You must be KIIDding

You must be kidding. Not more documentation on funds…


What is a KIID?

Just kidding...

A Key Investor Information Document (KIID) is a new document which must be provided to anyone who invests in a fund which comes under the EU’s new regulatory directive, UCITS IV [Ed: snappy names, huh?]. These are funds such as OEICS or Unit Trusts which are held directly in an ISA or Collective Investment Account, but not funds which are held in bonds or pensions.

These regulatory and legislative changes have been driven by requirements introduced by the European parliament and the aim is to ensure investors are able to make fully informed investment choices. This means investment firms will be changing the format of the way they provide information.

On the plus side, the KIID must only be two pages long. Hooray!

[Ed: I can’t see anywhere in the regulations where it says how big a page is. Sorry to be cynical but I’d be buying shares in poster printers if I were you… ;-) ]

If you invest via a platform or a wrap you should know the KIID is produced by the fund manager, not the wrap or platform and shows you details of the fund you are thinking of investing in.

Implementation

KIIDs have been phased in from 1 July 2011 so you might not always receive one, but some fund managers started producing them straight away. Most will be launching during the first part of 2012.

If a new UCITS-regulated fund is launched before July 2012 a KIID must be provided from the outset. By July 2012 all fund managers must produce a KIID for all their UCITS-regulated funds.

It is likely Green Financial will have to change our processes, in the future asking clients to confirm they have read any KIID for a given fund before effecting a switch into that fund, for example when rebalancing portfolios.

The KIID format is prescribed by the European investment regulator. Therefore, when you read a KIID alongside documentation that has been produced by someone else such as a research house or wrap provider (this information could be, for example, a Funds List or Fund Factsheet), you may notice that some information is presented differently. Some areas of difference could be:

Fund objectives & Special risk factors

The wording of the fund objective or special risk factors may differ slightly between documents, but the actual objective or risk factors remain the same. This is simply because different disclosure documents are produced by different entities.

Risk and reward profile

The documentation produced by other entities has historically often used a numerical scale to show the risk rating of a fund.

The KIID uses a scale of 7 risk bands. The scale will be known as the Synthetic Risk and reward Indicator (mercifully shortened to SRRI Acronym fans!). Funds rated at the lower end are typically lower risk with potentially lower rewards and lower volatility. Those at the upper end are typically higher risk with potentially higher rewards and higher volatility:

KIID risk bands

The calculation method is set down in the rules so as to ensure consistency between fund groups, and looks at 5 year volatility but with the ability to use benchmark data where there is not sufficient fund data. Fund managers must review the SRRIs on their funds regularly. The KIID must be updated annually shortly after the beginning of each year, but if the SRRI of the fund changes, more frequent updates may occur.

At Green Financial we will integrate the new KIID risk bands into our existing document that already compares five different grading scales. This is so that our clients can be aware how any given risk rating compares to others and how their own attitude to risk and volatility, along with their portfolio as a whole or individual funds, aligns with other scales. In this sense we feel we have been ahead of the curve and European legislation in helping our clients understand risk and reward profiles.

Fund charges

The charges shown in the KIID are in a format prescribed by the European investment regulator, which is appropriate for an investment directly through the relevant fund manager.

If you are investing through a wrap or platform, the charges you will actually pay for the fund are likely to be different, in most cases lower. This is because wraps and platforms in conjunction use scale and buying power to negotiate better deals with fund managers.

For accurate details of the actual charges you will pay please refer back to your original documentation, log on to your wrap or platform or contact Green Financial directly

To finish, a few FAQs kindly put together by Fidelity (www.fidelity.co.uk)

1: What is UCITS IV and why are the rules changing?

The UCITS Directive 85/611/EEC (entered into

force in 1988 as amended by UCITS III in 2002) has

been the key driver contributing to the significant

development and success of the European

investment fund industry over the last two

decades. However, with the rapid evolution of the

investment fund market, it was necessary to further

enhance the UCITS market and brand.

