1. The Association of Private Client
Investment Managers & Stockbrokers
Working for the Investment Community
QReview
Spring 2012 Newsletter
INSIDE:
Funds Processing
Maximise efficiency
by standardising your
funds transactions
Regulation
New European Union
rules and their impact
on regulatory reporting
Legal
Why the HSBC ruling
is good news for
finance professionals

2. SLUG FUNDS PROCESSING
The Association of Private Client
Investment Managers & Stockbrokers
Working for the Investment Community
QReview
Spring 2012 Newsletter
INSIDE:
The new standard
Funds Processing
Maximise efficiency
Contents
by standardising your
funds transactions
Regulation
New European Union
rules and their impact
on regulatory reporting
CONTRIBUTORS
Legislation
Why the HSBC ruling
is good news for
finance professionals
CHRISTOPHER
JAMES
Cofunds Spring 2012
A true one-stop funds
service can transform
ADRIAN
GILL
Xtrakter
03 The new standard
Christopher James your business, not only
increasing efficiency but
05 reparing for MiFID II and EMIR
P
Adrian Gill also enabling your people
to focus on the activities
09
JASON APCIMS Conference 2011
BAXTER
APCIMS Jason Baxter that really matter
CHRIS
13 HSBC ruling: good news for finance professionals
Chris Warren-Smith and Rachel Green
15
M
WARREN-SMITH
Fulbright Private client stockbrokers and investment managers: any APCIMS members involved
Jaworski LLP Investor Ignorance. Who is responsible? in the funds market may
Stephen Pinner currently – and quite rightly –
ruefully view funds trading and
17 Small companies, big growth prospects
Rachel management as an onerous task.
Green Vivienne Cassley Trading directly with multiple fund
Fulbright
Jaworski LLP
managers means navigating a myriad of
communications and reporting preferences
STEPHEN “Many are looking for
PINNER
Goodacre UK a solution to enable their
funds trading activities
to be standardised
VIVIENNE and automated”
CASSLEY
PLUS-SX
and systems, rendering the process
fractured and fragmented.
Service levels vary. Timings and quality
of data depend on which provider or fund
group has been engaged. A general lack
of consolidation, where processes are
repeated again and again to achieve one
simple end goal, is a daily occurrence.
It is also the case that many activities
– processing orders, settling transactions,
safekeeping holdings, reconciling and
reporting, managing and receiving trail
payments – are conducted manually.
As well as being time consuming and
laborious, this can increase costs and
risks, making it difficult for a firm to scale
up its funds business efficiently. It’s no
surprise then that many institutional firms
02 QReview www.apcims.co.uk www.apcims.co.uk QReview 03

3. FUNDS PROCESSING SLUG
are looking for a one-stop solution that
enables all their funds trading activities
“Rather than liaising with Faster pricing – ask firms whether they
provide both intraday and overnight data
have included asset managers, private
banks, discretionary portfolio managers,
to be standardised and automated. multiple fund managers, files. Dealing prices and the confirmed execution-only brokers, funds of funds
In the current climate, successful
adoption of such a solution may be
each with their own consideration should ideally be made
available as soon as they are received
and pension providers.
By outsourcing fund administration
critical to business performance. Sustained processes and protocols, from the fund manager; potentially as to Cofunds, these firms are discovering
economic uncertainty and declining
market returns continue to put huge
all fund transactions soon as one hour after the valuation
point. This, in turn, can enable client firms
they can significantly reduce risk, error
rates and demands on their own back
pressure on revenues. Reduced liquidity should be managed via to enhance their own servicing standards. office. Equally, they can free up resources
across markets means the competition
to win mandates is fiercer than ever. Plus a single account that is Commission management – it’s also
and working hours to focus on the true
value-adding elements of their business:
firms are keenly aware that the still-to- integrated with a firm’s useful to look for services that offer winning mandates, supporting clients and,
be-finalised Retail Distribution Review complete management of commission trail of course, determining investment strategy
demands that every firm focuses closely existing systems” payments. This can span trail and fund selection.
on its core investment business. reconciliation and management. Some
In this environment it’s useful for firms services may offer to consolidate New developments
to explore ways to maximise efficiency, commission payments into guaranteed The real strength of Cofunds is our
minimise risk and deploy resources so Guaranteed valuation – a funds trading contractual monthly payments, which can constant evolution. As one of the few
they can focus on what investors and service should have a clear time limit help to simplify and regulate cash flows. platforms in the UK that has been in year-
clients are willing to pay for: great service within which fund trades are confirmed. A on-year profit for some time, we are able
and great investment performance. guaranteed contractual order placement Customised connectivity – a good to invest continually in our systems.
