Robert Berkeley, CEO of Infinox
Rare is the company that marks a successful decade in business by pressing the reset button and looking for an entirely different type of customer.
But that’s exactly where we in the CFD industry find ourselves, after an unprecedented period of increasing regulation that has eclipsed the scale of intervention seen in other sectors.
These are intriguing times, and we already know the sector will look radically different in another 10 years.
But how different? To understand why the process of evolution is set to continue, it’s worth reflecting on how we got to where we are today.
The regulatory revolution for CFDs has been swift. CFDs won a massive audience around the globe thanks to the leverage they offered to a broad church of investors and traders keen to increase their exposure without increasing their risk capital.
However with that success came unexpected issues, as customers were attracted from both ends of the spectrum. Many sophisticated retail investors, who were already familiar with the stock market, began to embrace the way CFDs could help them turn the same amount of money into a greater number of investments with lower trading costs. So far, so uncontroversial.
More and more firms sprang up with ever more sophisticated trading platforms.
Simultaneously, as the world of spread betting pulled in those who were newer to financial markets but still fascinated by them, many of them eventually graduated to CFDs once they felt they had grown in skill and understanding. These clients knew CFDs were favoured by professional speculators because of their tax advantages and saw CFDs as a natural next step. But some of those attracted to the industry were less experienced than they might have been and proved hard to engage in education.
The industry, as it sprang up in the early 2010s, was not to last. And if we are honest with ourselves, the industry could have done more to keep in step with regulators. Most CFD providers think the leverage ceilings now imposed in developed markets by the EU’s ESMA rules are too draconian, but how much higher they might have been if the sector had embraced voluntary caps earlier is still a matter for debate.
And so it was that, at the end of the last decade, this hugely successful sector had its wings clipped as regulators capped the amount of leverage available.
Their aim was to protect those investors who they feared would either not seek out the right knowledge or overleverage themselves — or both.
Regulation certainly has brought with it unintended consequences. The main one is the way tighter regulation in home markets has pushed some investors and traders into far-flung corners of the world where they might be more vulnerable to bad actors taking advantage of weak regulations and oversight.
Rumours have also circulated that the industry can no longer survive in home markets but this is unfounded and firms like Infinox — currently celebrating its tenth anniversary — are proudly staying put.
The reality is actually more nuanced than that.
If the sector is to continue to thrive, the problem is an obvious one — regulation has changed the character of who our customer is. If clients cannot trade at 200:1 and the business models that were designed around these customers are redundant, then it is the business model that has to evolve.
We have to move with the times and the customer of the future will no longer be trading at more than 30:1. The industry has to deal with that.
So if a highly leveraged trader is the customer who defined the past 10 years, who is going to define the next decade? The answer brings us to probably the most interesting unintended consequence — a mass-market future for CFDs.
The true mass-market has scarcely been courted until now, for the simple reason that the industry didn’t need to. But a core of stock market investors who have already discovered the advantages of trading shares using CFDs already exists, and these clients are not that concerned about leverage caps.
They are financially sophisticated, they remain customers for years, if not decades, and they love the technology on offer that they can’t get from traditional share dealing accounts.
There are many millions of them, they live conventional lives and they are also easy to bring through the KYC process.
These people must be the CFD clients of the future who will help the sector operate within an increasingly complex regulatory framework. Greater numbers of customers who are more loyal will also help providers overcome another problem that has grown in size over the past decade — the cost of RegTech.
Most providers turn to technology to meet the KYC and anti-money laundering challenge, knowing if they don’t get it right the punitive costs could be devastating. But they’re not cheap and there is no scope to deviate from a regulatory framework that is being shaped not by genuine investors but by financial crime.
Broadening the customer base will be the best way for the CFD business to plug the hole left by the leverage cap, which the FCA itself estimates will dent providers’ profits by up to £55.3million.
The sector has been told it has a new customer base and it’s now up to companies to go and find them. That’s going to take time but it’s not impossible. Far more consumers are investing and trading than ever before and customers using less leverage are likely to show greater loyalty.
Short-term gains will gradually be replaced by long-term aspirations with lower risk. This is actually something that our educational offerings can much more easily support. Clients’ success rates will inevitably rise, and with it the lifecycle of the typical customer will grow longer, much as it does now with traditional stockbrokers. These clients of the future won’t miss the high leverage, because they never had it.
A seismic change has torn up assumptions the CFD industry thought it could rely on only a few years ago. Reorientation beckons and the sector has its work cut out, but it’s not mission impossible.
Soon we’ll bridge the divide between the present and the brave new world by using a combination of innovative products, greater integration and more intuitive education.
IS PRIVATE PLACEMENT LIFE INSURANCE THE PERFECT PRODUCT FOR GLOBAL HNW FAMILIES
By Louis Zuckerbraun, Managing Director, GMG Insurance
Everyone wants to know that their family will be okay after they die and will do whatever they can to ensure that. That’s as true for high net-worth individuals (HNWIs) as it is for anyone else. But in an age where families are spread across the globe, leaving the kind of legacy you want can be incredibly complicated.
One product that could make things a great deal more simple is Private Placement Life Insurance (PPLI).
Originally conceived in the US, PPLI is rapidly gaining traction across Europe. Not only is it more efficient than traditional forms of life insurance, allowing the investments within the policy to hold many more types of assets and asset classes, it can also be a useful way to overcome specific issues such as management and control, beneficial ownership and substance.
While PPLI is gaining popularity across the globe, it’s still a relatively unknown product set, even among the HNWIs it would most benefit. It’s therefore worth looking at exactly what PPLI is.