2: When does UCITS IV come into effect?

The UCITS IV Directive came into effect on 1 July

2011 however a “grandfathering period” will allow

existing funds and associated share classes to

continue to produce a Simplified Prospectus up

until 1 July 2012, when all UCITS funds must have

a KIID. New funds launched during this period must

have a KIID.

Fund groups can transition to KIIDs any time

between 1 July 2011 and 1 July 2012.

3: What is a KIID?

The KIID will replace the existing Simplified

Prospectus for all UCITS funds and will be a

synopsis of key information relating to a fund.

The KIID must be provided pre-sale at fund and

share class level, and is classified as a legal

document. The KIID will be the primary document

provided to investors and potential investors.

4: What information will be included in a KIID?

The KIID has prescribed content which includes:

- a short description of the objectives and

investment policy of the fund

- a risk and reward profile

- past performance data in graphical form and

- details on costs and associated charges.

5. How will funds be measured in terms of risk?

The risk and reward profile, or “Synthetic Risk and

Reward Indicator” (SRRI) is a new representation

of risk factors in the KIID. It is expressed on a

scale of 1 to 7, with 1 being the lowest risk and

potential lowest reward and 7 being the highest

risk and potential highest reward. It is based

upon a prescriptive calculation method to ensure

consistency between fund groups and looks at

five year volatility with the ability to use

benchmark data where there is not sufficient fund

data. It is supplemented with explanatory text,

including risk descriptions relevant to the share

class the KIID represents.

6: Does the FSA require any other


information to be provided with


the KIID?

The KIID will only replace the Simplified

Prospectus. All other documentation will still be

available to investors.

7: What will Green Financial as my

 adviser need to do differently now

that UCITS IV is effective?

An adviser will have a legal and regulatory

obligation to ensure that their client has received

the latest KIID (if available) before an investment

is made.

8: Will I still receive printed documents?

A paper copy of the KIID must be provided to

clients upon request. This will be provided

manually, following the same process employed

when a paper copy of the Simplified Prospectus

is requested currently. Braille and audio copies of

the KIID are also available on request.

Born in the USA (or just visiting) ?

Are you a Green Financial Client that was Born in the USA?

Are you a US citizen, or married to a US citizen.



Or are you a green card holder or temporarily resident in the country or even just own a holiday home in the US!


If you are one of the above and a Green Financial client we may need to talk soon.

Chewing the FATCA
"The US-instigated FATCA (Foreign Account Tax Compliance Act) threatens to be a costly administrative headache for financial institutions in the UK",
says Cherry Reynard on www.adviser-hub.co.uk ,
 
It brings responsibilities for advisers such as Green Financial too.
And for added responsibility, read added cost :(
 
AdviserHub reports:
"As government coffers weaken around the developed world, policymakers have been implementing increasingly draconian legislation to generate revenue and the Foreign Account Tax Compliance Act (FATCA), introduced by the US tax authorities in March 2010, is one of the more far-reaching examples.


Some commentators, including Robin Stoakley, managing director of Schroders’ UK intermediary business, have even gone so far as to suggest that the impact of FATCA could be as significant as that of the Retail Distribution Review (RDR) (see other Green Financial Blog Posts).
It certainly threatens to be a costly administrative headache for UK-based financial institutions.
The legislation is designed to crack down on offshore tax avoidance on ‘US accounts’ of more than $50,000 (£32,000). Crucially, this is not limited to US citizens but may include other individuals potentially subject to US tax, such as those with a holiday home in the US, green card holders or those who are temporarily resident in the country.


The US authorities’ aim is to ensure that tax is paid on individuals’ worldwide income where appropriate. One of the thorniest areas of FATCA may be where US citizens are married to non-US citizens. The legislation is not yet clear on whether the income of the non-US spouse potentially falls within its scope.


