Wealth Management

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Wealth Management
Wealth Management
Presentation to ICAI Business Briefing By Alan
Foy, Nigel Poynton Aoife Lavan, NCB Wealth
Management
NCB is a leading provider of institutional
equities, wealth management and corporate finance
services

• www.ncb.ie

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Agenda

• What is Wealth Management?
• An Overview of the Sector
• Asset Allocation in Volatile Times
• Preparing for Retirement
• Questions Answers

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What is Wealth Management?
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Wealth Management What is it?

• A professional service which is the combination
  of financial/investment advice, accounting/tax
  services, and legal/estate planning.
• In general, wealth management is more than just
  investment advice, as it can encompass all parts
  of a person's financial life.

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Wealth Management What is it?
Pensions / ARFs
Taxation
Estate Planning
Wealth Management
Business Planning
Finance / Debt Mgt
Portfolio Management Investment Advice
Life Assurance
Property
Stockbroking
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Wealth ManagementDimensions for Consideration

• Life cycle of earnings
• Influence of past behaviour
• Growth of economy and productivity
• Social security and quality of pension scheme
• Uncertainty of future income
• Liquidity constraints
• Tax effects
• Duration of lifetime
• Length of working and retired life
• Unconventional consumption habits
• Needs, requirements and life events

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Life Cycle Concept
Savings Investment
Time
Financing Consumption
Start of Career
Family
Pre-Retirement
Retirement
Education
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Integrated Approach to Wealth Management Process
Definition of Needs Goal Setting
Analysis of the Customers Financial Situation
Implementing Controlling the Financial Plan
Client
Diagnosis of the Financial Situation
Design of Financial Plan
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The Wealth Management Sector
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Wealth Management Environment
Legal Environment
Technology
Increasing Complexity of Wealth Management
New Financial Services Providers
Product Variety
Competition, Prices, Globalisation
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Many Players / Competitive Advantages Skillsets
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WM Player Approaches
Partner Technical Advisor Transaction
Style of Interaction
Relationship Management
Mass Customization
Operational Excellence
Single Bundles Themes
Product Approach
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Summary Outlook

• Its not just about products, its about
  understanding client needs personal, family and
  business
• Increasingly involves an integrated wealth
  management planning approach for clients
• Client service / experience and education
  increasingly differentiators for WM players
• High quality professionals are in demand with
  relevant skills and competencies investment,
  technical and soft
• Expect industry consolidation deal with
  complexity and the search for AUM growth

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Asset Allocation- Investing in Volatile Times
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Asset Allocation Diversification

• Whatever the investment objectives,
• the investor who is wise diversifies.
• Burton G. Malkiel A Random Walk Down Wall
  Street
• Vs.
• Diversification is a protection against
  ignorance. It makes very little sense for those
  who know what they are doing."
• Warren Buffett

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Picking the right sector and country is easy!
UK Equities are represented by the London Share
Price Database as maintained by the London
Business School. The database covers several
thousand shares. Source of UK Cash is Dimson,
Marsh,Staunton (LBS/ABN AMRO). All other data is
derived from DataStream as at 31.12.06
Cast your net wider to diversify your portfolio
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Asset Allocation Diversification

• Modern Portfolio Theory (MPT)
• Harry Markowitz, "Portfolio Selection," 1952,
  Journal of Finance.
• An investment strategy that aims to balance risk
  and reward by apportioning a portfolio's assets
  according to an individual's goals, risk
  tolerance and investment horizon.
• Our job is not to play a guessing game, but to
  develop sound, diversified portfolios that should
  perform well in any economic or market
  environment over the medium to long term.

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Asset Allocation Diversification
CLIENT ASSETS
CASH
BONDS
PROPERTY
EQUITIES
ALTERNATIVES
HEDGE FUNDS PRIVATE EQUITY STRUCTURED PRODUCTS
ACCESS TERM DEPOSITS RANGE ACCRUALS
DOMESTIC GLOBAL PASSIVE ETFs SPECIALIST
MANAGERS
DIRECT SYNDICATE PASSIVE SPECIALIST MANAGERS
DIRECT DOMESTIC GLOBAL PASSIVE ETFs SECTORS
SPECIALIST MANAGERS
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Asset Allocation Typical Irish Investor

Source NCB
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Asset Allocation Average Pension Fund