should be offered so that dealing risk outsourcing service will support all We look to build in enhancements
Fund trading solutions: from that point is assumed by the leading messaging services including that we’ve identified as useful but also
features to seek out provider. The valuation point for the trade SWIFT (ISO15022/20022), XML, FIX, as that institutional clients have asked us
An increasing number of providers are should be contractually confirmed and the well as connection via proprietary web for. Improvements and additions to the
offering a means to outsource fund trading deal considered placed in the market from dealing systems. service in 2011 have included the piloting
and administration. When appraising such that point. It is important to work with clients and launch of a gross income distribution
services, certain attributes are key if the and their technology partners to create option. We’ve also introduced support
full benefits of outsourcing are to be Contractual net settlement – the bespoke solutions to allow the service to for non-sterling. This provides access to
properly realised. process of tracking trades and cash be effectively deployed with minimal lead approximately 37,000 funds in currencies
positions is radically simplified with time. Interfaces have been developed with such as euros and dollars, enabling clients
Whole-of-market choice – any service a net rolling position covering order a number of leading system providers to manage the full trade lifecycle of non-
that is of real value should enable you placement, payments and reconciliations. to ensure clients have a fully automated sterling funds as easily as they can for
to access a meaningful fund universe Every day, all settled redemptions and solution without additional costs. sterling-denominated funds.
all from one point of contact. Rather purchases are automatically calculated as
than liaising with multiple fund managers, a daily net cash position. Firms then Transfer administration – also consider Assuring your future strength
each with their own processes and receive or pay this net position by whether a service has the means and From dealing to settlement, reporting to
protocols, all fund transactions should their preferred method, whether that experience to handle outsourcing of fund reconciliation, custody to distribution,
be managed via a single account that is is CHAPS, BACS, SWIFT or CREST transfer activities. Support can range from Cofunds is helping more and more firms
integrated with a firm’s existing systems. cash-only delivery. Full guaranteed creation and distribution of stock transfer to transform their funds trading process.
For firms that have persisted with manual contractual settlement should mean that forms to daily monitoring and chasing As the UK’s largest independent
fund processing on a manager-by- clients are assured of bargains being of fund managers. platform with more than £36 billion AUA
manager basis, this aspect alone can settled on the due date. Operational risk (as at January 2012), institutional clients
be truly transformational. can therefore be dramatically reduced. Cofunds Institutional Service can rest assured that its technology is fully
The Cofunds Institutional Service offers proven to handle business of any volume
a scalable, fully automated solution for or complexity.
the trading, settlement and commission This also means that, whatever your
management of fund investments for plans for future growth, Cofunds can
institutional clients. readily support your business strategy
Originally called the Cofunds Nominee with a genuinely independent, automated
Service, it was launched in 2003 to and whole-of-market service that can scale
support one client that wanted to take up (or down) to your needs.
advantage of the Cofunds fund engine. In a challenging investment
Eight years later, the service is a core environment, proven trading technology
piece of infrastructure for more than is no longer a nice-to-have but a must-
45 institutional clients seeking a fully have for any firm involved in daily fund
automated, independent funds solution. transactions. Market expertise, proven
service levels and understanding the best
What the service offers way to work with each individual fund
The service is designed to support any manager is also key. Be sure to choose
institutional fund-dealing firm looking your outsourcing partner wisely.
to streamline, accelerate and risk-proof
the fund trading cycle by automating the
whole process, from dealing to settlement, Christopher James
and pricing to reconciliation. Adopters Cofunds
04 QReview www.apcims.co.uk www.apcims.co.uk QReview 05

4. REGULATION REGULATION
Preparing Q
What are the main areas and has opted for MiFIR to ensure
that firms need to focus that harmonised rules apply
on in terms of regulatory across the EU.
reporting, with MiFID II and The primary focus of the original
EMIR on the horizon? MiFID, transposed in November
A The European capital market 2007, was greater transparency and
for MiFID II
has seen a deluge of legislative competition in the cash equities
proposals recently, all of which market. However, it was always the
have an impact on regulatory European Parliament’s intention to
reporting to a greater or lesser extend the scope to cover other
degree. The Markets in Financial asset classes. So preparing for
Instruments Directive (MiFID) regulatory scrutiny to span a wider
review in October established what scope is the first major challenge.
and EMIR
is known as ‘Level 1’ legislation, as The industry will see a
well as the proposal for regulation monumental increase in scope,
versus a directive (MiFIR v MiFID). including trade reporting
In addition, we now have a requirements for all asset classes
Directive on Market Abuse, as well admitted to regulated markets,
as changes to the European Market MTFs and Organised Trading
Infrastructure Regulation (EMIR). Facilities (OTFs). Exchange-traded
While there are lots of pending derivatives, such as interest rate,
Adrian Gill, Head of Compliance at proposals, firms would do well
to consider them collectively.
