The latest news from the world of investing. If you have an investment story, email: amichael@forbesadvisor.com
27 September: ‘Guidance’ Option Could Help Reduce Fees
Market regulator, the Financial Conduct Authority (FCA), is to review the regulations around the provision of advice to investment clients.
In a speech today at the Future of UK Financial Services Regulation Summit in London, Sarah Pritchard, FCA executive director, said: “Because of the costs involved, only the relatively well-off can access advice on what to invest in. Mass market consumers are often left to navigate a bewilderingly large choice with little support.
“As part of the FCA’s Consumer Investments Strategy, we have said that we want to establish a simplified advice regime for mainstream stocks and shares ISAs where the risks to consumers are relatively low.”
The distinction between advice and guidance was made as part of the introduction of the Markets in Financial Instruments Directive (MiFID) in 2007. It requires firms to make a full suitability assessment of a customer’s personal financial situation before offering advice.
The FCA is seeking to reduce this regulatory burden with the aim of reducing the fees firms need to charge and making advice on mainstream investments more accessible. It will carry out a review of the regulatory boundary between advice and guidance, while continuing to provide protection for consumers.
Tom Selby, head of retirement policy at investment provider AJ Bell, comments: “A culture of fear has built around providing guidance that risks going anywhere near the blurred advice/guidance boundary, with firms and employers keeping a safe distance from the boundary and ordinary people receiving less help making decisions as a result.
“Those who do not take advice need better, more personal guidance so they can make financial decisions which are more likely to lead to ‘good outcomes’, in line with the FCA’s Consumer Duty.”
The timing of the review is not yet decided but Ms Pritchard said: “Once the FCA has greater rule-making powers under the future regulatory framework legislation next year, we will be able to do more.”
8 September: Payouts Forecast To Slow As UK Economy Moves Into Reverse
The UK’s smaller publicly listed companies paid dividends to investors worth £574 million in the first half of 2022, according to fund administration service Link Group, Andrew Michael writes.
Dividends are distributions to shareholders usually paid out in cash that are taken from a company’s annual profits.
Link Group said that the amount paid in dividends by companies listed on the Alternative Investment Market (AIM) section of the London Stock Exchange was a 7.4% increase compared with the same period last year.
The company’s annual AIM Dividend Monitor showed that the largest contribution to growth came from the building materials sector, one that has benefited from a revitalisation in construction activity in the wake of the Covid-19 pandemic.
An example of this is Breedon, the cement, aggregates and asphalt producer, which paid its first-ever dividend in the third quarter of last year. This was followed by a large final payment in May 2022. Link Group said that the food, drink and tobacco sectors each delivered strong growth as well.
AIM companies are generally less likely to pay dividends than larger, more mature companies that trade on the main London market.
Link Group said that, before the pandemic, a third of AIM-listed companies paid cash to shareholders compared with about three-quarters of companies traded on the main London market.
In 2020, the number of AIM companies paying dividends plunged to 22%. Link Group estimated that the figure would rise back up to around 29% this year. But it also warned of a slowdown in the pace of recovery in AIM dividends for the second part of 2022.
Ian Stokes, Link Group’s managing director for corporate markets UK and Europe, said: “AIM companies have really impressed with their ability to bounce back from the pandemic. This is reflected in the strength of the recovery in their dividend payments, which was better than we expected. The easy work is done, meaning that growth will now slow.
“As we move into 2023, we expect growth to slow further. Corporate margins are currently under pressure and a potential recession is on the cards, which will affect both the ability and willingness of AIM companies to return cash to shareholders.”
7 September 2022: Fraudsters Target Investors In Increasing Numbers As Cost-Of-Living Crisis Bites
An increasing number of investors have become victims of investment fraud, according to the latest figures from the UK’s financial services complaints service, Bethany Garner writes.
The Financial Ombudsman Service (FOS) said there had been a rise in the number of investment scams reported by consumers.
