THE FIDUCIA MASTERTRUST

Transcription

1 THE FIDUCIA MASTERTRUST Simply a Smarter Way to Invest A Total Portfolio Management Service Fiducia Wealth Management Limited Dedham Hall Business Centre Brook Street, Dedham Colchester Essex CO7 6AD Tel: (01206) Fax: (01206) @fiduciawealth.co.uk Fiducia Wealth Management Ltd is authorised and regulated by the Financial Services Authority CONTENTS

2 Section One Introduction to Fiducia Wealth Management Page 3 The Fiducia Mastertrust explained Page 4 Section Two Risk profile methodology Page 9 Portfolio construction and investment process Page 12 Charges Page 16 Summary of the key benefits Page 18 Section Three Transact - financial strength and client security Page 21 Appendix Effect of discounted fund management charges Page 28 Glossary Page 29 1

3 SECTION ONE 2

4 FIDUCIA WEALTH MANAGEMENT LIMITED Fiducia is a leader in the provision of independent wealth management and offers a distinctive service to meet the particular needs of private clients, business owners, family groups, trustees and charities. We understand that those who have higher income, more affluence and significant wealth or are concerned about succession issues require a special quality and scope of advice in order to take account of their more complex needs. The key features of that service are: Putting clients interests first at all times, Commitment to holistic financial principles that encompass a total advice service, The adoption of open architecture principles in order to provide a truly independent and client focused investment service, The Mastertrust Investment Account - an actively managed, risk controlled, personal portfolio which enables all current and future investments to be consolidated and managed in accordance with each client s personal risk profile. Our own brand Self Invested Personal Pension (SIPP) and Small Self Administered Scheme (SSAS) developed in association with leading independent pensioneer trustees, which enables us to provide a truly bespoke service. Where property purchase is involved, valuers, property managers, banks and solicitors are appointed to suit our clients needs and preferences. A close working relationships with private banks, tax strategists, trustees, fiduciaries, lawyers, accountants and property specialists. The result is a complete, independent and locally based wealth management service. 3

5 THE FIDUCIA MASTERTRUST The Background The concept of an integrated portfolio investment service can be traced back to the development of wrap accounts in the United States of America in the 1970 s, and the equivalent master trusts in Australia in the 1980 s. There are a small number of companies in the UK that provide these electronic trading and custodial platform facilities. We have undertaken due diligence in terms of security, service and charges. At present, we actively work with three, which are: Investment Funds Direct, which is owned by Royal London. Integrated Financial Arrangements plc, otherwise known as Transact. Novia Financial plc. The role they each fulfil is that of an execution only and custodial service, they do not manage the client portfolios. Fiducia has its own investment management process and is the investment adviser. The resulting buy or sell trades are then executed by the platform on instruction. In global terms, these accounts now hold hundreds of billions of investments and pensions on behalf of private investors and the concept is being adopted on an ever increasing global scale. 4

6 WHAT IS A TOTAL PORTFOLIO MANAGEMENT SERVICE? It comprises a bespoke investment account that can hold virtually the entire range of traditional investments such as the following collective funds: Unit Trusts, OEICS and ICVCs Investment Trusts UK approved funds domiciled offshore Shares registered on a UK Stock Market UK approved Offshore Funds. We are for the first time able to create a single investment account for each client which specifically reflects their risk profile. With the benefit of open architecture, the antidote to the packaged products manufactured by the big brands of financial services, this personal portfolio is created and managed for all of each client s planning needs. This has allowed us to create a suite of financial planning wrappers which include: Onshore Investment Bond Offshore Investment Bond ISA account The full range of Pension Plans A full range of Self Invested Pension Plans (SIPP) and Small Self Administered Schemes (SSAS) An extensive range of Trusts. Investment Trusts UK approved funds domiciled offshore The technology of the custodians has been integrated with our own processes enabling us to transform our back office and embrace the latest technology. This in turn enables us to achieve greater efficiency and accuracy by eliminating third parties who add no or little value. 5

