Capital Markets Corporate

July 27, 2018

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Banks baulk at hotel-style fraud star ratings
Banks have come out fiercely opposed to government proposals to impose star ratings to show the public which institutions are lax on fraud. Industry bodies claim that any rating would be misleading, may be exploited by criminals and would discourage companies from coming clean about fraud. But campaigners insist the plan is vital to tackle a £10 billion-a-year online crime wave, with nearly five million offences committed in England and Wales alone. (From Daily Mail, 22 July 2018)

City Police get Bitcoin training to fight cyber crime
The City of London police are starting a course to train fraud investigators on cryptocurrency money laundering. The move follows a call to action for police to get a grip on technology. Many others are following suit, with the Bank of England warning City bosses that they risk a reputational crisis if they fall foul to cryptocurrency crime. Meanwhile, the Chartered Financial Analyst qualification will now be adding a cryptocurrency section to its in exam from 2019. (From The Telegraph, 21 July 2018)

Can factor investing kill off the hedge fund?
Data driven funds are disrupting traditional asset management by exploiting human weakness. ‘Quants’ are revolutionising the sector’s dynamics by introducing factor investing into the hedge fund model. The approach breaks down market returns into basic components, and exploits their characteristics by figuring out what drives them instead of relying on the irrational drivers of investors. (From Financial Times, 22 July 2018)

True scope of mortgage market revealed
For the very first time, the true extent of mortgage customers transferring from one product to another with the same lender rather than switching to a new lender has been revealed, shining a new light on the UK mortgage market. UK Finance has revealed that in Q1 alone, £53.7bn worth of mortgage transfers took place, meaning more than £200bn is likely to be transferred annually – not far off the entire £260bn gross lending forecast for this year. (From Mortgage Solutions, 26 July 2018)

Millennials must fight for their right to housing
The baby boomer/millennial debate roars on, but this article questions how effective millennials have been in impinging their needs on the electorate. Post-financial crisis, millennials were hit with rising interest rates and they are now half as likely to own a home by the age of 30 as baby boomers. However, millennials are now the most populous generation in the world, and they have the political and economic heft that could swing the entire financial services system in their favour. (From Financial Times, 24 July 2018)

Getting millennials from hesitance to investments
Bad news for consumers is everywhere. The UK’s personal debt pile is surging and the aging workforce combined with escalating household debt is predicted to grow the debt even further. It is estimated that the nation’s debts will more than triple by 2067. Too many households are living beyond their means.

And things don’t end there. The rising cost of health care and pensions are creating an insurmountable amount of debt. Analysts have warned that current defaults and credit card impairments provide early evidence of a wide-scale future economic downturn.

However, people are unsure how to combat their personal debt and are unwilling to talk about their financial issues. In the UK, 8.3 million people have debts of which their significant other knows nothing about.

Not only are people apprehensive to talk about their financial circumstances, but millennials in particular – the nation’s largest and most financial insecure demographic – are also hesitant to utilize financial service products which could help boost their income and secure their financial futures. According to a study, one in three millennials believes cash is the best long-term investment and one in five millennials are earning less than one percent interest on their savings.

Over the next 30 years, millennials are set to inherit £1.2 trillion, changing the profile of the average investor. This generation will have a much higher percentage of women and a very different relationship with technology. Advisers will need to be strategic with how they communicate with these new investors. A study found that 67% of millennials said wealth management had little or no relevance to them, and half of these respondents had a negative perception of the industry.

The solution to the growing financial woes of this country and its largest generation is linked to smart and relevant advice and financial products to encourage people to save more and manage their money better. It’s time to make investors of hesitant millennials or risk a lost financial generation.

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