FX and commodity derivatives,
are also expected to become
Q
Xtrakter, talks about forthcoming EU Combined, they have significant reportable. This raft of legislation What is the roll-out schedule “In view of the eurozone crisis
implications. Some of the proposals also brings carbon emissions for MiFIR?
regulations and their impact on are in an initial stage; we would allowances reporting into scope, A There are four main stages it will be almost impossible to
regulatory reporting expect to work closely with market due to allegations of market abuse. to this piece of regulation. We’ve argue that greater transparency
participants and national authorities To allay reporting increases, already seen the publication of
to crystallise their details. the industry must establish that Level 1 legislation. Feedback that in FX and interest rate activity is
One of the goals of MiFID/MiFIR
is to remove the complexities that
a particular asset class is not
subject to abuse.
we’ve had so far from Members
of the European Parliament is
not in the interest of regulators”
exist today in the form of differing This appears highly unlikely that it is highly likely that the
reporting requirements per market. with respect to commodity trading. proposed regulation will go to
In view of the continuing eurozone a secondary reading. This is to revision, like most pieces of
Q
What are the biggest crisis, it also appears logical to understandable given the enormity legislation. The proposed MiFID
challenges that firms assume that it will be almost of change at stake. With this in and MiFIR seek to formalise
are facing? impossible to argue that greater mind, we envisage the earliest the approach to data reporting.
A By invoking regulation such transparency in FX and interest implementation date to be the end This can be segmented into
as MiFIR, a harmonised landscape rate activity is not in the interest of 2014 or the beginning of 2015. three domains.
is automatically created across all of regulators. In reality, this will This may sound a long way off First is the establishment of
European Union (EU) markets. result in the need to report but this should not be surprising, Approved Publication Arrangements
Directives are burdensome volumes of activity that are many as it is the normal timeframe (APAs). Firms with this accreditation
in that they need to be multiples of the total reporting for legislation at European level. will be tasked with publishing trade
transposed into national carried out today. Furthermore, it gives our industry details for transparency purposes,
Member State law, which From our clients’ perspective, the time it needs to get the across all the relevant asset classes.
opens the possibility the main challenge will be the legislation right through intensive Next is the formal recognition
of interpretation and sizeable IT developments needed lobbying, particularly as we move of Approved Reporting Mechanisms
potential gold plating. to incorporate the broader reporting towards more detailed Level 2 and (ARMs) – which Xtrakter has been
The European requirements. But it doesn’t stop 3 text. The fourth and final stage since 2007. ARMs are data service
Commission (EC), there: regulators are also requiring is implementation. providers that assist with transaction
which originally the identification of trader IDs reporting to detect market abuse
Q
felt a directive within transaction reports, as What are the consequences and for surveillance purposes.
was necessary, well as the algorithms, in order for those firms currently And thirdly, the establishment
has amended to understand in greater detail the offering transaction of Consolidated Tape Providers
its approach impact of high frequency trading. reporting services? (CTPs), which will address the
This, too, will place significant A If we look at the significant fragmentation of data in respect
burdens upon the industry. elements of MiFID, in terms of to equity price information. As an
Clarification will also be required regulatory reporting, you could say unintended consequence of MIFID,
with respect to what constitutes that one of the blemishes of the new entrants to equity trading
an algorithmic trade, as firms now original directive was, and still is, became more competitive and
use sophisticated order routing the fragmentation of data. I don’t lowered costs, but the data became
systems that decide where to trade want to shoot wildly at the original far more fragmented and more
most effectively. Should choice of text as MiFID has already delivered complicated to collate.
order router also be considered as a lot of benefit to the European It is early to determine how the
requiring identification? capital markets, but it is subject reporting landscape will evolve,
www.apcims.co.uk QReview 07

5. REGULATION
but initial feedback from the
industry indicates that firms wish
to consolidate their data flows.
Thus, an ARM today will need to
mull over providing APA solutions
tomorrow. Xtrakter has already
indicated its intention in this regard.
The new regulation establishes
reporting requirements for
derivatives transactions to trade
repositories and for onward
reporting to the local competent
authorities. It also seeks to avoid
duplication of reporting.
Q
Currently, there is no “Many firms have There appears to be a
infrastructure for repositories to deluge of potential changes
report transactions to the competent been too slow in that the market will need to
authorities. There is market
participant support for ARMs in the
realising what is in deal with. Equally, these changes
are likely to be very costly. Can
UK that already collect transaction store… there are market participants bear the
reports from trading counter-
parties to incorporate the necessary
major structural costs – and are they ready?
A The short answer to the question
features on their existing transaction changes ahead, about readiness is ‘no’. Perhaps,
reporting infrastructure to help fulfil
regulatory requirements.
which will come at this is an oversimplification, but I
fear that many firms have been too
A future approach could be a considerable cost” slow in realising what is in store
envisaged that ARMs forward for them. There are major structural
appropriate reporting messages changes ahead, which will come at
to repositories and/or regulators. is not inconceivable that other a considerable cost to the market.