7 WHAT ARE THE BENEFITS? The Fiducia Mastertrust Account facilitates the consolidation of all existing, uncoordinated, non-aligned investment assets and plans into a single integrated investment account, which is a crucial development in the concept of holistic financial planning. We are able to work with each client to develop a personal portfolio style which accurately reflects their financial objectives and risk profile. That means one level of fees, one standard of paperwork and one point of contact. Each client can check their portfolio on line whenever they wish. As a result, we are able to spend more time adding real value for our clients and to help them focus on the decisions that really matter. It enables us to un-bundle individual investment plans and creates an open architecture structure directly linked to each personal investment account. Clients will still require tax based computations but those plans, which essentially deliver tax based outcomes (such as ISAs and Pensions), are part of the overall financial planning process no longer segregated arrangements, enabling reviews and decisions to be better coordinated. The single, overall investment strategy, reflecting the identified risk profile, can be reviewed and the changes implemented at the same time for each of the underlying plans. Fund selection is by our Risk Metrics analysis which considers all UK approved funds in order to arrive at a best of best outcome. 6

8 HOW DOES IT WORK? The Fiducia Mastertrust Account is a portfolio builder, dealing service and tracking device combined into one. It is part software, part process and part management expertise which consolidates every activity into one investment process, which is then documented into one central, integrated report. It can accept existing as well as new investments. Most existing investments can be transferred to the Account usually by a re-registration process. The entry levels are appropriate for the service being provided and do have flexibility. Fiducia, in its investment management role, provides advice in terms of the overall investment strategy. When decisions are agreed the custodian will undertake the appropriate transactions on instruction from Fiducia. Those funds are either retained in a General Investment Account or allocated to the range of tax based plans, such as, ISAs, Onshore Bond, Offshore Bonds, the whole range of Pensions etc. There are two further facilities: The Account is also able to hold shares which are traded on any of the London Stock Exchanges. A deposit account offering instant access and paying a competitive rate of interest. Formal valuations are provided every six months including an end of tax year consolidated tax certificate to accompany the Self Assessment Tax Return. Each client also has secure internet access, via their account and PIN numbers, providing daily valuations and fund information on a personalised web page. 7

9 SECTION TWO 8

10 RISK PROFILE METHODOLOGY We firstly assess each client s risk profile which is a compromise between risk attitude and risk capacity. To explain, risk attitude is a measurement of each client s willingness to risk a less favourable outcome in an attempt to achieve a more favourable one the risk/return trade off. Risk capacity however is about each client s ability to sustain a less favourable outcome without compromising their original goals and objectives. Therefore, risk capacity is affected by: I. time horizons, which can allow for the recovery of investment losses and, II. total wealth, which can cushion the effect of a decline in portfolio value. We take account of both factors and as a result the appropriate amount of risk is generally the lesser of the two components. Around fifteen years ago, academic studies on risk tolerance identified that, as with intelligence and personality, this is a psychological trait, in other words one that generally remains the same over time. This has led to an assessment process that meets accepted psychometric principles. In 1997 the School of Psychology at the University of New South Wales, Australia, devised and tested a 25 point questionnaire. This risk profiling model, known as FinaMetrica, is now widely recognized as a leading risk profiling system and as a result we have adopted FinaMetrica as a key element of our investment management process. 9

11 HOW FINAMETRICA IDENTIFIES EACH CLIENT S RISK PROFILE 1. The Questionnaire The questionnaire which consists of 25 questions takes around 15 minutes to complete and generates a personal risk profile report. 2. The Risk Profile Report Each client is notified of their outcome and an explanation of how to interpret the result. The report also identifies the most appropriate risk group and investment style by means of a scoring algorithm. 3. Identifying Future Goals and Setting Priorities This is the holistic planning overview, establishing agreement on where clients are today in financial terms, where they want to be in the future and their priorities. We also gather the relevant factual and aspirational information to qualify those statements in terms of financial values and timescales. Once that is achieved and agreed, there are clear and measurable objectives for the investment planning process. 4. The Gap Analysis The FinaMetrica questionnaire asks each respondent to indicate the level of return they would expect their portfolio to earn, taken as an average over ten years and expressed in relation to current deposit interest rates. FinaMetrica is also able to generate the historical returns achieved for each of the preferred portfolios, over the period from 1 January 1970 to date. The results may highlight a gap between expectations and those historical returns. In these circumstances there are various options that need to be discussed, for example: To take more risk to try to achieve a better outcome 10