This would seem to present few problems for UK-based fund managers, advisers and administration platforms were it not for the requirement that any investor holding US assets effectively ‘prove’ that they are not US citizens. This means that UK financial institutions will have to undertake a significant data-gathering exercise to ensure their clients do not fall within the remit of the legislation.
Compliance process


According to a report by KPMG, FATCA and the funds industry the data that is required for FATCA compliance in the investment funds industry is, in most cases, not held by one person. As such, advisers like Green Financial will also form an important part of the compliance process in that they will need to provide details of clients. Problems could also arise where nominee structures are held.
The KPMG report suggests as many as 32% of investment fund managers expect to have to adapt their product range to comply with FATCA. Fund of funds have a particular problem with only around 10% saying they can determine the amount of US-sourced investments.


Research by Schroders suggests the legislation may cost as much £400m for the financial services industry, potentially raising administration costs for advisers.
The full details of the legislation have yet to be finalised, with further guidance expected shortly, but Foreign Financial Institutions (FFIs) will have to register with the US’s Internal Revenue Service (IRS) by 30 June 2013 under the new rules. The deadline for full implementation of the legislation was originally January 2013, but some parts have now been moved back to 2014 and beyond.


Once registered, FFIs are expected to work with the IRS to attain ‘Participating FFI’ status. This will include demonstrating they have procedures in place to pick up US accounts among their existing clients and to implement proper account opening procedures in future.


Draconian penalties


The penalties for non-compliance are draconian. Withholding tax of 30% on income and asset disposals is payable for so-called ‘recalcitrant account holders’ – in other words, those that do not provide reasonable disclosure – and for non-participating Foreign Financial Institutions (NPFFIs).


These are called ‘Passthru’ payments and, according to RBS Dexia, may include US-sourced interest, dividends and gross proceeds on disposition of assets as well as non US-sourced interest, dividends and gross proceeds on disposition of assets multiplied by the pro-rata ratio of US to non-US assets.


Some groups are defined as ‘deemed compliant’. These are accounts the IRS views as exempt from FATCA’s rules and include certain holding companies, start-up companies, hedging/financing centres of a non-financial group and certain insurance companies. Pensions are currently under review. In practice the IRS has been tight in its definition and relatively few institutions are deemed compliant."

Adviser Hub concludes:
"Broadly speaking, fund and wealth managers have gone one of two ways in tackling the legislation. Some are moving towards full compliance, whereas others are moving out of the market altogether. In practice the latter may not be easy, given the spread of the legislation although, in July, HSBC said it planned to sever its ties with wealthy US customers who bank offshore to aid FATCA compliance. Some groups are making a virtue of necessity, setting up US tax-compliant investment vehicles through which US citizens can invest."

We at Green Financial will be working with our UK based clients to ensure full compliance with any new rules. If you think this may apply to you in any way, please do contact us to discuss.

Client Communication re Investment Markets

No doubt over the coming days and weeks financial journalists will have a field day with what is going on in the markets. I recently read a report in the Economist that considered the type and variety of language and grammar used in differing stockmarket conditions. Typically the language used when markets were rising was restricted in variety and impact. Fairly everyday words like ‘gain’, ‘rise’, ‘up’ were commonplace and frequent. But when markets headed the other way lesser used words such as ‘crash’, ‘slide’, ‘tumble’, ‘dive’ and ‘plummet’ all appeared along with many more such alarming verbs.

[As I type, I just read on Twitter: "FTSE dives as global rout triggers new recession fears " - I couldn't have proved my point any better if I wrote the headline myself!]

That is not to say markets are not down, just to caution against getting caught up in media hyperbole.

As a client, you will remember one of my investment mantras is “Time, not timing”. What this means is time in the markets is what matters, not trying to beat the market by timing your moves.

The recent market manoeuvre I advised was in response to a potentially extraordinary event whereby I suggested exiting many equity markets just in case the US defaulted on its debt. I didn’t think they would, nor did most commentators and as it turned out they didn’t. But if they had things could have been very bad – indeed I may have had to type words such as tumble, dive and plummet!