This would appear to make the data vendors or parts of the capital To give an order of magnitude,
most sense as firms seek to manage market infrastructure will look at the EC put the initial price tag
their reporting effectively, while regulatory reporting as a possible for implementation of MiFID II
avoiding reporting breaches and new revenue stream. Looking and MIFIR at €512-€732 million.
related penalties. at the current group of service Add to this the ongoing costs of
The text also indicates greater providers, there is no reason why between €312-€586 million to cover
regulatory uniformity towards an ARM could not become an APA the potentially broadened scope,
penalties for reporting failures. The or even a CTP. and the total cost to the industry
APCIMSANNUAL
level of sanctions will only increase In the future, Xtrakter believes could soar to much more than one
and the FSA’s own sanction that service providers will compete billion euros. There is also talk of
approach has already changed – on service quality, speed and cost, formalising and harmonising all
with more painful consequences. not on the fact that they are the order information prior to trade
only provider that can manage execution. While this may be
Q
Conference2011
Is increased competition national reporting idiosyncrasies. considered necessary, it will also
expected in the regulatory It is unclear how the CTP space come with a hefty price tag.
reporting space? might evolve. A single CTP appears In general, firms would do well
A Looking solely at equities, the a genuine possibility. However, to start planning ahead, particularly
incumbents under the FSA’s current today it is true to say that data in terms of IT infrastructure changes
Trade Data Monitoring regime providers provide a single feed, required for compliance with the
are: the London Stock Exchange, but this has not placated the drive new regulations as soon as there
Deutsche Börse, Chi-X, Thomson for change. Whether multiple CTPs are clear technical specifications.
Reuters and Markit; all of which are is viable is too early to gauge. Following dialogue with the
expected to seek APA recognition. For information flows, a industry, ESMA will establish
The same is true of Xtrakter. consolidator of ARM, APA and binding technical standards for
Given that it has been a repository reporting feeds would reporting formats. No date has
transparency provider for the appear best placed to become yet been indicated. However,
capital markets since 1989, firms a CTP. But core clarification is feedback suggests that given
have clearly indicated the value needed on how provision of this the enormity of the changes, it
of service continuation to best data can be offered on reasonable is likely to take the industry two
minimise costs while retaining commercial terms. or three years to build appropriate
quality service. Furthermore, the commercial IT systems to comply with the
Regulatory reporting is already benefits for providing such new regulations.
a competitive market segment, services will need to compensate
and there is no reason to expect for the complexity and increased
competition to dwindle. Time will regulatory risk that such providers Adrian Gill
tell if there will be new entrants; it will undertake. Xtrakter
08 QReview www.apcims.co.uk

6. I
t is fair to say that the APCIMS annual With the Conference we seek to bring with our compere (David James) face from TV’s “Newsnight” kicked off the Compliance Act) and followed by Ian entertained those present in his own
conference is the pinnacle of our together representatives from our entire introducing presentations from Matk afternoon session with a look at Sayers (AIC) who spoke about Investment unique style.
seminar and events programme. membership to enjoy a day of varied Hoban MP, Andrew Tyrie MP, and Syed “leadership” and the common traits he has companies. Wai Au of the China Feedback received on the day was
Throughout the year we run a number presentations covering diverse subject Kamall MEP. These presentations were observed in leaders from different fields. Construction Bank spoke of the scale and unanimously positive with delegates
of well attended lunchtime seminars matter which will include politics, warmly received by our delegates and This was followed by an energetic importance of China and her banks to the remarking that the content was relevant,
which focus on certain topics, examining investment, markets, operations, a number of questions were posed to presentation from the economist and global economy, followed by Duane Lent interesting and entertaining.
these in granular detail, and allowing compliance, taxation and other business the speakers. market commentator Roger Nightingale (Lombard) who addressed I.T. issues and Obviously we would not be able to
those attending the opportunity to ask related issues. A secondary benefit is the The post coffee session comprised a who in the context of the current was in turn followed by Daryl Roxburgh stage an event of this scale without the
specific questions of the speakers. opportunity for networking and catching presentation from Andrew Bailey of the economy asked “where is the light at the (BITA Risk) who addressed the issue of support of our sponsors – Cofunds,
Building on this we have our specialist up with old friends and colleagues. Bank of England, and Ed Warner, end of tunnel?” He introduced our three suitability in the context of client Euroclear, Pershing, Royal Bank
“days” – which has over the last couple of For our conference in 2011 which we Chairman of UK Athletics. Again, both panellists: Philip Shaw (Investec), Richard portfolios and how this can be measured. of Scotland, TD Wealth Institutional
years included “Compliance Day” (now in held at the Dorchester Hotel in London speakers were warmly received with Barwell (Royal Bank of Scotland) and A familiar face to delegates, Angela and Thomson Reuters – and we
its 8th year), “Financial Crime Day” and we wished to take the standard template many delegates commenting on how Aaron Gurvitz (Barclays Wealth) who then Knight (BBA) made predictions for the very much appreciate and value
“Trading Day”, and 2012 has seen the that has served us well over the year but interesting and entertaining they debated this as well as addressing other next ten years before APCIMS CEO Tim their contribution.