12 To increase the sums being invested To modify goals or extend timescales Of course, in the happy event that the historical returns exceed expectations, risk can be reduced as can the level of investment; goals can be accelerated, raised or added. These discussions on the gap analysis are key to the process of managing expectations, by directly relating the historical and forecast rate of realistic return that flows from the identified risk profile to the goals and timescales that have been set. 5. Obtaining Informed Consent and Commitment This is essential before any plan is implemented. The Risk Profile report is an objective, robust, plain-english assessment. If, in developing specific recommendations, trade-offs are required: They will have been made knowingly The pros and cons of the options will have been clearly qualified The final decisions will be agreed and recorded Conclusion - This logical, statistical, psychometric process creates the means to identify each client s risk profile and achieve agreement as to the basis of the specific planning strategy and timescale to be adopted. 11

13 PORTFOLIO CONSTRUCTION AND INVESTMENT PROCESS Risk Budgeting The Risk Profile scores identified by FinaMetrica have enabled us to create six portfolio styles: Cautious Prudent Balanced Growth Adventurous Bespoke. Each of the portfolio styles has been carefully constructed to ensure that they are aligned to the questions and outcomes of the FinaMetrica risk profiling questionnaire. The degree of risk taken within each style of portfolio is calculated directly from the FinaMetrica questions and allows us to create a risk budget for each of our portfolios. The risk budget is the maximum amount of risk that we can expose each of the respective portfolios to in order to achieve the rates of returns highlighted within the FinaMetrica risk profiling questionnaire. Asset Allocation Asset allocation controls the risk in a portfolio; it creates diversification and ensures the underlying investments do not have a high correlation in terms of their response to particular market conditions. The overall objective is to achieve low correlation especially within the low risk tolerance portfolios. Inflation Depending on the investment time scale, inflation can have a significantly adverse effect by eroding the real value of investments. This is the major risk to capital left on deposit. In the short-term i.e. 3-5 years, inflation is unlikely to have as great an impact on capital values as volatility. However, over the longer term inflation is a greater risk than volatility. 12

14 FUND SELECTION BY RISK METRICS The objective is to identify and select the individual funds to be included in each portfolio. The sophisticated investment software we use enables us to gain direct access to over 25 years of historical fund price data, which is updated daily and analyse the performance of over 14,000 onshore and offshore funds. Our objective is to identify the best of best funds based on both quantitative and qualitative assessments. We have created a Risk Metrics based filtering model to identify the best performing funds measured in terms of their Alpha, Standard Deviation, Tracking Error and Sharpe Ratio. This identifies the leading funds in each asset class and sector. We then undertake qualitative research in which we take account of factors such as: Strength of the investment process for each fund and how long it has been in place, Continuity of investment personnel, Investment style and whether it has proved durable over time, The clarity of the stated investment objectives, Strong and consistent past performance record, Favourable risk adjusted returns, The individual stock selection process. In order to evaluate information on a uniform basis we ask each investment house to complete a detailed questionnaire before any of their funds are considered for our approved fund list. We also have regular ongoing contact with the Fund Managers and their senior representatives. All the funds on that list are subject to ongoing review, as are the model portfolios. We apply the same process to funds not on our approved list to ensure we do not overlook any funds that at some future time may meet our criteria. The individual funds that make up our approved list are subject to review at least every month and potential changes are considered by the Investment Committee. 13

15 Tax Planning Once the portfolio risk profile has been agreed and the overall planning objectives defined and prioritised, we are able to add further value by considering the best means of mitigating or eliminating the payment of tax, whether personal income, capital gains, inheritance or corporation tax. The Mastertrust Account enables the funds to be applied in such a way as to achieve the most tax effective outcome. The overall effect is that the investment performance of the Mastertrust Account is further enhanced by a separate layer of tax planning. 14

