Meet the trustees

If you are the owner of / the advisor to an ITC SSAS, do you remember to hold your annual trustee meeting?

A trustee meeting provides an excellent opportunity for the trustees to meet with the scheme financial advisor and the administrator to do a review of the scheme. Issues that are typically discussed are investment strategy and performance, scheme governance, trustee training etc. - but it’s an open forum!

The owner of an ITC SSAS is also a trustee of the SSAS, ITC being the other trustee. This is one of the key features of the ITC SSAS. The Pensions Board’s Trustee Manual, which sets down rules of conduct for trustees of occupational pension schemes, prescribes that trustees should meet at least once every year. It is most appropriately done just after the issue of the annual scheme accounts.

In ITC, we issue an invitation to a trustee meeting and the meeting agenda with every set of annual accounts. The accounts and the invitation are forwarded to the member trustee and, if we have been requested to do so, to the financial advisor. It is then up to the trustees and the financial advisor to agree the timing of the trustee meeting – but it must be held.

The meeting can be done over the phone or by meeting in the ITC offices. At the end of the meeting, the trustees observe their duty to sign the annual accounts. Minutes of the Meeting are agreed.

On occasion, issues of a legal or technical character arise. The trustee meeting is the perfect opportunity for agreeing how to solve them.

Make sure that you hold a trustee meeting at least once a year. It’s a great opportunity –  it’s your duty!

 

Tommy Nielsen

ITC Consulting

Where’s the money going?

One of the most common questions I get asked when on my visits to Advisors is - “What are people doing with the money once they’ve set up an ITC self-administered structure?”

Let me state first that what follows is an observation of movement of existing and new money. As you know, ITC does not offer investment advice, so please don’t confuse the following as a recommendation. If you require any advice in relation to the following, please contact your Advisor.

With our compliance department now satisfied, I think the best way to answer the above question this is to look at the main areas of client interest in 2012.

 

Area 1 - Deposits

The banks thirst for deposits during 2011 and average inflation at 1.65%, made it very easy for investors to achieve “Real” growth with little or no risk.

It was noticeable in 2012 that the banks had changed their tune and were pushing headline rates down and this is expected to continue throughout 2013.

Despite the downward pressure on deposit rates, demand from clients has remained strong and an expected inflation rate for 2013 of 1.3% (HICP) is unlikely to dent this demand.

What we have seen, however, is a shift from short term deposit accounts to the more long term.

These trends are backed up by statistics from the Dept. of Finance.

• Deposits from Insurance Corporations and Pension funds increased by 6.9% in 2012.
• Shorter term deposit rates (less than 2 years) reduced from 3.57% in Jan 2012 to 3.35% in Nov ’12.
• Longer term deposit rates (more than 2 years) increased from 2.37% to 2.42% over the same period.

It’s no surprise that ARF clients are the biggest supporters of deposit strategies. Their age profile means that they have less appetite for risk. This has resulted in over 60% of ITC ARF funds being held in deposits.

We contacted the insured companies towards the end of 2012 regarding the charging structure of their ARF products. An annual management fee of 1% is very common.

This probably explains the inflows to the ITC ARF. Choosing an annual management charge of 0.5% gives most clients a reduction in fees, full access to the deposit markets and covers the Advisors continued work of research, recommendation and implementation.
 

Area 2 - Broker Portfolios

What I’m talking about here is where the Advisor has built their own offering for clients through the use of insured funds, stockbroking accounts and funds, deposit agencies etc.

The ITC products work really well in providing Advisors and clients the structures for choice and control of investments.  

The Advisor assists the client in understanding their attitude to risk/loss, and then builds an agreed portfolio around their goals and objectives.

The strengths of this approach are obvious. The client has a better understanding and more involvement in the process. This gives the client more clarity and control. There are more touch points with the client which, results in a much stronger relationship between the client and Advisor.

For many reasons (to be covered in a future blog), we believe that this type of strategy will continue to grow in 2013 and beyond.
 

Area 3 – Property

We’ve seen a significant pick up in activity for both Commercial and Residential property and the following gives an indication why we have had this activity from existing clients and new clients moving away from traditional insured funds.

• The consensus from the major estate agents is that for prime commercial property in the major cities, prices have stabilised.
• Residential property continued to fall in 2012. In Dublin it was down 2% and down 9% for the country as a whole. But South County Dublin saw an average increase of 3.1%. (Daft.ie)
• Rental yields are averaging 8.8% and the average residential property price was €140k. (Allsop Space/Goodbody 8/12)

The one thing we haven’t seen is leverage. The lenders experience of negative equity and overall impairments has obviously affected their appetite to lend. Will lending to pensions happen again? Yes, I believe so, but in prime property and with lower loan to value ratios.

Martin Glennon QFA CFP® 

Corporate Account Manager
Independent Trustee Company

Pension Providers in the Firing Line

So here we are again – another pension provider under scrutiny, talks of shortfalls on funds, inspectors appointed, followed by negative reports in the media, the pension industry is caught again in the crosshairs.

Of course those of us who are a while in the pension industry will have seen negativity heaped on our industry before.  We had Equitable Life leaving hundreds of thousands of pensionholders short as they were unable to pay what they had promised. And we had Scottish Provident again leaving pension holders short as they slowly wound down their business in Ireland.

So what can we do? How can we demonstrate to people that their funds are safe and that not all pensions are subject to the same risks?

When Independent Trustee Company was founded 18 years ago we looked at existing pensions and we identified two key risks that could potentially cause harm to a pension holder and we took steps to eliminate them. These two risks are:

·         Balance Sheet Risk, and

·         Pooling Risk

Balance Sheet Risk

Balance Sheet risk occurs when a pension provider keeps the pensionholders assets on its own balance sheet. Effectively the clients pension assets and the pension providers own assets are held together on the balance sheet of the provider and if that provider gets into difficulty as we have seen with Equitable Life and Scottish Provident  then the clients assets can be called upon. 

In these circumstances the client unwittingly takes on a risk that he is not being rewarded for, though perhaps more importantly he faces the potential loss of some or his entire pension.

In the UK they have woken up to this problem and where an advisor fails to adequately explain the difference between assets being held on the provider’s balance sheet versus being held at arms length, they risk a future claim.

The solution is simple but effective. At Independent Trustee Company we hold no client assets on our balance sheet, all the pension assets are held under trust. This includes not just the ITC SSAS which is by its nature a trust but also the ITC ARF and our newly acquired ITC PRSA. No mixing of assets can occur and as a consequence we truly believe that we have the safest pensions on the Irish Market.

Pooling Risk

The second risk is pooling risk. This occurs when client assets are mixed together for administrative reasons. A typical example is a client asset account where all funds received from various pension holders are lodged and perhaps also where all funds paid out by the pension provider are paid out from.

The potential risk here is that clients’ funds can get confused, one client gets credited with the assets of another, or perhaps on the payments side a client is charged with a payment that relates to another client. The result is at best administrative confusion, at worst complete organisational and system chaos.

So how do you minimise the possibility of that happening?  Again the solution is simple, at Independent Trustee Company, each and every pension holder has a separate bank account even before  funds are contributed/transferred. And if they engage in an investment that is specific to them they have further separate accounts there also.

Of course if they combine with a number of other pensionholders to invest in say a syndicated property that investment will be a combined account. However only the portion that relates to the investment is combined, the pensionholders other assets are kept separate.   

We have found over the years that these two guiding principles allow our clients, (and indeed ourselves, those that regulate us, and those that insure us) to sleep well at night.  Perhaps these principles are what our industry needs going forward.