resurrection of “Investment Day”. Anyone give it a more dynamic feel with more both were. questions posed from the audience. May closed the conference and invited After such a successful event we are
who has attended any of these events will presentations, shorter in length but just as A lunch break provided an excellent The last part of the conference was delegates to stay for the drinks reception. hoping to capitalise on this by staying
know that they are always well attended relevant in nature and a diversity in style opportunity for networking and even devoted to business issues beginning with Those who stayed for the drinks in London for our 2012 conference
and provide an excellent programme of that included an economics panel and a raising some more questions with Chris Tragheim (Deloitte) discussing five reception were treated to a humorous which will be held at the Dorchester on
interesting presentations all with common business section. the speakers. key issues that must be noted with respect speech from our special guest Boris the 10th October and hope to see many
themes and a similar target audience. The day began with a political session The journalist Gavin Esler, a familiar to FATCA (Foreign Account Tax Johnson (Mayor of London) who of you there.

7. APCIMSANNUAL LEGAL
Conference2011
HSBC ruling: good news for
tUesdaY 11tH oCtoBeR 2011: tHe doRCHesteR, London
08.30 Coffee and Registration 14.05 Economics Panel
finance professionals
Chaired by Roger Nightingale with
09.15 Welcome Housekeeping panellists:
David James, Compere • Philip Shaw, Investec
• Richard Barwell,
09:20 The Changing View Across the Financial Royal Bank of Scotland
Services Landscape • Aaron Gurwitz, Barclays Wealth
The recent case of Rubenstein v HSBC Bank plc raises some interesting
Mark Hoban MP, Financial Secretary to
the Treasury 14.50 Afternoon Break
PROGRAMME
09.45 The Treasury Select Committee’s Role 15.20 FATCA – 5 Key issues for CEO’s
issues about who should bear the responsibility for investment losses
Financial Services Developments Chris Tragheim, Partner in the Financial suffered as a consequence of the financial downturn
Andrew Tyrie MP, Chairman, Treasury Services Tax Group, Deloitte
Select Committee
15.40 Investment Companies
D
10.10 The UK’s Place in the World of EU Financial and the Future
Services Ian Sayers, Director General, espite finding that HSBC had given
Syed Kamall MEP, Member, European Association of Investment Companies advice and the advice had been
Economic Monetary Affairs negligent in Rubenstein v HSBC
Committee 16.00 Sleeping Giants – When will the west Bank plc [2011] EWHC 2304 (QB)
REALLY wake up to the scale of the (2 September 2011) the High Court held
10.35 Morning Break importance of China and that Mr Rubenstein, who had loss due
her banks
to his investment in a fund, could not
11.15 Prudential Matters Wai Au, China Construction Bank
Andrew Bailey, Deputy Head of the
recover damages from HSBC because his
Prudential Business Unit, FSA Director 16.20 Business Decisions on Information loss had not been foreseeable at the time
of UK Banks Building Societies, Bank Technology the advice was given.
of England Duane Lent, Lombard In 2005, Mr Rubenstein was looking
to invest proceeds from the sale of his
11:40 Reflections on Finance and Sport 16.40 The Measure of Suitability house. With the assistance of HSBC,
Ed Warner, Chairman, Panmure Gordon Daryl Roxburgh, BITA Risk he decided to invest in an AIG Premier
Co and Chairman, UK Athletics Access Bond fund, the Enhanced Variable
17.00 The Next Ten Years Rate Fund (EVRF). When Lehman Brothers
12.05 Lunch Angela Knight CBE, Chief Executive,
collapsed in September 2008 it triggered
British Bankers’ Association
13.20 Leading the Way: A Look at Political, a run on AIG and withdrawals from
Military and Business Leaders and an 17.25 Closing Remarks the EVRF were temporarily suspended.
Examination of the Traits they Exhibit Tim May, Chief Executive, APCIMS Mr Rubenstein was able to cash in his
Gavin Esler, Journalist TV Presenter investment a couple of months later, but
in doing so he suffered a loss of capital
13.50 Where is the Light at the End of the 17.30 – 21.00 which he subsequently sought to recover.
Tunnel? Drinks Reception Mr Rubenstein alleged that HSBC had
Roger Nightingale, Economist Special Guest: Boris Johnson, given negligent advice about the EVRF,
Strategist Mayor of London in particular stating that it was viewed as
“the same as cash deposited in one of
[HSBC’s] accounts” when, in fact, it was
a higher risk investment than cash.