Source Mercer
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Asset Allocation HNW Investor

Source NCB
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Volatility
An example of how volatility is currently
affecting equity markets "Let's have a look at
what happened in the markets over the last few
months (for the purposes of this example we will
use the Stoxx 600).   Starting on 13th July, the
index went down 13 to the low of 17th August.
  Then bounced back 12 to the high of 12th
October.   From there, it dropped 11 to the low
of 22nd November.   This was followed by an 8.6
upswing to the peak of 12th December.   The
market then saw a decline of 21.6 to the lows of
22nd January. This is not over yet.   After
that, rising 12 to the high of 27th February,
down again 12.4 to the lows of 17th March and
lastly up 11 to 7th April.   These are 8 moves
of which 7 were larger than 10 in the last 9
months".  Source Collins Stewart
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Volatility
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Equities Global Context
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Economic Cycle A Constant
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Major Market Downturns
2nd Gulf War
9/11
Long term capital market crisis
Credit crunch
Black Monday
1st Gulf War
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More Quotes

• We simply attempt to be fearful when others are
  greedy and to be greedy when others are fearful.
• Warren Buffett
• Financial markets generally are unpredictable.
  So that one has to have different scenarios.The
  idea that you can actually predict whats going
  to happen contradicts my way of looking at
  markets
• George Soros

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Previous Market Recoveries
Analysis of previous market bounce backs

Event Date of market low point Market rally after low point Market rally after low point Market rally after low point
  Date of market low point Following 2 weeks Following 3 years Following 5 years
Black Monday 31/12/1987 6.60 22.03 34.92
1st Gulf War 10/10/1990 9.40 42.35 38.53
LTCM crisis 9/11 08/10/1998 21/09/2001 1.9 11 37.8 7.78 11.5 38.90
2nd Gulf War 12/03/2003 12 70.44 62.50
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Time(in) not Timing!
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Equities Key Themes

• Inflation vs Economic Growth
• Fears of a prolonged US economic slowdown /
  recession
• housing weakness and poor consumer / investor
  confidence
• Sub prime debt and liquidity issues
• Dollar weakness
• avoid US consumer, financials and housing
  related
• US stocks had their worst start to a calendar
  year since 1933 and the second-worst two-month
  start in history (1926-2008)(Source SP).
• Stronger Asia economic performance relentless
  industrialisation of emerging economies -
  Decoupling?
• Bull markets in oil and commodities to continue

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Some Preferred Sectors

• Large blue chip companies (No. 1 in markets)
• Favour large over small capitalisation companies
• Valuations reasonable
• Lower risk as economic cycle matures
• Defensive sectors (Food/Healthcare/Infrastructure)
  
• Maturing Economic Cycle care required
• Cash flows and dividend yields attractive
• Energy/Commodity related
• Sustained strength of oil price
• Impressive cash flows support dividends
• Valuation multiples rising
• Companies with strong balance sheets, lower
  leverage, and greater FCF.

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Preparing for your Retirement
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Where will YOU be at Retirement?
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Retirement Planning

• Integral part of Wealth Management never too
  late
• Tax Benefits
• Tax relief on contributions
• Tax free growth within the pension structure
• Ability to maintain your standard of living!

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Retirement Structures
Income Type Pension Structure Available
Self employed individuals Personal Pension / PRSA
Employees in non pensionable employment Personal Pension / PRSA
Employees / Proprietary Directors Executive / Occupational Scheme SSAS/ SSAP (usually proprietary directors or senior executives) PRSA AVC schemes (Including Additional Voluntary Contribution PRSA)
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Recent Retirement Planning Trends

• Significant shift into self directed or self
  administered pension schemes at executive
  level
• Greater Control
• Greater Transparency
• Greater Choice
• Greater Flexibility
• Greater choice of investments retirement
  planning vehicles (RPVs)
• Self Directed seen as SSAP vehicle for
  Self-Employed
• Pension cap of 5.418m now a target!

