Broker Seminar Oct 17 Agenda Broker Solutions Manufacturer & - - PowerPoint PPT Presentation

Broker Seminar Oct ‘17

Agenda

• Broker Solutions
• Manufacturer & Wholesaler of Investment Product
• 100% Broker focused
• Broker FX
• A new FX and International Payments Platform
• MiFID II & the New Consumer Protection Code
• Changes & how to prepare for them
• Structured Investments
• Offering solutions that traditional funds can’t
• Closing Summary

Broker Solutions

Manufacturer & Wholesaler of Investment Product

• Small Team
• Niall Tinney, Niall Duggan and Lara Coyle
• Maintaining the Link with
• Merrion
• Account Set Up
• Settlement
• MMPI
• MiFID License
• Clear focus on three fundamental investor requirements
• Income
• Growth
• Capital Protection
• 100% Broker Focused

Launch Presentation September 2017

Our First FinTech Solution

FX and International Payments Platform

• Broker Solutions launches Broker FX
• First in a series of FinTech solutions we are developing for Brokers
• Full launch in Q4 2017
• Exclusive to Financial Brokers
• Empowering your firm to:
• Facilitate your clients in making and receiving international payments
• Facilitate your clients in buying and selling over 140 currencies
• Enabling your firm to compete directly with the Banks
• Enabling your firm to earn a new source of revenue from your client’s

FX and International Payment transactions

• Delivered in partnership with Ebury
• An established FX and International Payments provider
• Full range of international services and risk management from the

simplest to the most complex solutions

Foreign Exchange

Jonathan Minshull-Beech

Ebury – Our Background

• A fintech company – our goal is to eliminate boundaries when

trading internationally

• Formed in 2009 by Juan Lobato and Salvador Garcia
• Started life as an exotic currencies specialist, buying African

and Asian currencies on behalf of our clients

• Have grown from an initial team of 3 people to a firm of over

400 employees in 9 offices around Europe.

• This year, we are opening offices in Dubai, Canada and the

USA.

Foreign Exchange – Basic terms

• Mid-market –in the middle of buy/ sell prices.
• Spread – the difference between what the bank buys at, and the price

it sells to clients. The bank’s mark up.

• Forward contract – Fixing an agreed exchange rate for an agreed length
• f time. The person taking out the contract undertakes to buy the

specified amount of currency at the ned of the contract.

• Margin call – Forwards usually require a deposit. If the trade goes
• ffside, clients are asked for more money as security. This is called

variation margin

• Liquidity- the volume of a particular currency trading. The more liquid

the currency the cheaper it can be bought and sold.

The Situation

• Irish Independent study, 2011 – Irish banks charged a margin
• f 3-4% on foreign exchange transactions. In addition, AIB,

Bank of Ireland, Ulster Bank charged commission on top.

• Banks use foreign exchange as a cash cow to subsidise other

banking activities i.e. Current accounts

• Picture hasn’t changed much since 2011 – comparison done

by Ebury 18/08/17, figures taken from AIB, Ulster Bank and Bank of Ireland’s websites.

• AIB – 1.39%, Bank of Ireland – 2.54%, Ulster Bank – 2.21%
• On a payment of €100,000 – the bank will take between

€1,390 – €2,540

The Need

• Clients need a more efficient, cheaper way to send money

abroad.

• In partnership with Broker FX, Ebury offer a cheaper, more

competitive service for clients.

• Depending on liquidity, we can offer exchange rates which are

30-50% cheaper than banking competitors.

• We can offer more competitive deposit terms for forward

contracts than banks. This can be reduced variation margin, or an initial 0% deposit contract.

• Clients can use our smart currency platform to execute their
• wn trades. The platform provides accounting and reporting

assistance, generating statements automatically.

Opening an account

• Three stage process:
• 1) Client fills in a short online application form, and

supply proof of address, identity

• 2) Introducing broker fills in a Know Your Customer

form, detailing the client’s profile and activities

• 3) Ebury’s in house compliance team run our checks,

and revert for more information if needed.

• Total time: less than 15 minutes to fill out our forms,

account can be open in 24 hours.

New Regulations

Preparations for January 2018

Agenda

• New Regulations coming into effect on 3 January 2018

1. PRIIPS and KID 2. MiFID II 3. Addendum to the Consumer Protection Code 2012

• How do these new Regulations affect my firm and what can I

do to prepare for these changes?

• How can Broker Solutions and other Product Providers assist

with these changes and my preparation?