16 THE CHARGES There is a transparent cost structure which is achieved by segregating the service into its three separate components, as follows: The Cost of the Investments - The Fund Managers The Cost of Transactions - The custodial platform The Cost of Advice - Fiducia The Cost of Investments These are the fees charged by the fund managers who manage the underlying assets. Discounts are negotiated by the custodian produce significant savings on the initial and annual charges that would otherwise apply. The level of discount is constantly being extended as the total value of funds with each custodian continues to grow. All the discounts are passed directly to the investors and in many cases funds are now bought on Institutional terms with no initial charge. The Cost of Transactions Custodial platforms provide an execution only service for which a custody and transaction charge is made. The charges for the selected custodial platform are referred to within the illustrations provided at the time specific recommendations are made. In addition to the transactional fees, there may be a facility administration charges for any of the specialist wrappers that are appropriate to the planning. The Cost of Advice As Wealth Managers, our role is to devise, establish and manage each portfolio. The process by which we establish each client s risk profile, undertake fund research and manage the ongoing investment advice has been referred to earlier. 15

17 That role requires not just technical, investment and tax knowledge but also a very clear understanding of the individual circumstances, resources and future plans of each client. We do not take commission form any of the counterparties to the transactions. We are paid by our clients for our services either from the portfolios or by a separate fee arrangement. Initial Fees discount I. new funds up to 99, % II. 100, , % 26% III. 250, , % 40% IV. 500, , % 62% V. above 1,000, % 76% This covers the meetings, analysis of existing arrangements, identifying, agreeing and prioritising future planning, risk profiling, research, preparing, presenting and implementing a financial plan. Annual Fees 1% per annum of fund value. This covers the ongoing investment management service, the annual investment performance review and recommendations, an annual meeting to review the overall financial plan. Total Typical Portfolio Charges The overall initial and annual charges will vary slightly depending on the makeup of each portfolio and the discounts obtained on the underlying fund management charges. The figures shown on the next page are a guide and are based on our Balanced portfolio as at January Portfolio Values Total Initial Charge Total Annual Charge I. 100,000 16

18 II 300,000 III 600,000 IV 1,000,000 Figures based on an average Investment fund initial of 0.17% and average AMC of 0.73% (See Appendix 2). 17

19 THE KEY BENEFITS OF THE FIDUCIA MASTERTRUST ACCOUNT 1. Investment Choice Each client portfolio is able to invest in any UK registered Unit Trust, OEIC, Investment Trust or approved onshore fund. It can also register any shares listed on the London Stock Exchange, although Fiducia does not provide advice on this class of asset. 2. Competitively Discounted Charges Across all seven portfolios, the custodian facility charges are discounted depending on the portfolio size. Our own charges for investment advice are also discounted in line with valuations. 3. Daily Valuations A current portfolio valuation is provided 24 hours a day via the custodian s website. The portfolio valuation will show the total value of the portfolio, the value of each sub-account and the value of the individual investment funds held within each account plus the percentage movement in value since the fund was bought. 4. Records Records of all transactions, including fees and other deductions can also be viewed on line. At the end of each tax year each client will receive a consolidated tax statement for both income tax and capital gains tax. This means it is not necessary for clients to maintain their own records. 5. Periodic Reporting Portfolio valuation Cash account summary 18

20 As at 5 th April annually Portfolio valuation report Statement of transactions Cash account summary Full dividend statement Tax voucher (if applicable) Realised Capital Gains Statement (if applicable) 6. Linked accounts for discount purposes As the value of the invested funds grows there are automatic reductions in the annual management charge made by the custodian who will also allow family members and relatives who reside at the same address to have their portfolios linked to one another for charging purposes, which means the entire family group benefits from lower charges. 19

21 SECTION THREE 20

22 INTEGRATED FINANCIAL ARRANGEMENTS PLC [1] FINANCIAL STRENGTH AND CLIENT SECURITY [1.0] INTEGRATED FINANCIAL ARRANGEMENTS PLC Integrated Financial Arrangements plc ( IntegraFin ) was incorporated in 1999 and has offered the Transact wrap service since It has net assets of more than 12.9 million, based upon the September 2007 audited accounts and, at the time of writing (October 2008), its funds under direction exceed 5.5 billion. IntegraFin s Board has been careful to ensure that the holders of the company s voting shares do not include in their number any institution that could be seen to be competing with the company or the advisers with whom it deals. As a result, no UK financial services product provider or fund manager has a shareholding, and the register comprises mainly private individuals. IntegraFin has made profits in every month since June 2003; an achievement unusual so early in the life of a new financial services company. Indeed, it has paid dividends to shareholders in 2007 and In addition to the standard visits and reviews by the relevant regulatory bodies, IntegraFin has been the subject of independent financial strength and due diligence reviews conducted by private capital investors, the Association of Investment Trust Companies (on behalf of its members) and consulting actuaries AKG (on behalf of two IFA networks). It has satisfied all parties. 21