Going back into the markets shortly after the decision probably saved around 2%*
*actual figure per individual will depend on exactly when you came out and went back in

Since then, many world stockmarkets have fallen (or crashed, tumbled and plummeted depending on what you read) further and this is where it is good to remember the usual Green Financial Investment Management Process which we discussed in regard to your financial aims.

Next time we rebalance your portfolio, towards the beginning of September, if markets have recovered, all well and good. But if they haven’t, the regular process will continue and in taking the percentages back to your normal mixture (the ‘pyramid’, or ‘triangle’ I drew when we discussed your investments) we will be using lower volatility assets, such as cash and fixed interest to purchase more of the higher volatility assets such as stocks and shares.

In effect, there will be a sale on in the stockmarket and you will be buying when prices are low, in order to one day sell when they are higher – surely the aim of investing?

Whereas those that believe what they read in the papers and are now selling equities are doing the opposite. They bought high and are selling low. Madness!

The above, of course, relies on that word again, TIME.

I always ensure the amount of money in the markets is appropriate for your stated attitude to volatility and risk including appetite for loss and need for gain.

Stockmarkets WILL return to their previous levels. They always do. I just don’t know when that will be (and no-one else does - if they claim to, they are lying or a fool).

So if you are worried or concerned by anything you see or hear please do contact me.

FTSE100 facts & figures

With all the stockmarket up and downs in the news, I thought I'd take a lighter look at the FTSE index most likely to be quoted on the news, the FTSE100:

Most Expensive
As at the time of this survey (March 2011), Rio Tinto was also the most expensive share in the FTSE 100 at 4088, closely followed by the company in 11th place in the size table (see below), Anglo American at 3218


A Numbers Game
Only two companies made it in with a number in their name – 3i group and G4S


Last Man Standing
In last place – the 100 in the FTSE 100 if you will, is Alliance Trust

No Happy Returns
Eight of the 100 currently pay no dividend with a further 12 paying less than 1%

Initial Thoughts
‘S’ is the most popular initial letter. 12 companies in the FTSE 100 start with this

There are 3 letters all with 11 companies. ‘A’, ‘I’ and ‘R’ although counting Royal Dutch Shell as two ‘R’s rather than one ‘S’ still feels like cheating.

Alphabetically bringing up the rear, yet in a respectable 14th place by size is Xstrata



And here, pop pickers (or should that be stock pickers?) are the Top 10 shares in UK FTSE100 as at March 2011


Company name, Sector, %age of FTSE 100, dividend yield



1 HSBC, finance (banking), 7.61, 5.49%

2 Vodafone, telecoms, 6.07, 4.72%

3 BP, oil/gas, 5.93, 0.89%

4 Shell A (properly known as Royal Dutch Shell), oil/gas, 4.98, 4.17%

5 Rio Tinto, basic (mining), 4.05, 1.64%

6 GlaxoSmithKline, health (pharmaceuticals), 4.03, 5.49%

7 Shell B, oil/gas, 3.76, 4.94%

8 BHP Billiton, basic, 3.41, 2.38%

9 BG Group, oil/gas, 3.17, 0.9%

10 BAT (British American Tobacco), goods, 3.16, 4.69%

 
More FTSE facts and figures if this post proves popular. FTSE - What's in a name? tomorrow

Pound Cost Averaging

If you set up a regular savings plan investing in one or more markets that have the potential to rise and fall over time (typically shares based investments) you may benefit from a phenomenon known as Pound Cost Averaging.
When markets are high, or perhaps arguably at any time when there is the chance of a fall (perhaps anytime?) care should be taken when investing lump sums.
If you invest £1,000 and it falls by 20% (so by £200 to £800) you now need a rise of 25% (£200, ie 25% of £800) to get back to £1,000.

However if saving regularly a market fall in the early years of a share based investment can actually be beneficial over the longer term!

To see why, please see the table below.

