Good morning and welcome to your Morning Briefing for Tuesday 8 October 2024. To get this in your inbox every morning click here.

Behind the Headlines: FCA consolidation review is a ‘wake-up call’ for buyers and sellers

Consolidation has been a hot topic in advice since long before I joined Money Marketing in June 2021, writes chief reporter Lois Vallely.

But it does seem to have gained extra traction in the past two years. Almost every week we receive a press release or a tip-off that a big firm has bought an IFA business.

It may seem as though consolidation has slowed down in recent months, but conversations with industry commentators would imply the opposite is happening.

MM Meets… Castlefield founder and chair John Eckersley

Some founders of companies, perhaps understandably, like to take centre stage and become the face of the business they have created. But Castlefield’s John Eckersley isn’t one of them.

Rather than enjoy the limelight, he prefers to take a back seat and put trust in the team he’s built around him over the past two decades.

The sustainable investment firm’s headcount has gone from two employees in 2002 to more than 50 today, so Eckersley’s method is clearly working.

Vitality expands IP product to cover more occupations

Vitality has announced several changes to its income protection product to cover more occupations.

The provider said that from today (7 October), it will expand its range of deferral periods for a further 280 occupations including manual occupations and skilled trades such as plumbers, mechanics and warehouse workers.

The changes will see even more individuals become eligible for shorter one- and two-month deferred periods.

Quote Of The Day

Thanks to their endless warnings of doom and the need for tax rises, the government has created a planning blight for businesses and a source of anxiety for private investors

– Tom McPhail, director of public affairs at the lang cat, takes aim at Labour three weeks out from the Budget

In Other News

Allfunds has appointed Patrick Mattar as global head of Exchange-Traded Products (ETP) distribution.

This move comes as the company plans to launch its own ETP platform in 2025, expanding its current offerings in traditional and alternative funds.

The new platform will provide a comprehensive range of exchange-traded products under one solution.

Mattar will oversee the platform’s development and integration with Allfunds’ existing services, focusing on innovation and client experience.

Mattar previously held senior roles at Abrdn and iShares, BlackRock. He holds degrees from the University of St Andrews, University of Pennsylvania and University of Stirling, and studied at Trinity College, Dublin.

Commenting on his appointment, Mattar said: “I am thrilled to join Allfunds and lead this exciting project. The opportunity to develop a comprehensive ETP platform is incredibly exciting, and I look forward to working with the talented team at Allfunds to deliver innovative solutions that meet the evolving needs of our clients.”

Juan de Palacios, chief strategy and product officer at Allfunds, added: “We are delighted to welcome Patrick to Allfunds. His expertise and leadership in the ETP and ETF sectors will be instrumental in the next phase of our growth, and we are confident that with his direction, our new platform will deliver significant value both to the ETP ecosystem and our clients.”

Bullish bets on UK assets take a knock as budget looms (Reuters)

What America’s presidential election means for world trade (The Economist)

Pound seen at a turning point after peer-beating rally (Bloomberg)

Did You See?

There is already a well-documented advice gap. Many people who could benefit from advice lack access, either because of cost or because they simply don’t know it exists.

This will only get worse if the number of financial advisers in the UK drops, as is predicted in the next five years.

If we don’t spark interest in the profession, the numbers will continue to dwindle as advisers leave and aren’t replaced. Everyone in the sector agrees on the need for change.

So, the question is: how do we achieve it?

Read our full cover story here.

S&P Dow Jones Indices has tweaked the methodology for its 11 Select Sector indices tracked by $300bn in exchange traded funds in response to large market swings in the technology industry, the index provider has disclosed.

The rebalance was the result of concerns within S&P regarding the continued growth of certain technology stocks such as Apple, Microsoft and Nvidia, the company noted in a September 10 article on its website.

Some 42 ETFs with a combined $303.6bn in assets track Select Sector Indexes, according to data from Morningstar Direct.