Effectively an investment wrapped inside an insurance policy, a PPLI policy’s cash value depends on the performance of the investments within it. These investments can include hedge funds, mutual funds, and other potentially lucrative assets. Ultimately, it’s down to the policyholder to choose what kinds of investment they’d most like to have, meaning that they have a lot more freedom than they would with an ordinary life insurance policy.
Depending on the jurisdiction, a PPLI policy can also provide significant tax savings. In the US, for instance, the Internal Revenue Code treats insurance differently than it does investments. So, by packing an otherwise taxable investment in a tax- free policy, investors can reap big rewards on the investment, as well as the death benefit, tax-free.
But PPLI policies aren’t just beneficial from a tax perspective, they’re also useful for anyone with a global family.
A PPLI policy is generally by nature a globally focused vehicle. So, for instance, approved banking partners and advisors in Switzerland can work with US persons, to provide an investment vehicle that has a global focus.
The policy would purchase global funds and be managed by a global advisor who is outside the US but understands the US market. This makes it perfect for anyone who wants to diversify from traditional United States Dollar denominated investments but wants to maintain tax compliance and work with international advisors.
This solution works very well with a global family who may have, as an example, a child studying in London, or with international businesses, and who wish to build exposure globally in a tax efficient and US compliant manner. An international PPLI policy would be very beneficial to the family.
Further, the policy can be denominated in Swiss Francs, US Dollars or Euros depending on the needs and strategies of the policy owners or beneficiaries and still pay tax efficiently to the US persons.
These features also mean that a PPLI policy can be a useful replacement for, or supplement to, a family trust, especially if a tax authority is unlikely to accept the trustees as the legal owner of the assets held in the trust.
A clear choice
With more and more families living in different geographies, a PPLI policy is therefore an option that should be playing a much bigger role in the mainstream. It provides an accepted and compliant solution to the planning challenges faced by ultra-high net worth and high net worth families.
While life insurance, in general, provides a mechanism for estate tax planning, asset protection and investment flexibility that cannot be beaten by any other compliant tool, PPLI provides the flexibility and protection that informed high net worth families increasingly require.
If you’re looking a purchasing a PPLI policy, however, it must be managed by professional insurance and legal advisors who understand the product.
FIVE THINGS YOU’RE DOING THAT ARE INVALIDATING YOUR CAR INSURANCE
Car insurance is a legal requirement for motorists, but many drivers may be unknowingly voiding their policy.
Failing to update your circumstances or providing false information, whether intentionally or not, could lead to your insurer refusing to pay out or cancelling your policy. In the worst-case scenario, you may be liable to be prosecuted for fraud.
To help motorists avoid any issues with insurance, experts at online car parts provider CarParts4Less have outlined five common mistakes that can invalidate your policy.
- Car modifications
Nearly half (47%) of Brits have modified their car in some way, with over a third (37%) spending £500 or more souping up their motors*, but failing to notify your insurer about any changes to your vehicle could void your policy.
There are two ways that car modifications can affect your insurance premium: if they increase the likelihood of an accident (performance upgrades), or if they increase the likelihood of theft (cosmetic upgrades or tech add-ons, such as a soundsystem).
Always ensure that you inform your provider about any changes to the vehicle, as this will allow your insurer to assess the validity of your policy.
Insurance for young drivers often costs more than groups deemed less of a risk. One way some motorists try and get around the higher premiums is by having a low-risk driver, such as a parent or partner, named as the main policyholder and adding the real motorist as a named driver.
However, if you get caught ‘fronting’, as this tactic is known, your policy will immediately be cancelled, and any claims denied. These cases are often taken to court and are classed as insurance fraud, with outcomes including fines of up to £5,000 and six points on your license.
- Not updating your address
Car insurance premiums can vary depending on the postcode, as some areas have higher rates of thefts and break-ins. It can be tempting to put down your home address as somewhere different to where your car stays every night; for example, your parents’ house while you are at university. However, if you do so, your insurer can refuse to pay out for any claims made at your actual main living location.
Many companies have investigative departments (called a special investigations unit, or SUI) dedicated to making sure information on your insurance and claims is correct, so while you may think you can get away with not updating your address, you’ll likely be caught when you make a claim.
- Not reporting accidents
Many motorists don’t see the point of notifying their insurers about small bumps and scrapes. However, even if you don’t intend to claim, it is important to inform your insurance provider about any damage, as not doing so is a breach of your policy.
This protects you in the event that the other driver changes their mind and decides to claim. It also ensures damage is accounted for if you do need to claim for future incidents, as damage which is inconsistent with a claim may mean that you are denied.
There are three types of car usage that insurance covers: social only, social and commuting, and business
These different policies provide different extents of coverage, and using your car outside of this usage will mean that you’re unable to claim. For example, social usage does not cover your car when commuting, so you will be unable to claim for any incidents while travelling to or from work.
A CarParts4Less spokesperson said: “While it may be tempting to bend the rules to pay for a cheaper policy, it’s never worth it, and will often lead to you paying substantially more in the long run.
“It’s important to always read the terms and conditions of your car insurance policy, to ensure that you have not accidentally invalidated the policy. Keep your insurance provider up to date with any change of circumstances, regardless of whether or not you think it’s relevant. It’s better to be safe than sorry.”
To find out how to legally reduce your car insurance costs, visit https://www.carparts4less.co.uk/blog/10-tips-to-reduce-your-car-insurance-premium
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