Wealth Management
Presentation to ICAI Business Briefing
By Alan Foy, Nigel Poynton & Aoife Lavan, NCB Wealth Management
Wealth Management
www.ncb.ie
NCB is a leading provider of institutional equities, wealth management and corporate finance services
Agenda
 What is Wealth Management?
 An Overview of the Sector
 Asset Allocation in Volatile Times
 Preparing for Retirement
 Questions & Answers
2
What is Wealth Management?
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.
4
Wealth Management – What is it?
Pensions / ARF’s
Taxation
Estate Planning
Wealth
Management
Business
Planning
Finance / Debt Mgt
Portfolio Management
& Investment Advice
Life Assurance
Property
Stockbroking
5
Wealth Management:
Dimensions for Consideration
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

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
6
Life Cycle Concept
Savings &
Investment
Time
Financing &
Consumption
Education
Start of Career
Family
Pre-Retirement
Retirement
7
Integrated Approach to Wealth
Management Process
Definition of Needs
& Goal Setting
Implementing & Controlling
the Financial Plan
Client
Design of Financial Plan
Analysis of the Customer’s
Financial Situation
Diagnosis of the
Financial Situation
8
The Wealth Management Sector
Wealth Management Environment
Increasing
Complexity of
Wealth
Management
10
Many Players / Competitive
Advantages & Skillsets
11
WM Player Approaches
Style of Interaction
Partner
Technical
Advisor
Transaction
Single
Bundles
Themes
Product Approach
12
Summary & Outlook
 It’s not just about products, it’s 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
13
Asset Allocation- Investing in Volatile Times
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
15
Picking the right sector and country is easy!
Cast your net wider to diversify your portfolio
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
16
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.”
17
Asset Allocation & Diversification
CLIENT ASSETS
EQUITIES
PROPERTY
BONDS
CASH
ALTERNATIVES
ACCESS
HEDGE
FUNDS
TERM
DEPOSITS
PRIVATE
EQUITY
RANGE
ACCRUALS
STRUCTURE
D
PRODUCTS
DIRECT
DOMESTIC
DIRECT
GLOBAL
SYNDICATE
PASSIVE
PASSIVE
ETFs
SPECIALIST
MANAGERS
SECTORS
DOMESTIC
GLOBAL
PASSIVE
ETFs
SPECIALIST
MANAGERS
SPECIALIST
MANAGERS
18
Asset Allocation: Typical Irish Investor
Cash / Bonds
10%
Equities
10%
Property
65%
Managed Funds
15%
Source: NCB
19
Asset Allocation: Average Pension Fund
Cash
6%
Property
5%
Bonds
12%
Equities
77%
Source: Mercer
20
Asset Allocation: HNW Investor
Domestic
Equities
10%
International
Equities
30%
Property
30%
Fixed Income
10%
Structured
Products
5%
Hedge Funds
5%
Cash
5%
Commodities
5%
Source: NCB
21
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
22
Volatility
23
Equities: Global Context
24
Economic Cycle – A Constant
25
01/04/2007
01/04/2006
01/04/2005
Long term capital market crisis
01/04/2004
01/04/2003
9/11
01/04/2002
01/04/2001
01/04/2000
01/04/1999
01/04/1998
01/04/1997
01/04/1996
01/04/1995
01/04/1994
01/04/1993
4500
01/04/1992
01/04/1991
3000
01/04/1990
01/04/1989
01/04/1988
01/04/1987
Major Market Downturns
MSCI WORLD euro
2nd Gulf War
Credit crunch
4000
3500
Black Monday
1st Gulf War
2500
2000
1500
1000
500
26
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 what’s going to happen
contradicts my way of looking at markets”
George Soros
27
Previous Market Recoveries
Analysis of previous market bounce backs:
Event
Market rally after low point
Date of market low
point
Following
2 weeks
Following
3 years
Following
5 years
31/12/1987
6.60%
22.03%
34.92%
1 Gulf War
10/10/1990
9.40%
42.35%
38.53%
LTCM crisis
08/10/1998
1.9%
37.8%
11.5%
9/11
21/09/2001
11%
7.78%
38.90%
nd
12/03/2003
12%
70.44%
62.50%
Black Monday
st
2 Gulf War
28
Time(in) not Timing!
