Broker Seminar Oct 17

Transcription

1 Broker Seminar Oct 17

2 Agenda Broker Solutions Manufacturer & Wholesaler of Investment Product 100% Broker focused Broker FX A new FX and International Payments Platform MiFID II & the New Consumer Protection Code Changes & how to prepare for them Structured Investments Offering solutions that traditional funds can t Closing Summary

3 Broker Solutions Manufacturer & Wholesaler of Investment Product Small Team Niall Tinney, Niall Duggan and Lara Coyle Maintaining the Link with Merrion Account Set Up Settlement MMPI MiFID License Clear focus on three fundamental investor requirements Income Growth Capital Protection 100% Broker Focused

4 Launch Presentation September 2017

5 Our First FinTechSolution FX and International Payments Platform Broker Solutions launches Broker FX First in a series of FinTech solutions we are developing for Brokers Full launch in Q Exclusive to Financial Brokers Empowering your firm to: Facilitate your clients in making and receiving international payments Facilitate your clients in buying and selling over 140 currencies Enabling your firm to compete directly with the Banks Enabling your firm to earn a new source of revenue from your client s FX and International Payment transactions Delivered in partnership with Ebury An established FX and International Payments provider Full range of international services and risk management from the simplest to the most complex solutions

6 Foreign Exchange Jonathan Minshull-Beech

7 Ebury Our Background A fintech company our goal is to eliminate boundaries when trading internationally Formed in 2009 by Juan Lobato and Salvador Garcia Started life as an exotic currencies specialist, buying African and Asian currencies on behalf of our clients Have grown from an initial team of 3 people to a firm of over 400 employees in 9 offices around Europe. This year, we are opening offices in Dubai, Canada and the USA.

8 Foreign Exchange Basic terms Mid-market in the middle of buy/ sell prices. Spread the difference between what the bank buys at, and the price it sells to clients. The bank s mark up. Forward contract Fixing an agreed exchange rate for an agreed length of time. The person taking out the contract undertakes to buy the specified amount of currency at the ned of the contract. Margin call Forwards usually require a deposit. If the trade goes offside, clients are asked for more money as security. This is called variation margin Liquidity- the volume of a particular currency trading. The more liquid the currency the cheaper it can be bought and sold.

9 The Situation Irish Independent study, 2011 Irish banks charged a margin of 3-4% on foreign exchange transactions. In addition, AIB, Bank of Ireland, Ulster Bank charged commission on top. Banks use foreign exchange as a cash cow to subsidise other banking activities i.e. Current accounts Picture hasn t changed much since 2011 comparison done by Ebury 18/08/17, figures taken from AIB, Ulster Bank and Bank of Ireland s websites. AIB 1.39%, Bank of Ireland 2.54%, Ulster Bank 2.21% On a payment of 100,000 the bank will take between 1,390 2,540

10 The Need Clients need a more efficient, cheaper way to send money abroad. In partnership with Broker FX, Ebury offer a cheaper, more competitive service for clients. Depending on liquidity, we can offer exchange rates which are 30-50% cheaper than banking competitors. We can offer more competitive deposit terms for forward contracts than banks. This can be reduced variation margin, or an initial 0% deposit contract. Clients can use our smart currency platform to execute their own trades. The platform provides accounting and reporting assistance, generating statements automatically.

11 Opening an account Three stage process: 1) Client fills in a short online application form, and supply proof of address, identity 2) Introducing broker fills in a Know Your Customer form, detailing the client s profile and activities 3) Ebury s in house compliance team run our checks, and revert for more information if needed. Total time: less than 15 minutes to fill out our forms, account can be open in 24 hours.

