Value does not depend upon how we are paid", and Nic Cicutti's thought provoking piece in your 7 December edition - "Boggy trail".

It strikes me there is plenty of scope for financial advisers to receive payments that are disproportionate to the amount of work they do for their clients, by way of fund based renewal commissions as well as initial commissions.

Perhaps the mantra should be:

"relate the work you do to what you are paid and vice versa".

For instance, at the beginning when investments are initially made, that usually means rebating commissions so that what you receive matches the amount of work you have done.

Later on, when funds (& renewals) accumulate, that usually means moving to 6 monthly review meetings instead of annual ones (i.e. improve your service in line with higher renewals), or at the very least treat the client to a very nice lunch or a weekend break.

Kind regards,
Robin

Fees and Commissions

2006-11-23T17:59:00.000Z

A letter to Money Marketing

Hi John,

I have been reading the ongoing debate about fees and commissions which has been re-ignited by Peter Hargreaves.

Getting hung up on whether one is better than the other rather clouds the more fundamental issue of offering fair value to the customer.

Offering fair value to the customer is not dependent upon how we are paid, but on the relationship between the amount we are paid and the amount of work we carry out for the customer.

A common and fair criticism of commissions is that many products offer maximum commissions that are disproportionate to the amount of work carried out by the adviser. Such products do not represent a fair deal for customers.

It is encouraging to note that there are a number of financial advisers that are taking on the FSA's treating customers fairly message and when recommending such products, endeavour to rebate commission to improve the deal for the customer. A good example of this is the arrangement of investment bonds on commission terms similar to unit trusts (i.e. 3% initial commission instead of 7.5%).

What is less encouraging is the seeming reluctance of product providers to integrate the treating customers fairly message into their product design process. Instead they are still offering high commission deals and the opportunity for certain firms to take commissions wildly disproportionate to the work they do for their customers.

I think the whole of market advice sector is becoming polarised in its own right, with IFAs serious about treating their customers fairly at one end, and the maximum commission / maximum turnover firms at the other end. (If such unsustainable business practices aiming at maximum turnover are driven by the management's interpretation of fiduciary duty, they need to step back and think through more carefully the meaning of fiduciary duty).

The concern I have is how these differences in the whole of market advice sector can be effectively communicated to the public, so when they need financial advice they are able to identify IFAs whose advice will be based on fair treatment, as opposed to a maximum commissions sales process.

Kind regards,

Robin Keyte

Providers TCF

2006-11-10T10:19:00.000Z

A letter to Money Marketing:

Hi John,

I was interested to read David Barnett's letter in your 9 November 2006 edition on the FSA requirement for product providers to take more responsibility for the quality of advice.

I agree with him to the extent that the primary responsibility is on the adviser as it is the adviser that deals with the customer.

However there is a heavy secondary responsibility on the product provider to design a product that treats a customer fairly.

It could be argued that there are far too many products in existence whose design is strongly influenced by distribution and marketing costs (i.e. commissions and adviser support) and returns to product provider shareholders. In these cases the interests of the customer come a very poor third.

To illustrate this, it is easy to look at the opposite ends of the spectrum of investment product design.

There are presently a few UK index tracking unit trusts available with NIL initial charge and an annual charge including fund expenses of 0.5% per annum.

These charges make little or no provision for intermediary commissions and the product design could be described as very customer focused.

Compare the above to investment bonds which pay up to 7.5% initial commission and have an array of charges often including initial charge, annual charge, establishment charge, exit penalties etc.

These charges make substantial provision for intermediary commissions and the product design could be described as very intermediary focused.

Whilst I strongly believe advice must be paid for, there is a question over balance, how much should be paid, what represents value for money, the degree to which products should be laden with charges etc.

Kind regards,
Robin Keyte