The largest of those funds is State Street Global Advisors’ $69bn Technology Select Sector SPDR ETF, which tracks the S&P Technology Select Sector index, Morningstar data shows.

This article was previously published by Ignites, a title owned by the FT Group.

Market swings impacting that index appear to be the primary motivation behind the changes, S&P noted on its website.

Four other ETFs also track that index: the $3.2bn Direxion Daily Technology Bull 3X, $698mn ProShares Ultra Technology, $104mn Direxion Daily Technology Bear 3X and $5mn ProShares UltraShort Technology ETFs.

The five ETFs garnered a combined $4.1bn in net inflows during the year that ended August 31, Morningstar data shows.

Overall, the 42 Select Sector index-tracking ETFs recorded $467mn in combined net inflows during the same period.

S&P’s 11 Select Sector indices are market-cap weighted and aim to have the right mix of companies from the benchmarks they follow, their methodologies note.

To qualify as a registered investment company, no more than 25 per cent of an ETF’s assets may be invested in a single issuer and the sum of the weights of all issuers representing more than 5 per cent of the fund, dubbed “larger companies,” should not exceed 50 per cent of the fund’s assets, Zachary Evens, research analyst at Morningstar, wrote in note explaining the process.

Under the old methodology, if a group of large companies were to account for more than 50 per cent of the index weight, the index would reduce the weight of the smallest company in the group to 4.5 per cent, the S&P website states. The process would repeat iteratively, if necessary, until there were no breaches of the thresholds.

But the growth of large tech stocks has caused this mechanism to lead to “flip flops” in index weights twice this year, S&P noted.

Apple, Microsoft and Nvidia each had weights greater than 4.8 per cent, and their collective weight exceeded 50 per cent as of March 2024. As the smallest of the three companies at the time, Nvidia’s weight was reduced to 4.5 per cent.

But in June 2024, Nvidia had become the second-largest of the group, “reflecting investors’ expectations of the impact of AI on the company’s growth prospects,” S&P noted.

As such, Apple had its index weight reduced by 17 per cent at the June rebalance, while Nvidia’s weight increased by 15 per cent to around 21 per cent.

“The Technology Select Sector SPDR ETF was forced to sell roughly $10bn of Apple and buy nearly as much of Nvidia after the former’s market cap was supplanted by the latter,” Morningstar’s Evens noted in his report.

Under Monday’s new capping mechanism, the aggregate weight of the larger companies will be reduced to 45 per cent from 50 per cent, and the larger companies’ individual weights will be determined by their relative proportions, after checking for any breaches in the single company cap.

The minimum index weight of each of the larger companies is now 4.5 per cent.

The new system should be enough to quell regulatory concerns, Evens told Ignites.

“There are buffers built into the methodology to prevent the portfolio from running afoul of the diversification rule,” he wrote in an email.

The new rules should not cause any structural or mechanical issues, he noted, but investors might be concerned with the “relative underweighting” of the tech market’s largest holdings compared to an uncapped technology index, Evens wrote.

“An uncapped index wouldn’t satisfy the diversification rule but would be more representative of the technology sector,” he added.

While the updated methodology will reduce the index’s reliance on its two largest holdings, diversification is improved, reducing single-stock risk, Evens said. Performance will still be steered heavily by the sector’s largest stocks, he added.

*Ignites is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignites.com.

WATER companies have been ordered to return £158million to customers after failing to meet pollution targets.

The industry regulator, Ofwat, announced the rebate following its annual review of the performance of water and wastewater companies in England and Wales.

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Each year, Ofwat evaluates the performance of the 17 largest water and wastewater companies in England and Wales against key targets, including sewer flooding, supply interruptions, and water leaks.

For the second consecutive year, no company attained the highest rating, although four companies demonstrated improvement compared to the previous year.

As a result, millions of customers at 13 water companies could see their bills slashed next year as the watchdog issues penalties.