This shows how it can be more effective to buy when a stockmarket is fluctuating in value than by investing in times of sustained growth.

Of course no-one knows exactly when markets will rise or fall so you may wish to consider a mix of lump sum and regular investments if you have the ability.

But if you do not have a lump sum and are starting to invest in the markets for the first time, you can see how fluctuations are nothing to be concerned about over time thanks to Pound Cost Averaging

Banks - I told You So :-(

Banks - Treating Customers Fairly...Badly (3)

I told you so...

No one likes a smart alec and in these circumstances I don't even like to be right myself, but regular blog readers will recall my postings of November 22 and 23 last year where I lamented the generally abysmal service and bad practice of high street banks in their treatment of customers.
I explained that on numerous occasions I was spending substantial amounts of time with clients pointing out (at best) misleading info from banks and (at worst) pure mis-selling.

Sadly this has been proven in the recent case of Barclays
A fine of £7.7 million pounds and redress to customers estimated at £68 million pounds.
Good grief, what massive numbers.

If you are thinking of obtaining investment advice please seek out a qualified, fee based, independent adviser.

If this were an isolated incident I'd be less worried but I fear that before the year 2011 is out I'll be able to post a few more "I told you so" stories.
What a shame that the banking profession in the UK, once looked up to around the world, is now so tarnished...

It is worth repeating: If you are thinking of obtaining investment advice please seek out a qualified, fee based, independent adviser.


Sources:

BARCLAYS FACES BILL OF £68M FOR BAD ADVICE
Read more: http://www.express.co.uk/money/view/224001Barclays-faces-bill-of-68m-for-bad-advice#ixzz1BVuDq2z1

Barclays Fined a Record £7.7 million
http://www.freshbusinessthinking.com/news.php?CID=&NID=7134&Title=Barclays+Fined+a+Record+%A37.7+million

Barclays fined £7.7 million for Aviva fund sales failings
http://www.citywire.co.uk/wealth-manager/barclays-fined-7-7-million-for-aviva-fund-sales-failings/a463783?ref=wealth-manager-latest-news-list

Barclays fined £7.7 million for mis-selling
http://www.moneywise.co.uk/news-views/2011/01/18/barclays-fined-77-million-mis-selling

FSA fines Barclays over investment failures
http://news.yahoo.com/s/afp/20110118/wl_uk_afp/britainbankingregulatecompanybarclaysfsa


If you want to read more just google it, there are hunderds...

Dear Diary, Thursday

I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!

Thursday 14th

An exception to the norm today as I join the throng of commuters heading into central London. I truly could not be happier at having relocated my work base out of the City of London. The sheer additional quality of life, not to mention the time gained, by NOT commuting each day is fabulous. However, today, my Oyster card will be pushed to the limit!

From Putney to Waterloo on 'the big train' as my son used to call it and then underground. My destination is The Institute of Directors on Pall Mall to meet with a software supplier. I am currently updating my CRM system having used ACT for many years but wishing now to migrate to a ‘cloud’ based solution. This will give greater security and flexibility.

Onto the tube and from The West End straight back to SW London and a meeting in Wimbledon. The client was recommended to me by their accountant. Over the years the client has built up a number of investments, in a number of places, with a number of providers. Some have been good, some not so good and some not very good at all. Having thoroughly reviewed the portfolio (at no cost to the client – this is so they can experience my work for what it is and to see if I really ‘do what I say I will do’ – this is a courtesy I extend to all introduction from accountants or solicitors) I make my recommendations. A short big red bus bus ride shared with some college students (and without wishing to sound TOO Victor Meldrew I am sure I didn't make this much noise or mess or swear quite so much was I was a lad...) takes me to their home.

At the first meeting the client expressed concerns over the investments in that they didn’t know what they had, where it was, how much it was costing or how it was doing. They also expressed a desire to ‘simplify’ the whole situation, their desire these days (in retirement) to have a less hands-on approach with a preference for being told what was happening in a clear, jargoin free manner .