Between April and June 2022, the FOS received 570 complaints about “authorised” investment scams, in which someone is tricked into sending money to a fraudster posing as a legitimate person or business.
Investment fraud accounted for 30% of all “authorised” scam complaints logged during this period, and represents a 14% increase compared with the same period in 2021.
Around a fifth of investment fraud complaints related to cryptocurrencies. These schemes usually involve scammers posing as legitimate intermediaries, and persuading consumers to transfer money to purchase cryptocurrencies.
Nausicaa Delfas, interim chief executive at the FOS, said: “Complaints about investment scams are currently the fastest growing type of fraud complaint that the FOS receives.”
As scammers take advantage of people’s increased financial vulnerability amid the cost-of-living crisis, Ms Delfas warned consumers to be on their guard.
She said: “We are concerned that, in current economic circumstances, people could be tempted to invest in fake investments. Our advice to consumers is to be wary, conduct their own research, check the Financial Conduct Authority register and contact the firm directly on the number listed.”
Despite the uptick in investment fraud, the FOS added that the overall number of complaints about “authorised” scams has decreased since last year.
But the service said it had also received nearly 200 new complaints about unregulated collective investment schemes (UCIS) between April and June 2022.
UCIS are high-risk, collective investments aimed at high-net-worth, experienced investors.
Of the consumers who complained about a UCIS, 45% said they were given inappropriate advice about using their pension to invest in the scheme.
6 September: Portfolios Suffer August Backlash Despite Market Rally
UK investors withdrew £1.9 billion from equity funds last month, a record amount, according to the latest figures from Calastone, Andrew Michael writes.
The global funds network said that the August outflow of funds easily beat the previous outflow records of June and July 2016, when investors removed £1.54bn and £1.56bn of cash respectively in the wake of the Brexit vote.
Calastone said August’s net outflow was driven by a “significant increase in selling activity, rather than a drop-off in buy orders, indicating a decisive choice [by investors] to exit holdings”.
Global stock prices rose sharply in July, rallying in reaction to a fall earlier in the summer. But Calastone said that, rather than leaving investors buoyed, an upwards move on the markets had left customers exposed to UK funds unconvinced.
It said: “Investors sold their equity fund holdings (going) into the rally, withdrawing a modest £251m in the second half of July, ramping up to £2.08bn between 1 and 17 August.”
According to the data, UK funds were worst hit by the outflows last month, with investors pulling out £759 million from the sector. This marked the 15th month in a row that portfolios with a domestic tilt had suffered a net exit of money.
Investors also dumped North American and Asia-Pacific equities funds to the tune of £426 million and £234 million respectively.
Since the beginning of this year, equity funds have shed £4.3bn overall. Calastone, which reports fund data going back eight years, said only March to October 2016 witnessed larger outflows (£5.2bn).
Calastone said that the only portfolios experiencing minor inflows during August were those linked to specialist investment sectors, such as infrastructure, renewable energy and environmental, social and governance (ESG) investing.
Edward Glyn, head of global markets at Calastone, said: “Markets are absorbing the likelihood that inflation will be extremely pernicious and persistent meaning that interest rates will stay higher for longer than initially expected.
“The combination of a weaker economy and higher rates is very negative for share prices, especially of growth stocks.”
5 September: Latest Reshuffle Sees F&C Investment Trust Promoted
Asset management group abrdn has dropped out of the UK’s stock market index of leading blue chip companies after its share price fell by more than 40% this year, Andrew Michael writes.
With a market capitalisation of less than £3.2 billion, the company has been relegated from the FTSE 100 in a well-signalled move. The business, which rebranded from Standard Life Aberdeen in 2021, was formed when the two fund management firms merged in 2017.
One of the companies moving in the opposite direction is the £4.5 billion F&C investment trust.
The re-shuffle, announced by index compiler FTSE Russell, will come into force when the stock market closes on Friday 16 September. From that point, so-called passive investment funds that are designed to track the performance of the ‘Footsie’…
Read More: Investment Update: FCA Mulls Simplified Investment Advice Regime