In its defence, HSBC maintained that:
(i) the relevant transaction had been
execution-only rather than advisory; (ii)
no advice had been given about which
Mr Rubenstein could claim; and (iii) in any “The court stated that if a bystander was to read the
case, the loss suffered by Mr Rubenstein
was not reasonably foreseeable at the time
emails to Mr Rubenstein and review the file, they too
the advice was given in 2005. would conclude that the contract was advised”
Was the contract advisory
or execution-only?
Although there had been no discussions correspondence with Mr Rubenstein. It stated that if a bystander was to read
between the adviser and Mr Rubenstein HSBC sought to rely on the fact that HSBC the adviser’s emails to Mr Rubenstein and
about whether the contract was to be had not completed ‘Know Your Client’ review the file, they too would conclude
advisory or execution-only, the adviser documentation as evidence that the that the contract was advised.
had not followed HSBC’s Non-Advised transaction was execution-only.
Sales Process (which was required for On the basis of the evidence before it, Was advice given?
execution-only transactions) and had the court held that the contract was one On considering whether certain comments
made references to “advice” in his for advice and was not execution-only. made by the adviser constituted advice,
www.apcims.co.uk QReview 13

8. LEGAL EDUCATION
“Even where negligent advice has been given, it does
not necessarily follow that loss must be compensated.
It is important to look at the reason why the loss was
suffered and whether there is a sufficient link between
that reason and the nature of the negligent advice”
the court stated that there was a Accordingly, to establish his claim
distinction to be drawn between giving Mr Rubenstein needed to show that the
advice and simply providing information market events of 2008 were reasonably
(the latter being more consistent with an foreseeable at the time the investment
execution-only transaction). was made in 2005.
It further held that where advice is The court found that they were not.
given, the information provided is likely In 2005, the concept of a run on AIG
to be accompanied by a comment or was so remote that an adviser would not
value judgment on the relevance of that have been required to point it out.
information to the client’s investment
decisions. In this case, the court was in Comment
no doubt that the adviser had given Mr Rubenstein has applied to appeal the
advice to Mr Rubenstein. Not only had High Court’s decision and that appeal is
the adviser chosen the EVRF in preference
to other funds, but he had also expressed
likely to be heard in May 2012. Regardless
of its outcome, there are a number of Private client stockbrokers
a value judgment by stating that the
EVRF was viewed as the “same as cash
key points and reminders that can be
taken from the first instance Rubenstein
and investment managers:
Investor ignorance.
deposited in one of [HSBC’s] accounts”. decision:
• it is important to make clear in
Was the advice negligent? contractual documentation whether
The court decided that the adviser was a contract is advisory or execution-
Who is responsible?
negligent in recommending the EVRF for only. This will help to prevent the
two reasons: (i) he was wrong to suggest provision of information being
that the EVRF was the same as a cash construed as advice;
deposit; and (ii) he was wrong to make • there is an important legal difference
no attempt to consider the other funds in between giving advice and providing
W
the AIG Premier Access Bond as possible information. Advisers providing
alternatives to the EVRF which, given execution-only or advisory (non- hile it may appear continue to let the odd rogue trader
Mr Rubenstein’s attitude to risk, may have managed) services should be aware Financial education that few private client loose (one in September 2011
been more suitable for him. of the difference;
• advice constitutes a comment or
initiative, supported investment services
featured in Financial
apparently involving £1.3 billion).
Add to that the staggering increase
What loss was recoverable? value judgment. When dealing on an by goverment headed Services Authority (FSA) prosecutions in complaints at the Financial
Having found that Mr Rubenstein relied
on the advice, the court then considered
execution-only basis, avoid making
these statements over the telephone
by Goodacre UK, in 2011, a closer look reveals its
‘successes’ involved such lowlights
Ombudsman Service. Between July
and September 2011 there was:
whether the advice caused him to suffer or in writing; and to launch in 2012 as a charge against a corporate • a 40% rise in complaints about
loss. As guidance, it stated that the • even where negligent advice has been finance adviser and another against deposits and savings
suggestion that Mr Rubenstein would given, it does not necessarily follow an investment banker. • a 37% increase in mortgage
not have invested in the EVRF had the that loss must be compensated. It is The problem is that the press complaints
negligent advice not been given would important to look at the reason why revels in bad news, especially if it • a 23% rise in the number of
not by itself establish the necessary the loss was suffered and whether involves financially regulated firms complaints about overdrafts and
causal link to make HSBC liable for there is a sufficient link between that or individuals. I would go further, loans
Mr Rubenstein’s loss: the loss must have reason and the nature of the negligent it seems to me that some journalists • a 22% increase in complaints
been caused by what it was about the advice. The question of how strong lick their lips at another stock about motor insurance.
advice that was negligent. that link needs to be and whether market dip or, for example, a listed What does all this have to do
Mr Rubenstein maintained that the the test was applied too stringently company at risk of going under. On with the private client investment
risks involved with the structure of the in Rubenstein will probably be top of that, the performance of our services industry? Nothing!