12 New Regulations Preparations for January 2018

13 Agenda New Regulations coming into effect on 3 January PRIIPS and KID 2. MiFID II 3. Addendum to the Consumer Protection Code 2012 How do these new Regulations affect my firm and what can I do to prepare for these changes? How can Broker Solutions and other Product Providers assist with these changes and my preparation? Questions and Answers

14 PRIIPs & KID Commission Delegated Regulation (EU) 2017/653 Packaged Retail and Insurance Based Investment Products Originally scheduled for January 2017 but problems with Regulatory Technical Standards (RTS). Now bundled with MiFID II in January 2018 Intention is to make it easier for retail investors to compare products In doing so, increase consumer value and promote investor protection by enhancing transparency Encourage investment firms to consider how their products will compare to competitors when distilled down to uniform product description Requires a PRIIP manufacturer to prepare and produce a Key Information Document (KID)

15 PRIIPs & KID What products are PRIIPs? Investment products where the amount repayable is subject to fluctuations due to exposure to the performance of one or more assets that are not purchased directly by the investor Examples: Structured Products, Non UCITs Funds, Hedge Funds, Unit Linked Funds, With Profit Investments, ETFs etc. Not PRIIPs: Occupational Pensions, Non Life Insurance, Term Assurance, UCITs and Direct Investments/Bank Deposits etc. Key Information Document Prescribed format and content Person advising on or selling the PRIIP must provide the KID to the client before the investment is made

16 Key Information Document (KID) What is it? 3 page document in a prescribed format that must be clear, accurate and not misleading Product generic rather than investor specific Provides retail investors with simple and comparable information on each PRIIP Purpose is to improve the retail investor s understanding of the nature, risks, costs, potential gains and losses of a PRIIP and to help retail investors to compare the PRIIP to other products Who produces it? The PRIIP Manufacturer Must be clearly separate from marketing information and available on manufacturer s website

17 Key Information Document (KID) cont. What is a Retail Investor? A retail investor is a retail client that is not a professional client under MiFID or who is a customer for the purposes of the Insurance Mediation Directive 2002/92 What must happen with the KID? Must be provided to the retail investor by the adviser/seller in good time before there is a binding agreement in respect of the product KID can be provided on paper or, where the context of the transaction supports it, some other durable medium or via a website When selling PRIIPs face to face, paper should be the default option Updated annual KID likely to be necessary

18 MiFID II Article 3 of Directive 2014/65/EU What firms are affected by MiFID II? All MiFID authorised firms and All firms authorised under the Investment Intermediaries Act 1995 (IIA) as a result of the Addendum to the Consumer Protection Code 2012 effective 3 January 2018

19 Addendum to the Consumer Protection Code 2012

20 Addendum to the Consumer Protection Code 2012

21 Addendum to the Consumer Protection Code 2012

22 MiFID II Article 3 of Directive 2014/65/EU What are the broad changes? We have identified 9 initially that we believe will impact all Financial Brokers: 1. Change in what it means to be independent 2. When Advertising, a tightening of how Past Performance and Simulated Past Performance is used 3. Mandatory recording of telephone conversations 4. New Conflicts of Interest disclosure requirements 5. New Target Market Analysis and Product Information requirements 6. New execution of orders requirements 7. New information on costs and associated charges disclosure requirements 8. New periodic suitability assessment requirements 9. New remuneration of staff requirements

23 MiFID II Article 3 of Directive 2014/65/EU What are the broad changes? We have identified 9 initially that we believe will impact all Financial Brokers: 1. Change in what it means to be independent 2. When Advertising, a tightening of how Past Performance and Simulated Past Performance is used 3. Mandatory recording of telephone conversations 4. New Conflicts of Interest disclosure requirements 5. New Target Market Analysis and Product Information requirements 6. New execution of orders requirements 7. New information on costs and associated charges disclosure requirements 8. New periodic suitability assessment requirements 9. New remuneration of staff requirements Now lets look at 4 in detail

24 Addendum to the CPC What it means to be independent

25 Addendum to the CPC What it means to be independent

26 Addendum to the CPC What it means to be independent

27 Addendum to the CPC What it means to be independent

28 Addendum to the CPC What it means to be independent

29 Addendum to the CPC What it means to be independent

30 Addendum to the CPC What it means to be independent

31 Addendum to the CPC What it means to be independent

32 Addendum to the CPC What it means to be independent

33 MiFID II/Addendum to the CPC 2012 Summary - Can firms continue to be Independent? Can firms conduct a Fair Analysis of the Market and retain Independence? Can firms continue to Receive and Retain Commission for recommending products if claiming to be Independent? Some non MiFID products will allow the payment of commission to Independent Financial Broker Firms but Product Producers will not be allowed to pay commissions to Independent Financial Broker firms for the sale of MiFID products The spirit of the EU regulation is clear: Independent firms should not receive commission and should be fee based