Customers at the following water firms will benefit:

• Thames Water
• Anglian Water
• Yorkshire Water
• Southern Water
• Welsh Water
• South West Water
• South East Water
• Wessex Water
• Affinity Water
• Bristol Water
• Portsmouth Water
• South Staffs Water
• Hafren Dyfrdwy

David Black, chief executive of Ofwat, said: “This year’s performance report is stark evidence that money alone will not bring the sustained improvements that customers rightly expect.  

“It is clear that companies need to change and that has to start with addressing issues of culture and leadership. Too often we hear that weather, third parties or external factors are blamed for shortcomings. 

“Companies must implement actions now to improve performance, be more dynamic, agile and on the front foot of issues.

“However, we are beginning to see that some companies are beginning to change their culture and adopt a more innovative and forward-thinking approach to tackling pollution.

Only four water companies have not faced a penalty from the regulator, meaning customers at the following firms won’t recieve a rebate next year:

• SES Water
• Northumbrian Water
• Severn Trent Water
• United Utilities

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Princeton University has reversed a policy that had sharply constrained the funding of academic research by fossil fuel companies, after pressure from faculty members and concerns that the rules risked hindering work on environmental challenges.

Environmental campaigners criticised the move as Princeton had gone further than most of its peers in moving to divest oil, gas and coal groups from its endowment and “dissociate” its research from fossil fuel company funding.

In a letter to its academic staff first reported in the student newspaper, three senior university officials said the rules Princeton adopted just two years ago “adversely and inequitably affected scholars whose research programs are addressing pressing environmental problems”.

“They lost not only outside funding for research to combat the harms of climate change, but also access to collaborative partnerships focused on important work that is aligned with the university’s values,” the officials wrote.

Under its new approach, Princeton’s endowment will maintain its commitment to divest from fossil fuel companies, but faculty members will have discretion to accept funding from them for specific research projects “aimed towards the amelioration of the environmental harms of carbon emissions” as long as they retain academic freedom to publish results.

As of January, Princeton had severed funding links with 29 companies since the rules were implemented in 2022. The list of fossil fuel groups that it had identified for possible “dissociation” had surged since then, from 90 to 2,371, although it had no links with most of them.

The university said it would no longer update a tally of companies it would dissociate from, which included BHP, ConocoPhillips and ExxonMobil, but it would continue to disclose all external funders and how much they have given each year.

Its most recent report on research sponsorships shows contributions including nearly $3.4mn from BP, $848,000 from ExxonMobil and $120,000 from Shell in 2023.

An investigation by congressional Democrats published this year found several examples of oil majors partnering with universities to boost their business strategies, including a BP spreadsheet that rated how research plans at Princeton, Harvard and Tufts aligned with its priorities. 

Stephen Pacala, who has directed the Carbon Mitigation Initiative, a BP-Princeton partnership, for 25 years, stressed that his academic integrity was never threatened.

“I have published perhaps a thousand papers, and never one on how to get more fossil fuel out of the ground. They have all been about climate change and the energy transition,” he said.

Princeton’s decision comes as universities face growing calls from students and faculty to disclose and sever their research ties to fossil fuel companies. Columbia recently organised a committee to consider its future acceptance of fossil fuel funding.

In June, however, a Stanford University committee recommended against dissociating from the industry, warning it could have an “inhibiting effect” on academic freedom.

Alicia Colomer, managing director of the Campus Climate Network, formerly Fossil Free Research, called Princeton’s shift a setback to the dissociation movement and warned its new guardrails risked justifying “false industry-friendly solutions”.

“Students are really going to need to organise their campuses and raise the stakes for universities to take that step because now there’s not as much of a precedent to point to within the US,” she said. 

Alexander Norbrook, a student with the activist group Sunrise Princeton, said: “It’s complete hypocrisy. They acknowledge companies are violating core university values and yet still take their money. That’s selling off values for short-term financial gain.”