EVRF were the root cause of his loss and answered later this year. esteemed European leaders gives True, market performance has
not the collapse of Lehman Brothers. Robert Peston another reason to been rough and portfolio values
However, the court held that the closure This article provides a commentary on legal drone on at us each evening, every have deteriorated. However, all
of the EVRF and the substantial loss of issues and does not constitute legal advice. time another decision is fudged. the investment managers I know
investors’ original capital was triggered by Don’t get me wrong, much are very concerned and are doing
the market events of 2008 and so it could has gone wrong in the financial everything possible in the best
not be said that the structure of the EVRF Chris Warren-Smith services sector. The antics of interests of their clients. While the
and the failure to explain it adequately Rachel Green European leaders have shocked regulated firms and investment
truly caused Mr Rubenstein’s loss. Fulbright Jaworski International LLP the markets. Investment banks managers worry about stock market
14 QReview www.apcims.co.uk www.apcims.co.uk QReview 15

9. EDUCATION SME INVESTMENT
performance, it may well be time to “More than 105,000 people have signed an e-petition
Small companies,
stick our heads above the parapet
and start to spread a little financial calling for financial education to be made a compulsory
education around. My company has
been working on an educational
part of the school curriculum… we are in the best position
initiative for well over a year and to get the right message across to all age groups”
big growth
is now in talks with government
in preparation for launch.
We presented the concept to individuals will turn to deposit the London Stock Exchange,
educational establishments and accounts. With interest rates low Dr Tim May at APCIMS and, of
other institutions. The reaction was and inflation running at 5%, this course, the government agencies
prospects
very revealing. In summary, a large just might not be appropriate. who collectively value better
proportion of people we met: Furthermore, these ‘smaller’ levels of financial education for
• believe that investment is “not investors are not necessarily so all. Unsurprisingly to us, this
for them” small; a number we have met are confidential project has remained
• have little or no understanding approaching retirement or have under wraps for many months
of the economy or markets received an inheritance and simply which demonstrates yet again that
• said that stockbrokers and don’t know where to turn. the highest levels of trust continue
investment managers are wealthy We have received significant to be maintained within the
individuals who have no interest assistance in this development financial services sector.
in smaller investors. from many organisations including In one of our recent surveys,
Left uneducated, many of these Peter Evans, Proquote from many investment managers called
on the government to arrange
financial education to improve
understanding of basic investments,
ISAs and SIPPs. One manager told
me about some poor individual
who received his pension of
£200,000 and invested the lot in
Lloyds Banking for his self-select
SIPP at 78p. The shares are now
standing at around 25p. This chap’s
working life pension has lost more
than two thirds of its value because
he had a go at doing it himself.
With a better understanding of the
Barely a day goes by without new examples of the difficulties faced
alternatives or better advice, this by small and mid-cap companies trying to raise funds to grow their
position could have been avoided.
It’s easy when working in the
business – or simply find working capital for their day-to-day operations
T
business to assume that everyone
else has at least a basic grasp of he last few years of low investors are choosing not to follow to support investment in smaller
investments – they don’t. growth and historically low the institutional lead but instead and earlier stage businesses.
More than 105,000 people have interest rates have created are recognising the value of high- For example, legislation will
signed an e-petition calling for unprecedented challenges growth companies in their portfolio, be introduced in the Finance Bill
financial education to be made for those with money to invest. In even in a turbulent market. 2012 to broaden eligibility for EIS
a compulsory part of the school times of turbulence many investors Many sophisticated investors investment. From 2012/13, eligibility
curriculum. We could leave this traditionally make the ‘flight to have long been active participants will be extended to companies
to the government, the schools or quality’, turning their backs on in growth markets such as PLUS, with up to 250 employees, with
someone else. However, we are in SMEs and retreating to the relatively yet many more remain unaware gross assets of up to £15 million
the best position to get the right low-risk blue chip sector. of the opportunities outside the before investment, and the annual
message across to all age groups. Yet the FTSE remains volatile FTSE. Figures from HMRC show, amount that an individual can
David Cameron’s father was a and many market commentators for example, that the majority of invest under the EIS will be
stockbroker at Panmure Gordon are predicting that the road ahead the 10,000 individuals who invested increased to £1 million.
so maybe he could be persuaded remains rocky, with shares still through the Enterprise Investment This is encouraging, although
to help! Until then we have significantly overvalued and likely Scheme (EIS) in 2008/09 were male there is still much more that could
spoken to a number of investment to fall further in the coming year. and based in the South East of be done to broaden investment
firms who will be supporting the With interest rates stagnating at England. Clearly, there is potential
cause and we are now arranging historic lows and the 50% tax rate to expand beyond this group.