23 [1.2] REGULATORY STATUS & CAPITAL ADEQUACY IntegraFin is authorised and regulated by the Financial Services Authority ( FSA ). It is authorised, amongst other things, to: hold client money; hold customer assets; and pass and execute customer orders. As part of FSA regulation, IntegraFin has to maintain a designated level of capital adequacy. This requirement applies to all similar FSA regulated companies and is designed to protect investors by ensuring that enough capital is reserved to allow the FSA to supervise a suitable transfer of the business should there be a need to do so. Based upon the audited FSA return for the year ending September 2007, IntegraFin s qualifying capital is more than 3.9 million above the designated requirement. Additionally, as part of FSA regulation, IntegraFin s executives and relevant senior employees have to be assessed and found to be of good character and appropriately experienced for the nature of the company's activities. The FSA also has powers to undertake supervisory visits to our premises. Over and above the standard programme of visits by the FSA, and IntegraFin s own programme of compliance work, IntegraFin has appointed external auditors to conduct a programme of regular compliance monitoring of Transact s systems and procedures. The reports from these audits go directly to the board and are available for review by the FSA. 22

24 [1.3] PROCEDURAL CONTROLS Internal procedures are designed to protect investor assets. Upon opening a Transact portfolio, every investor nominates a bank account into which they wish all payments from their portfolio to be made. This is the only account into which any cash withdrawal from a Transact Portfolio can be paid and, although investors are able to request transactions via the web, they can only change this nominated account with an original wet signature request to IntegraFin. Client Services Managers (the people responsible for the maintenance of clients Portfolios) are segregated from Investment Accountants (the people who handle clients assets). The processes resulting from this segregation limit in number those who have access to the various stages of a withdrawal payment such that any client payment or withdrawal goes through at least three levels of access (and individuals) before the resultant payment is made. IntegraFin has implemented more than just the regulatory minimum series of checks and balances to ensure the protection of investors' assets. [1.4] SYSTEMS SECURITY IntegraFin has security in place to protect its systems from attack. Transact-Online, our website is protected by two firewalls and all user PCs have anti-virus software installed which is updated at least weekly. [1.5] DISASTER RECOVERY IntegraFin has a disaster recovery plan in place to enable it to restore operations in the event that their premises are destroyed or become inaccessible because of a disaster. Critical to this is the remote back up strategy which has full copies of all systems and the data which is created daily which is stored off site in London and in Melbourne, Australia. 23

25 [2] CLIENT ASSET PROTECTION & COMPENSATION [2.1] CUSTODY IntegraFin has a wholly owned subsidiary called Transact Nominees Limited: whose business is limited solely to the holding of investments or activities directly related to the holding of investments; and in whose name all investments belonging to its clients are registered as nominee. While Transact Nominees acts as a registered holder of title to investments, it retains physical custody of almost no client assets as: client monies are held by FSA authorised banks in IntegraFin's name; almost all client assets are dematerialised (i.e. not held in a physical form); and paper certificates are only held temporarily at IntegraFin s premises (pending dematerialisation). IntegraFin s activity is restricted to the maintenance of the registers detailing client holdings and directions to buy and sell the assets according to client instructions. This arrangement ensures that there is a clear and distinct separation of those assets relating to Transact clients and those that are IntegraFin s own business assets. [2.2] THE FAILURE OF INTEGRAFIN In the unlikely event that IntegraFin, or one of its group companies, should fail, the segregation of client assets from company assets means that the vast majority of client assets could be transferred back to clients in specie. In the even more unlikely event that this process could not occur, investors may be entitled to redress under the Financial Services Compensation Scheme (FSCS), or, in the case of IntegraLife International Ltd, through the Isle of Man Government Insurance & Pensions Authority under the Compensation of Policyholders Regulations (IOMIPA). 24