Princeton tax filings show that the university directly owns Petrotiger, a private investment company that holds stakes in energy companies. Its commitment to divest from fossil fuel groups shields Petrotiger because it only covers public companies.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here

AMAZON Prime Day is a great opportunity to grab a bargain, but it’s important to make sure a deal is really going to save you money.

Fortunately, there are tools available to check you really are getting the best price on the market before you hit ‘buy now’.

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Amazon Prime Day is a 48-hour sale event that will take place on October 8 and 9.

It’s exclusively available for Prime members, offering discounts on everything from the latest technology to sought after beauty items and top toys.

Bargain hunters will be looking to score big savings on thousands of items, but it’s important to make sure that the publicised discount is as good as it seems.

We all know how alluring sales can be, particularly with Christmas just around the corner, but luckily there are tools available to stop you losing your head.

Harry Rose, Editor of Which? magazine, said: “Amazon Prime Day may seem like the best time to snap up a good deal if you are a Prime member but don’t feel panicked into buying things you don’t need or haven’t budgeted for.

“When looking to buy something new, always do your research first by checking price comparison sites like PriceRunner and CamelCamelCamel, which not only show current prices at multiple retailers but also reveal a product’s pricing history.

“This allows you to work out whether the sale price genuinely represents good value.”

CamelCamelCamel is a shopper’s best friend when it comes to Amazon Prime Day.

The website allows shoppers to enter an item’s URL to reveal its price history, and see if it has previously been sold at a lower price.

Handily, you can also set up price alerts to let you know when it drops in price again.

Prices can change during the two day event so if there’s an item your desperate to get at the best price, setting up a CamelCamelCamel alert could ensure you don’t miss out on the best price.

Don’t forget to also check other retailers before purchasing using Google Shopping or Price Spy.

And remember, you’ll only be making a saving if you intended to buy the item in the first place and don’t forget hidden costs, like delivery charges.

Some items are particularly likely to be heavily discounted in the Prime Day sale, such as stock the online retailer wants to clear ahead of Christmas.

Which? editor Mr Rose said: “Some products follow quite predictable pricing cycles, for example, the previous year’s TVs typically drop in price when new models launch in spring, so check if you can pick up last year’s models for a bargain price.

“Most technology, including smartphones, TVs and tablets, are released on a one-year cycle, so you only need to wait 12 months before there’s a shiny new device to get excited about.

“Big tech companies will do their best to tempt you into buying their latest release, but the forgotten device celebrating its first birthday could still be more than adequate and it’s also far more likely to be on sale.”

Whatever is catching your eye this October remember to do your research and make sure you get the best price.

When is Prime Day 2024?

The next Prime Day event will be the Big Deal Days sale event in October.

The sale will kick off at midnight on October 8 and run to midnight on October 9.

The last Prime Day event for 2024 took place on July 16-17 and Prime members enjoyed thousands of discount across all categories.

If you don’t want to miss out on October’s event you will need to become a Prime member.

Signing up for a Prime membership is easy and comes with lots of perks including next-day delivery and access to Prime Video and Amazon Music.

Amazon Prime costs £8.99 a month, or £95 for an annual membership.

But if you are brand-new to Prime you can sign up for a 30-day free trial, giving you free access to the sale when it launches next month.

However, you will need to cancel your membership before the 30-day trial ends to avoid the ongoing £8.99 monthly fee.

What were the best Prime Day deals in July?

Some of the best Prime Day bargains offered in July were for Amazon branded products such as Fire tablets and TVs as well as Ring doorbells.

One of the hottest deals was the ‘seriously impressive’ 55-inch Fire TV slashed from £549.99 to £329.99.

Other highlights in the July Prime Day event included discounts on the Shark Cordless Stick Vacuum Cleaner, which was reduced from £279.99 to £159.99, and the Philips L’OR Barista Sublime Capsule Coffee Machine, which was slashed from £109.99 to £49.99.

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