discussions with others. chipping away at returns for higher There is government support for
If you would like to learn more,
and perhaps take part in what
earners, what are the options for
private investors?
investment in SMEs. In 2010, the
Green Paper ‘Financing a Private
“Private investors are recognising
will be a very high-profile project This year we have seen trading Sector Recovery’ emphasised the the value of high-growth
with national coverage, contact
me directly on stephen.pinner@ Stephen Pinner
volumes in PLUS-SX companies rise
by more than 100%. This supports
importance of SMEs in restoring the
UK economy to health, and there
companies in their portfolio, even
goodacreuk.com Goodacre UK the anecdotal evidence that private have been some helpful initiatives in a turbulent market”
16 QReview www.apcims.co.uk www.apcims.co.uk QReview 17

10. SME INVESTMENT
into SMEs. The removal of stamp Mechan Controls share prices 2008-11
Date for your diary
duty remains a key goal, as
this represents an increasingly
disproportionate element of the
cost of dealing. In its response
to ‘Financing a Private Sector
Recovery’ PLUS, along with other
market participants, called for the
government to abolish the tax for
trading in all securities outside
the FTSE 350. This would be a
relatively easy way to stimulate
liquidity in this key sector without
sacrificing significant revenues.
Tax is just one part of the mix,
and the main reason to invest in
any company must always be that
the business looks good and can
deliver growth. The best reason to
look at PLUS-SX is not necessarily
for the capital gains or IHT relief Chapel Down share prices 2011
but because there are real ‘nuggets’
– companies generating really
strong returns for shareholders.
There are well-known businesses
on PLUS-SX which consistently
deliver strong growth, such as
Arsenal (22.5% increase in share
price in 2010) and Quercus
Publishing (up more than 400% in
2010). But many other companies
also generate strong returns for
their shareholders.
These include Lancashire-based 10th October 2012
Mechan Controls, which designs
and manufactures electronic safety
APCIMS Annual Conference
switches for industrial use. It has The Dorchester, London
fuelled growth through acquisition
– and delivered consistent value
for the last three years, with steady
Speakers TBC
growth in its share price from 125 If you are interested in sponsoring the conference
to its current level of 211. please contact me ASAP.
English wine producer Chapel comprehensive information about shares. Our experience certainly
Down had a great 2011, supplying our companies. As part of this, supports this; road shows are
the royal wedding of Prince William we sponsor a range of services to always very well attended, and Jason Baxter (jasonb@apcims.co.uk)
and the Duchess of Cambridge, increase our companies’ profiles. participating companies frequently
also winning the contract for Jamie On our website investors can find tell us that they have been effective
Oliver’s Union Jacks restaurant. independent research into PLUS-SX in attracting new investors.
Regulatory consultancy and companies produced by Edison, As we head into 2012, the wider
training business Judicium has also along with fundamental data picture remains uncertain but it is
Next issue of Q Review
performed strongly, delivering 100% and up to date news. Company clear that a healthy SME sector will
growth in its share price, while information and analysis is carried be key to future growth. Private
long-established PLUS-SX business by leading retail service providers investors play a vital role in helping
National Milk Records ended 2011 such as MoneyAM and iii. entrepreneurial companies find the
on a high, enjoying a 41% increase We also offer private investors funding they need. PLUS-SX will
in its share price since January.
The big challenge for smaller
and private client brokers the
chance to meet senior management
continue to promote its companies,
helping investors seek out the next
If you would like to contribute an article for this issue please The Association of Private Client
contact me ASAP.
Investment Managers Stockbrokers
Working for the Investment Community
companies – and those who invest of PLUS-SX companies at regular Quercus or Judicium. If you are not QReview
in them – is market communication. road shows. A recently published familiar with them, take a look at
Autumn 2011 Newsletter
All small companies know how survey by Grant Thornton, ‘Back our website (www.plus-sx.com) or INSIDE:
If you are interested in sponsoring the next issue or
US non-doms
Investment challenges
for Americans living and
working in the UK
hard it can be to get themselves to Basics for Equity Markets’, join us at an investor event. Assessing Suitability
A practical approach
advertising within it please contact me ASAP.
Tail Risks
onto the radar of analysts and found that 86% of respondents
The potential for them to
drastically impact portfolios
investors, so a key part of our role saw one on one access to senior
at PLUS-SX is to make sure that all management to be a key factor in Vivienne Cassley
market participants have access to enhancing liquidity in a company’s PLUS-SX Jason Baxter (jasonb@apcims.co.uk)
18 QReview www.apcims.co.uk www.apcims.co.uk QReview 019

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