26 We have been advised that the levels of compensation offered by these schemes are as follows: (a) FSCS for investments (GIA and Stocks and Shares ISA) - a maximum of 48,000 per claim. This is made up of 100% of the first 30,000 and 90% of the next 20,000. (b) FSCS for cash - if cash is held for investment business purposes (i.e. pending investment), the FSCS would consider those investment funds to be an investment loss and the investment compensation limit of 48,000 would apply. However, in all other circumstances (including in Cash ISA deposits) cash is treated simply as cash and would be subject to a 50,000 limit per client. (c) FSCS for life policies (Personal Pensions & Onshore Bond) a maximum of 100% of the first 2,000 and 90% of the unlimited remainder. (d) It is our understanding that smaller occupational pension schemes, namely our Executive pension plan (as a single member money purchase arrangements and our S32 contract, (now registered pension schemes), will fall within the remit of the protection offered by the FSCS to personal pensions (as set out above). (e) IOMIPA (Offshore Bond) a maximum of 90% of the liability arising at the time of the claim. IntegraFin also has indemnity and fidelity insurance in place to protect investors' funds in the event of misfeasance or defalcation. [2.3] THE FAILURE OF BANKS IntegraFin is required to treat all money held by it on any client s behalf in accordance with the rules set out in the FSA s Handbook. Our policy is currently to hold client money ( cash ) at a minimum of four FSA authorised UK banks in client money accounts that comply with all the relevant regulatory requirements for such accounts. At all times, at least two of these accounts are established with full operational (rather than just deposit) functionality. This ensures that there is always a fall-back position to protect both transactional capability and liquidity. 25

27 Each client s cash is required to be held proportionally across all of our client money accounts. Should any of these banks not be able to return deposits on a permanent basis in circumstances when a claim could be made to the FSCS, then a limit of 50,000 would apply per client per bank. Cash held in the Transact Onshore and Offshore Bonds is not protected under the FSCS in the event of the failure of an underlying bank deposit. In the case of the Offshore Bond, this is because the FSCS does not apply to offshore business. In the case of the Onshore Bond, this is because the life company providers of UK life policies which do not include a trust element (which means all onshore bonds) are not eligible claimants. Instead, protection is provided to each wrapper in the circumstances and to the extent described at [2.2(c)] and [2.2(e)] above. 26

28 APPENDIX 27

29 Appendix 1 Effect of discounted fund management charges An example of IFDL Succession discounted terms based on our Balanced Portfolio as at March Standard Initial Charge Standard Annual Charge Negotiated Initial Charge Negotiated Annual Charge Cash Deposit M&G UK Inflation Linked Corporate Bond A Acc Standard Life Inv Global Index Linked Bd Inst Acc M&G Strategic Corporate Bond A Acc Invesco Perpetual Tactical Bond Acc Threadneedle Emerging Market Loc Ret Net Inc 1 GBP Insight -Absolute Fund of Funds A Acc GBP Standard Life Inv Glo Abs Ret Strategies Inst Acc Newton Real Return A GBP Inc Schroder Global Property Securities A Acc Ignis UK Property Acc Invesco Perpetual High Income Inc M&G Recovery A Acc Aberdeen World Equity A Acc M&G Global Basics A Acc Newton Global Higher Income Inc M&G Global Convertibles Fund GBP A Acc Invesco Perpetual Japan Acc Aberdeen Emerging Markets A Acc HG Capital Trust First State Global Listed Infrastructure Acc A BlackRock Gold & General Acc Allianz RCM Global Agricultural Trends - A - GBP Simple Average of Fund Charges

30 Appendix 2 - Glossary Alpha: This is a measurement of how well a fund has outperformed its benchmark. Risk Metrics: The process by which funds are assessed as measured by the level of risk undertaken by a fund manager. Risk metrics usually analyse the performance of a fund to a relevant benchmark index over a defined 36 month period. Sharpe Ratio: This is a measurement of a fund s performance in accordance to the level of risk taken. Standard Deviation: This measures the volatility of returns over a defined period of time. Tracking Error: This describes the volatility of the difference in returns between a fund and its benchmark. 29