34 Addendum to the CPC 2012 New Chapter 14

35 Addendum to the CPC Recording of Telephone Lines

36 Addendum to the CPC Conflicts of Interest

37 Addendum to the CPC Target Market Analysis

38 New Regulations How do I Prepare for January 2018?

39 New Regulations in January 2018 How do they affect my firm and how should I prepare? PRIIPs Ensure a KID is available for all products recommended Provide the KID to each retail investor in hard copy before each sale Maternity Clause: prepare to provide an updated KID each year MiFID and CPC 2012 Addendum Make a decision regarding independence Familiarise yourself with MiFID II (direct or indirect impact on all firms) New Procedures for dealing with the new requirements of MiFID II and/or the Addendum to the CPC 2012 (9 identified and 4 illustrated in detail in this presentation)

40 New Regulations in January 2018 How can Broker Solutions and other Product Providers help? Broker Solutions PRIIPs: will provide a KID for all products (prepared by PRIIP manufacturer). Available in hard copy and on our website PRIIPs: Will provide an updated KID each year MiFID II: Assistance with Target Market Analysis and Product Information via our Broker Training Guides Overall: We will assist in building your understanding of the PRIIPs, MiFID II and CPC 2012 Addendum as you transition into 2018 and continue to recommend our products to your clients. Just call us! Other Product Providers Ask if they are willing to provide the same product supports? What other training and guidance can be provided?

41 Questions and Answers PRIIPs & KID MiFID II and the Addendum to Consumer Protection Code 2012 Any Other Topics?

42 Risk Warnings/Disclaimers This presentation is intended for and is only for use by regulated Financial Broker firms. Broker Solutions has no expertise in the area of Regulation. The Regulation Information in this presentation is designed only to assist Financial Brokers in understanding their duties and responsibilities following the changes that come into effect in January Please refer to the relevant product Brochure for a list of warnings applicable to each product.

43 Structured Investments Offering Solutions That Traditional Funds Can t

44 Structured Investments What do Investors Want?

45 Structured Investments Offering solutions that traditional funds can t Life Company Fund Choice It s all risk category 3 & 4 But how can you deliver a return and get paid? Deposit Rates! Bond Yields! Structured Investments offer Hard & Soft Capital Protection Investment Grade Counterparties Various Investment Objectives e.g. Income, Growth and Protection Different tax treatments Reasonable Returns without Growth!!

46 Structured Investments How do they work and Current Offering

47 Structured Investments Agenda A. How they work Mechanics of a Structured Retail Product (SRP) Putting some Capital at Risk Use of Derivatives Examples Recent maturity of a Kick Out Bond Features of a Guaranteed Income Bond B. Our Current Investment Offering

48 Structured Investments How do they work? Capital at Risk/Capital Protection + Use of Derivatives (to create upside potential) = Structured Retail Product (SRP)

49 Mechanics of a Structured Retail Product Part 1 - Putting some Capital at Risk Hard Capital Protection Defining the potential Investment Loss 100%, 95%, 90%, 80%...Capital Protection

50 Mechanics of a Structured Retail Product Part 1 - Putting some Capital at Risk Hard Capital Protection Defining the potential Investment Loss 100%, 95%, 90%, 80%...Capital Protection Soft Capital Protection Defining a Barrier or Market Level below which capital can be lost Example Capital is Protected unless underlying asset(s) fall by 50% Observed continually or at a particular date

51 Mechanics of a Structured Retail Product Part 1 - Putting some Capital at Risk Hard Capital Protection Defining the potential Investment Loss 100%, 95%, 90%, 80%...Capital Protection Soft Capital Protection Defining a Barrier or Market Level below which capital can be lost Example Capital is Protected unless underlying asset(s) fall by 50% Observed continually or at a particular date Conditional Capital Protection Defining an Event that will result in capital loss Example Capital is Protected unless underlying asset(s) default Usually observed continually