17.0%
14.0%
15.0%
13.0%
9.6%
11.0%
9.0%
6.4%
7.0%
3.8%
5.0%
3.0%
1.0%
-1.0%
Invested All 4018
Minus 10 Best Days
Minus 20 Best Days
Minus 30 Best Days
Days
Annualised Returns S&P 500 over an 11 year period (1995- 2006)
29
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: S&P).
 Stronger Asia economic performance – relentless industrialisation of
emerging economies - Decoupling?
 Bull markets in oil and commodities to continue
30
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.
31
Preparing for your Retirement
Where will YOU be at Retirement?
33
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!
34
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)
35
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 (RPV’s)
 “Self Directed” seen as SSAP vehicle for Self-Employed
 Pension cap of €5.418m now a target!
36
Investment Planning Trends
Traditional Model
Insurance Company ARF /
Pension Options
Contemporary Model
Pension / ARF
Ins.Co (Self Directed)
SSAP
Products/Funds
Products /
Investment Ideas
Customer
Customer
37
Investment Planning Trends - Choices
Insured
Traditional Pooled Funds
Limited Control
Self Directed
Wrapper
Personal Portfolio
Greater Investment Choice / Control
SSAPs
Widest Investment Choice / Control
Not Available For Self-Employed
38
Taking Your Retirement Benefits
Pension Fund
Tax Free Lump
Sum (TFLS)
Option 1
Option 2 - Combination
Annuity
Annuity
AMRF
/ ARF
Option 3
AMRF / ARF
39
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
AVC’s
 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
40
Approved Retirement Funds (ARFs)
 Estate planning (on death):
- No Tax for spouse
- Children <21 C.A.T. (thresholds apply)
- Children >21 Income Tax (Standard Rate)
 Using mandatory distributions for income
 No direct borrowing
41
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
 Doesn’t 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)
42
What about those who cannot avail of the
ARF option?
Example 1
< 15 yrs service
Existing
Co. Scheme
Leave Service
>15 yrs service
(AVC only)
Certificate of Benefit
Comparison may be required
PRSA
ARF
43
What about those who cannot avail of the
ARF option?
Example 2
B.O.B.
Existing
Co. Scheme
Resign
Transfer Value
Leaving
Service
Options
New Scheme
New Co.
Rev. Approved
5%+ Director
ARF
44
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. A
Not a 5%+ Director
Not ARFable
Executive Pension
Co. B
Ensure Exec is 5%+ director
ARFable
45
Wealth Management Decisions
 Annuity or ARF?
 Planning required to avail of ARF options?
 Investments – traditional or bespoke?
46
Conclusion
 Increasing sophistication & complexity among HNWI’s
 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
47
Questions & Answers
www.ncb.ie
 Nigel Poynton
 Alan Foy
 Aoife Lavan
Executive
Director, Head of Portfolio Management
NCB Wealth Management
NCB Wealth Management
T: 01 611 5611
T: 01 611 5611
F: 01 611 5988
F: 01 611 5988
E: alan.foy@ncb.ie
E: nigel.poynton@ncb.ie
Executive
NCB Wealth Management
T: 01 611 5611
F: 01 611 5988
E: aoife.lavan@ncb.ie
Wealth Management
NCB Group : 3 George’s Dock, IFSC, Dublin 1, Ireland // T: +353 1 611 5611 // F: +353 1 611 5766 // info@ncb.ie
NCB London : 51 Moorgate, London, EC2R 6BH, England // T: +44 (0) 207 071 5200 // F: +44 (0) 207 071 5202 // info@ncb.ie
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