I was delighted to be able to provide that service and now the administrative task begins of consolidating the investments to bring lower cost, simplified administration and regular monitoring and management.

Jumping back onto public transport I zoom all the way across London from West to East, taking in the main line rail, the tube, and the new overhead network, to a meeting at a corporate client in Shoreditch. Today I am wearing full smart business attire which looked fantastic at my retired client’s home but looks hugely out of place in the trendy hotspot of East London (Not only does my suit mark me out as an outsider but also the use of the words here, ‘trendy’ and ‘hotspot’!)

Transport for London (TfL) seems to be conspiring against me and I have to be there by 4pm so I run the mile or so from the station to their office, in formal shoes, suit & tie and with case. Only to find their lift out of order and I need to walk up the 8 flights of stairs.
I arrive on time, just, and more than puffing lightly!

A very enjoyable meeting with the MD, helping to tidy a few pensions collected over previous employments and then a short while with a new key employee, enrolling him into the pension scheme and assisting with a few elements of generic financial advice in other areas whilst there.
Many employers engage me to perform this role, reasoning that if their key employees have access to a trustworthy, dependable, independent adviser to assist with financial matters it is a valued employer provided benefit and saves the employee having to DIY their finances in their own time (or even sometimes in worktime!)

Reversing my travel I head back East into town I have the carriage to myself for a while until we pass through the middle and continue out to the West and I am joined by the commuters heading home. Squeeze off at Putney and then walk the brief journey home grateful I won’t have to spend as much time on trains tomorrow as I have today.

Dear Diary, Monday

I was so busy last week I didn’t have time to blog.
So this week I thought I’d write up a diary of last week to give a little insight as to what I get up to, where I do it and who I do it with!

Monday 11th October
Having made my son what I thought was a breakfast fit for a hard day at school, a delicious bowl of porridge with chopped bananas, I was greeted with the response that ‘he’d rather have coco pops’. Now I know how Jamie Oliver feels!

A busy retirement
The working week then began with a meeting in the Putney office with a client who recently retired from a career in banking. As with many retired clients he seems to be busier now than when he was working!
The meeting was around the ongoing management of an investment portfolio and the portfolio construction for the pension retirement income. As is usual in situations such as this we also strayed into estate planning matters. I now have a number of questions to answer and finer details to clarify before we proceed further.

Family Matters
Then a dash out of the office to the train station (anyone who is also on www.foursquare.com could track me at this point!) and to ‘Sunny Brighton’.
The pleasure of meeting a prospective new client was tinged with sadness at the circumstances. Too often tragedy strikes when we least expect it and this gentleman was dealing with a recent bereavement of a too young wife and mother to a too young family.
Despite the circumstances the time together was positive and I feel well able to help (in purely financial matters only) the family move on from what has happened and position themselves for their future.

Life is a jigsaw
Then straight back to Putney for a meeting in the office with a client that I have only fairly recently started working with. It has taken the best part of six months to unravel their previous financial position thanks to the existing providers giving almost no information on small matters like performance or costs! We have started to work out a plan to determine if they have enough money to last a lifetime. A huge part of my work is helping people to discover “How much is enough?”. With this client the pieces of the jigsaw are almost all in place but to continue the analogy there seems to be a corner piece missing. I have left them with a few questions and if the answers are positive then we’ll complete the jigsaw and admire the view – but if the answers are not as hoped we may well be scrabbling around on the floor or simply hoping to find the missing piece down the back of the sofa…

Injury Time
Monday finishes with a particularly pleasing event for me. My first game of squash for over six months, thanks to a knee injury in the spring and then tearing an ankle ligament in the summer after falling – and in case you wonder the fall was non-sports related - and also non alcohol related before you ask!
To hammer home the time that had passed my regular squash partner had no idea I had set up Green Financial as a stand alone entity and last time we played my wife and I had just had the 12 week scan for the new baby, now due any week!
The score on the night: Well, that’s not important. It’s the taking part that counts…