Member Update 26th October
Written by Charlie Palmer on 29/10/2018


NEW MORTGAGE SOFTWARE FOR SEARCHING LENDERS
New IFAC service....


Mortgage Lender search item
see here



IFAC discovered this ground breaking software at the recent Mortgage Expo, and we think it is a fantastic tool.

Can you have a look and review and feedback to us?  we are looking for a bulk discount, and those users who are IFAC members get three months useage for free.
If you want a demo you come toCharlie.Palmer@ifac.eu initially...


The rise of specialist mortgage brokers
More and more firms are referring mortgage cases to specialists…
This is a good thing, and a new thing.
And like all good new things, it comes with risks.
Some risks we can see, some we don’t see.
The less we can see it – the higher the risk.
Referring cases to specialists is not an easy risk to spot in the early years.
After all, what is not to like about this one?

Higher commissions, of up to £4k per case
A secure equity release referral route
Compliant equity release materials and advice for you and your clients
Life business passed back to you.
Fast-track online referral system
Save time on CPD and Equity Release ER research
Earn similar amounts for less work
Offer a wider range of products to your clients
 
If you are not ER Qualified 
Learn more about equity release – test the water
No need to be qualified
Start-to-finish service
Simple referral process
Client case updates to you
Attend visits

IFAC are doing a lot of work at present with various second charge and briding and equity release lenders, and with lower affordability thresholds, the sector is expanding dramatically. 

So what is the risk that we mentioned?

Well the sector is expanding like topsy – the credit boom is back in town – all fine while interest rates are so low and property market so apparently stable.  You could be held liable for the introduction to  your fellow Mortgage Broker, but it is the specialist who gives the advice, so it is hard to see that risk crystallising.  The biggest risk must be that you run out of clients, because you have referred them all on!


The rise of passive investing

The growing concentration in banking since the financial crisis, with more and more activity conducted by financial institutions regarded as “too big to fail”, is at least a well understood phenomenon.  The growing concentration in asset management resulting from the rise of indexed and exchange traded funds is less understood.

The so-called big three indexed fund providers — Vanguard, State Street and BlackRock — are estimated to have controlled about 15 per cent of the S&P 500 in 2017. Incredibly, more than 44 per cent of assets in US-domiciled equity funds are now managed passively, up from 19 per cent in 2009.

There is no business quite so open to automation as DFM – because so much is process, and so little actual decisions.  More and more of the decisions are being taken by clients directly, and by IFAs on their behalf, leaving the process to automation.   Why take risks with individuals who may or may not be right, when you can use a single fund to cover the entire universe of publicly listed stocks?  (MSCI World Index Hedged to sterling, Ticker IGWD
 
But John C Coates of Harvard Law School points out that Vanguard, State Street and BlackRock — the big three’s - share of any contested vote – in board rooms of the individual stocks – is really pivotal.

On current trends of growth, even if growth starts to taper off, a majority of the 1,000 largest US companies will be controlled, in effect, by a dozen or fewer people over the next 10 to 20 years see here


Test question from Financial Exam in Bat

George has set up a bare loan trust specifically for his children whom he has named at outset, John, Michael, and Sarah in equal shares. Sarah enters into a marriage that George disapproves of. What can he do?

a)Replace Sarah’s interest, by assigning to Michael and John in equal shares.
b)Stipulate Sarah can only benefit in the event of dissolution of the marriage
c)Demand repayment of the loan straight away


answer below
Beneficiaries are named by the settlor(s) in the trust deed at the outset of the trust and thereafter cannot be removed. The loan is repayable on demand at any stage by the settlor.  So therefore the correct answer is ...written at base


AML Anti Money Laundering

On 25 October 2018, HM Treasury published an updated advisory notice on money laundering and terrorist financing controls in higher risk jurisdictions. see here

HM Treasury advises firms to note the following: 
The following are high risk and you need to refer any cases from these jurisdictions to IFAC 
Who will show you how to “apply the counter measures and enhanced due diligence measures in accordance with the risk.”

Democratic People's Republic of Korea (DPRK otherwise known as North Korea), Iran,  Bahamas, Botswana, Ethiopia, Ghana, Pakistan, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen


Is culture what the FCA really care about?

We all know the importance of culture – as embedded in TCF principles, speeches and more recently the 120 page Discussion Paper 18/2  written in March this year https://www.fca.org.uk/publication/discussion/dp18-02.pdf 

Since then, it's all gone quiet on the cultural front.  It hardly got any air time at the FCA's Annual Meeting in May.  The FCA's Annual Plan for 2018/19 only mentions culture by reference to the extension of the Senior Managers & Certification Regime that finally comes in in December 2019.  

Has this wider issue has been pushed into the long grass?  Or is FCA so focussed on SMCR that it has given up references to culture?  

The problem with culture is how you define it.  What one thinks is good culture, another finds bad.  So let’s look at Paul Pester, until recently CEO of TSB, is instructive.  TSB's remuneration practices were highlighted by FCA in DP 18/2 as an example of good practice.  TSB is mentioned SIXTEEN TIMES as an example of good practice.  All hail to the great Paul Pester.

But the FCA curse strikes again.  It is about as fortuitous to your prospects as having Hello Magazine profile your nuptials is to the length of your marriage.

Paul Pester has now been vilified as responsible for the IT meltdown at his firm. 
Will the efforts TSB have made to pick up the regulator's cultural agenda help them avoid a fine?''

As Mark Carney said ''Responsibility has now been taken by the CEO for a series of quite fundamental failings,'' he told a recent committee.

So back to culture.  Culture is not just about remuneration, although in theory this drives behaviour that might help a bigger firm in the long run. 

In the end, with the FCA what counts is customers experience. Don’t ever lose the focus on that.  If your customers start phoning and email the FCA, you’re in trouble – end of story.

Pester had to go, and will likely be fined and sanctioned.  As this example shows, when you meet someone who is keen to tell you what an excellent FCA relationship they have -that is certainly a signal to go short on that stock!
charlie.palmer@ifac.eu

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