Wealth Management

NCB is a leading provider of institutional equities, wealth management and corporate finance services www.ncb.ie

Wealth ManagementPresentation to ICAI Business Briefing

By Alan Foy, Nigel Poynton & Aoife Lavan, NCB Wealth Management

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Agenda

What is Wealth Management?

An Overview of the Sector

Asset Allocation in Volatile Times

Preparing for Retirement

Questions & Answers

What is Wealth Management?

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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.

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Wealth Management – What is it?

Wealth Management

Pensions / ARF’sTaxation Estate Planning

Business Planning

Life Assurance

Property

Portfolio Management & Investment Advice

Finance / Debt Mgt

Stockbroking

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Wealth Management:Dimensions for Consideration

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

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Life Cycle Concept

Education Start of Career Family Pre-Retirement Retirement

Savings & Investment

Financing & Consumption

Time

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Integrated Approach to Wealth Management Process

Definition of Needs & Goal Setting

Analysis of the Customer’s Financial Situation

Diagnosis of the Financial Situation

Design of Financial Plan

Implementing & Controllingthe Financial Plan Client

The Wealth Management Sector

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Increasing Complexity of

Wealth Management

TechnologyLegal

Environment

Competition, Prices,

GlobalisationN

ew F

inan

cial

Serv

ices

Prov

ider

s

Product

Variety

Wealth Management Environment

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Many Players / Competitive Advantages & Skillsets

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WM Player Approaches

Operational

Excellence

Mass

Customization

Relationship

Managem

ent

Partner

Technical Advisor

Transaction

Product Approach

Single Bundles Themes

Sty

le o

f In

tera

ctio

n

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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

Asset Allocation- Investing in Volatile Times

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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

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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

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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.”

Asset Allocation & Diversification

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Asset Allocation & Diversification

CLIENT ASSETS

CASHBONDSPROPERTYEQUITIES ALTERNATIVES

ACCESS

TERM DEPOSITS

RANGE ACCRUALS

DOMESTIC

GLOBAL

PASSIVE

ETFs

SPECIALIST MANAGERS

DIRECT

SYNDICATE

PASSIVE

SPECIALIST MANAGERS

DIRECT

DOMESTIC

GLOBAL

PASSIVE

ETFs

SECTORS

SPECIALIST MANAGERS

HEDGE FUNDS

PRIVATE EQUITY

STRUCTUREDPRODUCTS

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Asset Allocation: Typical Irish Investor

Source: NCB

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Asset Allocation: Average Pension Fund

Source: Mercer

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Asset Allocation: HNW Investor

Source: NCB

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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

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Volatility

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Equities: Global Context

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Economic Cycle – A Constant

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Major Market Downturns

MSCI WORLD euro

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1000

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4000

4500

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987

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Black Monday

1st Gulf War

Long term capital market crisis

9/11 2nd Gulf War

Credit crunch

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“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

More Quotes…

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Previous Market Recoveries

EventDate of

market low point

Market rally after low point

 Following 2 weeks

Following3 years

Following5 years

Black Monday 31/12/1987 6.60% 22.03% 34.92%

1st Gulf War 10/10/1990 9.40% 42.35% 38.53%

LTCM crisis

9/11

08/10/1998

21/09/2001

1.9%

11%

37.8%

7.78%

11.5%

38.90%

2nd Gulf War 12/03/2003 12% 70.44% 62.50%

Analysis of previous market bounce backs:

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Time(in) not Timing!

14.0%

9.6%

6.4%

3.8%

- 1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

13.0%

15.0%

17.0%

I nvested All 4018

Days

Minus 10 Best Days Minus 20 Best Days Minus 30 Best Days

Annualised Returns S&P 500 over an 11 year period (1995- 2006)

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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

Equities: Key Themes

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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.

Some Preferred Sectors

Preparing for your Retirement

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Where will YOU be at Retirement?

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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!

Retirement Planning

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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)

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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!

Recent Retirement Planning Trends

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Investment Planning Trends

Contemporary Model

Insurance Company ARF /Pension Options

Customer

Products/Funds

Customer

Pension / ARFIns.Co (Self Directed)

SSAP

Products /Investment

Ideas

Traditional Model

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Investment Planning Trends - Choices

Traditional Pooled Funds

Limited Control

Personal Portfolio Greater Investment Choice / Control

Widest Investment Choice / ControlNot Available For Self-Employed

Insured

SSAPs

Self DirectedWrapper

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Taking Your Retirement Benefits

Pension Fund

Tax Free LumpSum (TFLS)

Annuity AMRF / ARFAnnuityAMRF / ARF

Option 2 - CombinationOption 1 Option 3

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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

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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

Approved Retirement Funds (ARFs)

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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)

Approved Retirement Funds (ARFs) Finance Act 2006 Changes

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Example 1

What about those who cannot avail of the ARF option?

Existing Co. Scheme

< 15 yrs service

>15 yrs service (AVC only)

ARF

Leave Service

PRSA

Certificate of Benefit Comparison may be required

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Example 2

What about those who cannot avail of the ARF option?

Existing Co. Scheme

Transfer Value

B.O.B.

New Scheme

New Co.

5%+ Director

ARF

Resign

Rev. Approved

Leaving Service Options

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Example 3

What about those who cannot avail of the ARF option?

Senior Executive

Group Co. A Group Co. B

Executive Pension Co. B

Executive Pension Co. A

ARFable

Senior Executive

Transfer Value

Employed transfer employment

Ensure Exec is 5%+ directorNot a 5%+ Director

Not ARFable

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Wealth Management Decisions

Annuity or ARF?

Planning required to avail of ARF options?

Investments – traditional or bespoke?

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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

Conclusion

Questions & Answers

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

Alan FoyExecutiveNCB Wealth ManagementT: 01 611 5611F: 01 611 5988E: alan.foy@ncb.ie

www.ncb.ie

Aoife LavanExecutiveNCB Wealth ManagementT: 01 611 5611F: 01 611 5988E: aoife.lavan@ncb.ie

The information contained in this document has been obtained from publicly available sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. Opinions in this document are based on our judgment at time of publishing and are subject to change without notice. Intending investors should read the detailed literature available before investing. Any people acting on the information contained within this document do so at their own risk. Recommendations in this document may not be suitable to all investors. We recommend you contact NCB for professional advice before investing. We recommend that you take professional tax advice in relation to your investments. Investors should note that past performance is not necessarily a guide to future performance. The value of investments may fall or rise against investor’s interests. Income levels from investments may fluctuate. NCB is a member of the Irish Stock Exchange, member of the London Stock Exchange. Authorised by the Financial Regulator under the Stock Exchange Act 1995.

Nigel PoyntonDirector, Head of Portfolio ManagementNCB Wealth ManagementT: 01 611 5611F: 01 611 5988E: nigel.poynton@ncb.ie