52 Mechanics of a Structured Retail Product Part 1 - Putting some Capital at Risk Hard Capital Protection Defining the potential Investment Loss 100%, 95%, 90%, 80%...Capital Protection Soft Capital Protection Defining a Barrier or Market Level blow which capital can be lost Example Capital is Protected unless underlying asset(s) fall by 50% Observed Continually or at a particular date Conditional Capital Protection Defining an Event that will result in capital loss Example Capital is Protected unless underlying asset(s) default Usually observed continually until maturity Risk v Reward The more capital put at risk, the higher the potential/fixed return

53 Structured Investments How do they work? Part 1 Capital at Risk/Capital Protection + Part 2 Use of Derivatives (to create upside potential) = Structured Retail Product (SRP)

54 Mechanics of a Structured Retail Product Part 2 - Use of Derivatives to create Upside Capital Protected Bonds Call Option provides the Upside Potential Example: Product will provide 100% of the return if underlying is positive

55 Mechanics of a Structured Retail Product Part 2 - Use of Derivatives to create Upside Capital Protected Bonds Call Option provides the Upside Potential Example: Product will provide 100% of the return if underlying is positive Guaranteed Income Bonds Reverse Convertible Bond with a Knock In Put Option Example: Guaranteed Annual Income of 2% (regardless to performance)

56 Mechanics of a Structured Retail Product Part 2 - Use of Derivatives to create Upside Capital Protected Bonds Call Option provides the Upside Potential Example: Product will provide 100% of the return if underlying is positive Guaranteed Income Bonds Reverse Convertible Bond with a Knock In Put Option Example: Guaranteed Annual Income of 2% (regardless to performance) Kick Out Bonds Autocallable Bond with a Knock In Put Option Example: Annual Coupon of 10% if return condition is met at a particular point (e.g. underlying(s) above initial level)

57 Structured Investments An Example of how they work Kick Out Bond 7 Soft Capital Protection Underlying Investments Return Condition Stocks Option Unless any stock falls by >40% at maturity Heidelberg Cement Marathon Petroleum Mylan Vodafone 13.62% 11.03% 8.21% 11.75% Index Option Unless any index falls by >40% at maturity EuroStoxx 50 S&P 500 FTSE 100 Nikkei % 20.70% 9.90% 13.64% Average Return 11.15% Average Return 11.85% All above 95% of initial every 6 months Risk Level 5 4 All above initial every 6 months Return 13.2% (26.4% per annum) 27.5% (11% per annum) Maturity Date 13 August 2015 (6 months) 14 August 2017 (2 years, 6 months)

58 Structured Investments An Example of how they work Eur HY Equities Fixed Return Note Started: 2 May 2013 Maturity Date 9 May 2018 Annual Guaranteed Income: 7.25% per annum (29% total income paid to date), further 7.25% in May 2018) Capital at Risk: If any of the 4 underlying stocks are below - 40% at maturity Underlying Stock Performance to date Vivendi 14.65% BNP Paribas 52.95% BMW 9.85% BHP Billiton % Average Performance 13.70%

59 Structured Investments Our Current Investment Bonds

60 Our Current Investment Bond Range Description and Objectives Guaranteed Income Bond 5 Income Kick Out Bond 5 Capital Growth Secure Bond 5 Capital Protection Capital Growth

61 Guaranteed Income Bond 5 3% Annual Income

62 The Guaranteed Income Bond 5 Overview and Objectives Designed for Investors seeking Income 3% Income paid annually regardless of performance Underlying Investments Eurostoxx 50, S&P 500 and FTSE 100 Soft Capital Protection provided by BBVA Investors protected up to a -40% Index fall Index valuation at maturity Returns subject to Income Tax Access to Capital during the term Risk score 3

63 EuroStoxx 50, S&P 500 and FTSE 100 Back Test 3,842 Previous 5 Year Periods since August 1997 Back Testing The Bond would have provided the following performance in back tests: Start Date of Back Test End Date of Back Test Worst Return Best Return Average Return 25 August August % 15% 10.49% Probability of Capital Loss Investors would have lost capital 393 times a probability of 10.23%. Investors repaid 100% of capital plus 15% Income on 89.77% of occasions. Source: BBVA (24 August 2017)

