Capital Markets Corporate

November 23, 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.

The Robo Regulator

Reminiscent of sci-fi action thriller The Minority Report, the Financial Conduct Authority (FCA) has announced plans to use Artificial Intelligence (AI) to spot and stop rule breakers before they have a chance to act. AI is set to play a role in addressing “the challenge of the very small number of firms who, deliberately or not, cause issues and have a disproportionate impact on trust in the market, creating costs for the industry and for consumers.” (From Professional Adviser, 19 November 2018)

What Are They Compensating For?

Advisers may owe compensation to pension holders who lost money if their adviser didn’t act quickly enough on a pension transfer they requested. This comes as the Financial Ombudsman Service (FOS) awarded £50,000 to a saver who saw his final salary pension drop while he was waiting for a response from his IFA. Could this set a precedent for tardy advisers who cause their clients to miss out? (From The Daily Telegraph, 14 November 2018)

Even House Prices Can’t Rise Forever

Recent decades have been a period of seemingly unstoppable growth for UK property prices, but it may be a stretch too far to assume this will continue indefinitely. The house price growth phenomenon is largely linked to the ‘baby boomer’ generation buying their first homes from the late 1950s. However, population growth peaked in 1968, and the legislative environment that supported property investors in the UK is slowly turning with the tide. (From the Financial Times, 17 November 2018)

Cooking Up Something Cryptic

The meteoric rise of Bitcoin last December would have you believe that cryptocurrency was ‘the next big thing’. However, a lack of regulation and concerns of an overheated crypto-market have dissuaded big institutions from hiring a raft of digital currency specialists in favour of more traditional professionals. The proof is in a report out this week that says that the world’s top ten banks employ nearly twice as many chefs as cryptocurrency experts. (From Financial News, 19 November 2018)

Bad Financial Advice Scores An Own Goal

The merits of financial advice does not pay off for everybody, and for many professional footballers in particular, it may have had devastating consequences. Danny Murphy, ex-Premier League star and Match of the Day pundit, is leading the charge against unscrupulous financial advisers who offered support to young footballers on how to handle their money. Murphy says the advisers “abused their trust”, and blamed the Professional Footballers’ Association (PFA) for allowing the “brainwashing” of young millionaire footballers that have led many to bankruptcy in later life. (From FT Adviser, 20 November 2018)

The Evolution And Challenges Around Sustainable Investment Products

A couple of years ago, the term ‘green bond’ was something few would have heard of. Fast forward to today and this is now a rapidly growing sector, and one that comes with its own set of challenges.

The Head of Investor Relations and New Products at the World Bank recently highlighted just how new this phenomenon is.  A decade ago, a group of Swedish pension funds approached the World Bank to design the world’s first green bond – a product that has since raised billions.

With green bonds leading the way in helping investors to meet social and environmental aims, many other variations are now being developed. The Seychelles recently launched the world’s first blue bond which has already raised $15 million. This particular bond will finance ocean-based projects, to expand the country’s marine protected areas and boost its fisheries sector.

These developments have also wider implications, particularly for young people and how they engage with and invest their money. Millennials are far more engaged with their finances than many assume and they are also much more passionate about where their money goes.

Therefore, it will be important for companies launching these types of products to effectively communicate their differentiators to prospective investors. Recent news that sales of green bonds fell 18% year-on-year in the third quarter of 2018, signals that more work still needs to be done to raise the profile of this new market.

In addition, the ongoing debate between passive and active investing has moved further up the agenda with some questioning the extent to which passive investing can respond to clients’ aims when opting for Environmental, Social and Corporate Governance and other socially responsible types of investments. Developments such as Nutmeg launching a 10-strong socially responsible managed portfolio range will be one to watch.

As this is still a very new area to investing, greater transparency will also be needed to evaluate the impacts achieved. This will give confidence to investors and future investors who want to contribute towards a more sustainable future.Creds Button

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