Capital Markets Corporate

January 11, 2019

Our Weekly Newsletter

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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.

Tax Breaks to be Scrapped To Save Us All?

Research from the Resolution Foundation shows that an additional £7bn a year could be raised for the Treasury by scrapping tax breaks and tightening up existing wealth taxes. The think tank argued that this could be used to help finance increased spending on public services. The report listed clamping down on inheritance tax loopholes, a change to pensions tax relief and scrapping Help to Buy and Lifetime ISAs as options to raise the much-needed sum of money. (From The Guardian, Thursday, 3rd January)

People or Profit: What Comes First?

The Financial Times has delved into the ways investors and CEOs are challenging the consensus that companies should put their shareholders before the good of communities, societies and humanity. The piece, which takes insight from some of the most powerful capitalists in the world, demonstrates that many think inclusion and sustainability could become the new model for capitalism. The question will be whether this reformation succeeds in surviving markets’ down cycles. (From The Financial Times, Friday, 4th January)

Record Investment in Start-Ups

Investors ploughed a record £195 million into businesses advertised on Seedrs’ website last year, according to the equity crowdfunding platform for investing in start-ups and later-stage businesses. A “sensational” 2018 for the business with record investment levels is indicative of the growing trend of investors seeking small companies rather than blue chips. (From The Evening Standard, Monday, 7th January)

Billions Sold Short

In 2018, short-selling practices were responsible for a £2.7bn loss for British companies. According to reports, a few dedicated short sellers were able to disrupt markets in the last few months by using their own reporting and analysis to suggest some stocks are over-valued, while some firms are guilty of criminal financial practices. According to an unnamed source, this controversial tactic is only going to grow in popularity this year as the market is tightening. (From This Is Money, Saturday, 5th January)

AIMed too high?

Is it too easy to list on AIM? In the last year, the number of failed AIM stocks has doubled, leading to claims that firms not ready to float are taking the plunge too soon. While some may argue that the junior market is just too unpredictable, many more analysts and investors point out the opportunities for growth, and how much can go right on AIM when executed correctly. (From The Times, Sunday, 6th January)

DB transfer mis-selling – the next PPI scandal?

We’re barely into 2019, but pension mis-selling and scandal is already high on the media agenda. A swathe of negative headlines around Defined Benefit (DB) scheme transfers hit the front pages as it became apparent this could already be on the way to becoming the next national financial scandal.

This week it was revealed that 5,000 DB transfers in the UK were handled by firms that have since lost their regulatory permissions. This comes after a brutal assessment by the FCA late in 2018, which found that fewer than half of 154 transfers reviewed across 18 firms were deemed to have been given suitable advice.

Unsurprisingly then, this week it was also revealed that pension mis-selling fines doubled in 2018. The Financial Services Compensation Service (FSCS) said more than £40m was awarded to pension holders who were found to have been wrongly advised to move their “gold plated” DB schemes.

As if more misery couldn’t be heaped onto pensions advice, MPs also announced they will be investigating what has been deemed the “next mis-selling scandal” of ‘contingent charging’, where pension holders are only charged for complex financial advice after they have agreed to give up their DB pension, with the fee coming from clients’ funds. Critics have previously called for the practice to be banned as it could incentivise bad advice.

To top it all off, the government announced a new aggressive approach towards pension cold-calling. Those who make unsolicited, unwanted calls could be hit with fines of £500,000 after it was revealed there could be as many as eight scams per second happening via cold calls to vulnerable elderly Britons. Those who fall victim to pension scams have lost a stomach-churning average of £91,000 each.

In the US, pension mis-selling is being seen as ripe for ambulance-chasing lawyers looking for their next big win. It might be that those UK law firms who have made so much from the PPI scandal will be turning their attention to savers who were told to move into Defined Contribution schemes, possibly to their detriment.

For advisers, this year will be crucial in being able to communicate that they are offering fair and prudent pension advice that puts their clients, not their fees, first. The regulator, the media and the nation will be scrutinising the sector in 2019 and – with the cost of advice also coming under the regulatory microscope – now is the time to step up and prove its worth.

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