64 Kick Out Bond 5 Potential European Buybacks

65 Kick Out Bond 5 Relatively low number of Buybacks to date.but set to increase

66 Kick Out Bond 5 Share Buybacks are coming.. At the outset of ECB s QE in May 2015, we anticipated Combination of significant QE and negative deposit rates would discourage corporates from hoarding cash Corporates to conduct shareholder friendly activities such as share Buybacks So far, M&A has been favored in Europe BNP Equity Quality Buyback Index. 50 Stocks out of the largest 400 in Eurozone Net Debt/Market Cap Ratio < 75% Dividend Payout Ratio < 50% Free Cashflow Yield > Dividend Yield

67 Kick Out Bond 5 3 Stocks Chosen From BNP s Top Each stock must be one of the top 3 when combining A. Past Risk Characteristics Never fallen by >50% in any of the previous 3,131 five year periods this century B. Future Return Potential Have the characteristics to provide a potential return of 9% if performance is > -10% each year. Provide the highest potential average return of 10.75% of all the 50 stocks available (assuming 90% autocall barrier) Underlying Investments Adidas, Michelin and Peugeot

68 The Kick Out Bond 5 Overview and Objectives Designed for Investors seeking Capital Growth Potential 9% Annual Return Stocks only have to be higher than 90% of their starting price! 1 st Observation after 1yr and quarterly thereafter Soft Capital Protection provided by BNP Paribas Investors protected if any 1 share is above initial at maturity Investors protected up to a -50% fall in stocks at maturity Access to Capital during the term Returns subject to Capital Gains Tax (CGT) Risk score 4

69 Kick Out Bond 5 Back Test 3,130 Previous 5 Year Periods since August 2000 Back Testing The Bond would have provided the following performance in back tests: Start Date of Back Test End Date of Back Test Worst Return Best Return Average Return 25 August August % 45% 10.75% Probability of Returns In the 3,130 5 year periods tested, the Bond produced a positive return on 2,585 or 82.56% of all occasions. Capital was never lost in any of the 3,130 5 year periods tested. Source: BNP Paribas (24 August 2017)

70 The Secure Bond 5 Offering 90% or 100% Capital Security

71 Secure Bond 5 Overview and Objectives Designed for investors seeking Capital Protection with the potential for Capital Growth Invested in European Equities Solactive Index Option A Capital Security provided by BNP Paribas Access to Capital during the term Returns subject to Income Tax Option B Capital Protection 90% 100% Term 5 years 10 years Participation 120% 100% Risk Score 2 1

72 Secure Bond 5A Back Test 3,131 Previous 5 Year Periods since August 2000 Back Testing The Bond would have provided the following performance in back tests: Start Date of Back Test End date of Back Test Worst Return Best Return Average Return 25 August August % % 24.72% Probability of Returns In the 3,131 5 year periods tested, the Bond produced a positive return on 1,780 or 56.85% of all occasions. Source: BNP Paribas (29 August 2017)

73 Secure Bond 5B Back Test 1,826 Previous 10 Year Periods since June 2000 Back Testing The Bond would have provided the following performance in back tests: Start Date of Back Test End date of Back Test Worst Return Best Return Average Return 1 June May % 84.25% 22.54% Probability of Returns In the 1, year periods tested, the Bond produced a positive return on 1,826 or 100% of all occasions. Source: BNP Paribas (2 June 2017)

74 Q4 Investments Summary

75 Q4 Investments Summary of Objectives, Access and Remuneration Offering Investors a choice of Income, Capital Growth & Capital Protection options with Daily Liquidity Risk Levels 1, 2, 3 or 4 Taxation options Access Personal Investors, SSAP s, Companies, Trusts, Charities etc via Merrion Stockbrokers Account Insured Pensions via Friends First SDIO Upfront Commission Payments Guaranteed Income Bond % Kick Out Bond % Secure Bond %

76 Q4 Investments Information on our website Investment Bonds Page

77 Q4 Investments Information on our website Investment Bonds Page

78 Launch Seminar Oct 17 Closing Summary

79 Summary Broker Solutions Manufacturer & Wholesaler of Investment Product 100% Broker focused Broker FX A new FX and International Payments Platform MiFID II & the New Consumer Protection Code Changes & how to prepare for them Structured Investments Offering solutions that traditional funds can t Questions & Answers

80 Risk Warning/Disclaimer This presentation is intended for and is only for use by regulated Financial Broker firms