Capital Markets Corporate

March 22, 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.

Big Pension Revolution

Retirement incomes could be boosted by up to 7% a year under a revolutionary pensions shake-up given the go-ahead this week. The new scheme – Combined Defined Contribution (CDC) – is expected to be opened up to millions of workers and mirrors successful Dutch-style pensions systems that pool risks and give savers more stability. The scheme is currently in use by the Royal Mail, and Work and Pensions Secretary Amber Rudd has promised to monitor the pension plan closely before rolling it out more widely. (From The Daily Express, 18 March 2019)

Challengers Take on Savings

Challenger bank darlings Monzo and OakNorth have teamed up to launch a series of savings products as they continue to try and wrestle custom – and deposits – from the high street. Starting next week, Monzo will release seven variations savings accounts with relatively high interest rates, including easy access, fixed term and ISA products. Collecting deposits has always been a huge hurdle for challenger banks looking to gain traction in the market, so this move will certainly turn a few establishment heads in banks and building societies across the UK. (From AltFi, 21 March 2019)

FCA Crackdown on Exit Fees

The FCA has announced its intention to ban or cap exit fees charged by investment platforms, while extending the crackdown to wealth management firms as well. According to the financial watchdog, exit fees are a major barrier to competition. The new rules would hit many of the UK’s largest wealth management firms who charge their customers to move investment portfolios. (From The Financial Times, 14 March 2019)

Climbing the Property Ladder with Equity Release

Last year, 46 first-time buyers a week were helped onto the property ladder thanks to the proceeds from equity release, new research from Canada Life Home Finance reveals. Growing numbers of older people are becoming aware of the intergenerational benefits of unlocking their own property wealth to help younger family members buy their first home. However, home improvements remains the most popular reason to take out equity release, with 48% of customers releasing money to undertake work on their property. (From Property Wire, 18 March 2019)

Personal Injuries Rate Review

The Ministry of Justice has announced that the first review of the rate used to calculate compensation for personal injuries – known as the Ogden rate – will start on March 19th . The review will be used to determine whether the rate should be changed or kept unchanged before August 5th. Previously, the Government could change the Ogden rate without any prior warning, leading to outcry from insurers last year when an unexpected fall in the Ogden rate led to significant dents in motor insurer’s profits. (From Reuters, 19 March 2019)

CEOs Under The Microscope

Beyond stakeholder expectations of bottom-line results, the C-suite at a public company is also judged by the keen eyes of the wider public. While communications teams attempt to carefully craft and control the outward image of their CEO, the best laid plans often come unstuck when the small print of their remuneration becomes headline news.

In a time where heightened rhetoric around inequality is reaching fever pitch in the media, pay, bonuses and benefits packages are no doubt going to continue to garner the front pages. Just this week, Lloyds’ CEO was forced to hand back the only final-salary pension plan in the bank after the same benefit was scrapped for everyone else.

Shell’s CEO also recently learned this the hard way after the announcement of his annual salary – which had doubled to more than £17 million in just one year, or 143 times that of the average UK Shell employee – prompted a media backlash.

And some CEOs have been forced out after the details of their bumper paydays come to light – housebuilder Persimmon was forced to change its CEO after its own board rewarded him with a £75m bonus, causing public and political outcry. The last straw came after a disastrous PR blunder by the CEO which led the board to consider him a bigger liability than asset.

Vast pay-outs are always a bitter pill to swallow in the court of public appeal, and huge CEO rewards have begun to prompt keen examination of why CEOs deserve such lofty salaries. A recent in-depth study into the effectiveness of CEOs and the performance of the companies they lead found very little long-term correlation between the success of a firm and the person at its helm. More smart studies are gaining traction that directly compare returns to CEO pay.

CEO remuneration is also causing exacerbated acrimony between firms and shareholders. More large shareholders are now calling for curbs to CEO rewards, with the likes of the Church of England being the largest dissenting voice.  Many FTSE 100 firmsMany FTSE 100 firms are now regularly having shareholders vote down executive pay packets.

Going forward, boards, shareholders and CEOs themselves will have to carefully consider how remuneration decisions affect wider communication strategy and goals. In today’s media environment, any evidence of excess or greed will be pounced upon and may cost a brand dearly. Messaging to explain – or at least rationalise – how much senior figures are paid need to be watertight.

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