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Investment Planning Trends
Contemporary Model
Traditional Model
Pension / ARF Ins.Co (Self Directed) SSAP
Insurance Company ARF / Pension Options
Products / Investment Ideas
Products/Funds
Customer
Customer
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Investment Planning Trends - Choices
Insured

• Traditional Pooled Funds
• Limited Control
• Personal Portfolio
• Greater Investment Choice / Control
• Widest Investment Choice / Control
• Not Available For Self-Employed

Self Directed Wrapper
SSAPs
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Taking Your Retirement Benefits
Pension Fund
Tax Free Lump Sum (TFLS)
Option 2 - Combination
Option 1
Option 3
Annuity
AMRF / ARF
Annuity
AMRF / ARF
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Approved Retirement Funds (ARFs)

• Proceeds of your pension fund can be kept as a
  capital sum for certain categories (ARF)
• Personal Pension - Self Employed individuals
• Executive Scheme - 5 Directors
• PRSA Holders
• AVCs
• ARF vs Annuity
• Clear Preference for ARF amongst HNW individuals
  because of
• Personal Wealth
• Business Wealth
• Inheritances
• Property
• Opportunity to invest in a bespoke fashion
• Greater time to dedicate to investment decisions

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Approved Retirement Funds (ARFs)

• Estate planning (on death)
• - No Tax for spouse
• - Children lt21 C.A.T. (thresholds apply)
• - Children gt21 Income Tax (Standard Rate)
• Using mandatory distributions for income
• No direct borrowing

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Approved Retirement Funds (ARFs) Finance Act
2006 Changes

• Provides 3 tax on imputed distributions
• 1 on 31st Dec 2007
• 2 on 31st Dec 2008
• 3 on 31st Dec 2009 and onwards
• Doesnt apply until ARF holder is 60 or over for
  the whole of a tax year
• Does not apply to AMRF holders (apply 31st
  December following client attaining age 75)

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What about those who cannot avail of the ARF
option?

• Example 1

lt 15 yrs service
Existing Co. Scheme
Leave Service
gt15 yrs service (AVC only)
Certificate of Benefit Comparison may be required
PRSA
ARF
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What about those who cannot avail of the ARF
option?

• Example 2

Leaving Service Options
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What about those who cannot avail of the ARF
option?

• Example 3

Senior Executive
Senior Executive
Employed
transfer employment
Group Co. B
Group Co. A
Transfer Value
Executive Pension Co. B
Executive Pension Co. A
Ensure Exec is 5 director
Not a 5 Director
ARFable
Not ARFable
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Wealth Management Decisions

• Annuity or ARF?
• Planning required to avail of ARF options?
• Investments traditional or bespoke?

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Conclusion

• Increasing sophistication complexity among
  HNWIs
• Asset Allocation
• Investment Strategies
• Tax Structures
• Stage of Economic Cycle
• More volatility
• Implications for investment strategies
• Increasing need for all-encompassing advice
• Tax and investment
• Next generational Wealth
• Can one provider/advisor cover all angles
  sufficiently?
• Outsourcing

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Questions Answers
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Wealth Management

• Alan Foy
• Executive
• NCB Wealth Management
• T 01 611 5611
• F 01 611 5988
• E alan.foy_at_ncb.ie

• Nigel Poynton
• Director, Head of Portfolio Management
• NCB Wealth Management
• T 01 611 5611
• F 01 611 5988
• E nigel.poynton_at_ncb.ie

• www.ncb.ie
• Aoife Lavan
• Executive
• NCB Wealth Management
• T 01 611 5611
• F 01 611 5988
• E aoife.lavan_at_ncb.ie

NCB Group 3 Georges Dock, IFSC, Dublin 1,
Ireland // T 353 1 611 5611 // F 353 1 611
5766 // info_at_ncb.ie
NCB London 51 Moorgate, London, EC2R 6BH,
England // T 44 (0) 207 071 5200 // F 44 (0)
207 071 5202 // info_at_ncb.ie
The information contained in this document has
been obtained from publicly available sources,
which we believe to be reliable. We cannot
guarantee its accuracy or completeness. Opinions
in this document are based on our judgment at
time of publishing and are subject to change
without notice. Intending investors should read
the detailed literature available before
investing. Any people acting on the information
contained within this document do so at their own
risk. Recommendations in this document may not be
suitable to all investors. We recommend you
contact NCB for professional advice before
investing. We recommend that you take
professional tax advice in relation to your
investments. Investors should note that past
performance is not necessarily a guide to future
performance. The value of investments may fall or
rise against investors interests. Income levels
from investments may fluctuate. NCB is a member
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Regulator under the Stock Exchange Act 1995.