• Questions and Answers

PRIIPs & KID

Commission Delegated Regulation (EU) 2017/653

• Packaged Retail and Insurance Based Investment Products
• Originally scheduled for January 2017 but problems with Regulatory

Technical Standards (RTS). Now bundled with MiFID II in January 2018

• Intention is to make it easier for retail investors to compare products
• In doing so, increase consumer value and promote investor protection by

enhancing transparency

• Encourage investment firms to consider how their products will compare

to competitors when distilled down to uniform product description

• Requires a PRIIP manufacturer to prepare and produce a Key Information

Document (KID)

PRIIPs & KID

• What products are PRIIPs?
• Investment products where the amount repayable is subject to

fluctuations due to exposure to the performance of one or more assets that are not purchased directly by the investor

• Examples: Structured Products, Non UCITs Funds, Hedge Funds, Unit

Linked Funds, With Profit Investments, ETFs etc.

• Not PRIIPs: Occupational Pensions, Non Life Insurance, Term Assurance,

UCITs and Direct Investments/Bank Deposits etc.

• Key Information Document
• Prescribed format and content
• Person advising on or selling the PRIIP must provide the KID to the client

before the investment is made

Key Information Document (KID)

• What is it?
• 3 page document in a prescribed format that must be clear, accurate and

not misleading

• Product generic rather than investor specific
• Provides retail investors with simple and comparable information on

each PRIIP

• Purpose is to improve the retail investor’s understanding of the nature,

risks, costs, potential gains and losses of a PRIIP and to help retail investors to compare the PRIIP to other products

• Who produces it?
• The PRIIP Manufacturer
• Must be clearly separate from marketing information and available on

manufacturer’s website

Key Information Document (KID) cont.

• What is a Retail Investor?
• A retail investor is a retail client that is not a professional client under

MiFID or who is a customer for the purposes of the Insurance Mediation Directive 2002/92

• What must happen with the KID?
• Must be provided to the retail investor by the adviser/seller ”in good

time” before there is a binding agreement in respect of the product

• KID can be provided on paper or, where the context of the transaction

supports it, some other durable medium or via a website

• When selling PRIIPs face to face, paper should be the default option
• Updated annual KID likely to be necessary

MiFID II

Article 3 of Directive 2014/65/EU

• What firms are affected by MiFID II?
• All MiFID authorised firms and
• All firms authorised under the Investment Intermediaries Act 1995 (IIA)

as a result of the Addendum to the Consumer Protection Code 2012 effective 3 January 2018

Addendum to the Consumer Protection Code 2012

Addendum to the Consumer Protection Code 2012

Addendum to the Consumer Protection Code 2012

MiFID II

Article 3 of Directive 2014/65/EU

• What are the broad changes? We have identified 9 initially

that we believe will impact all Financial Brokers:

1. Change in what it means to be “independent” 2. When Advertising, a tightening of how Past Performance and Simulated Past Performance is used 3. Mandatory recording of telephone conversations 4. New Conflicts of Interest disclosure requirements 5. New Target Market Analysis and Product Information requirements 6. New execution of orders requirements 7. New information on costs and associated charges disclosure requirements 8. New periodic suitability assessment requirements 9. New remuneration of staff requirements

MiFID II

Article 3 of Directive 2014/65/EU

• What are the broad changes? We have identified 9 initially

that we believe will impact all Financial Brokers:

1. Change in what it means to be “independent” 2. When Advertising, a tightening of how Past Performance and Simulated Past Performance is used 3. Mandatory recording of telephone conversations 4. New Conflicts of Interest disclosure requirements 5. New Target Market Analysis and Product Information requirements 6. New execution of orders requirements 7. New information on costs and associated charges disclosure requirements 8. New periodic suitability assessment requirements 9. New remuneration of staff requirements

• Now lets look at 4 in detail

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

Addendum to the CPC 2012

• 1. What it means to be “independent”

MiFID II/Addendum to the CPC 2012

Summary - Can firms continue to be Independent?

• Can firms conduct a “Fair Analysis of the Market” and retain

Independence?

• Can firms continue to “Receive and Retain Commission” for

recommending products if claiming to be Independent?

• Some non MiFID products will allow the payment of

commission to Independent Financial Broker Firms but Product Producers will not be allowed to pay commissions to Independent Financial Broker firms for the sale of MiFID products

• The spirit of the EU regulation is clear: Independent firms

should not receive commission and should be fee based

Addendum to the CPC 2012

New Chapter 14

Addendum to the CPC 2012

• 3. Recording of Telephone Lines

Addendum to the CPC 2012

• 4. Conflicts of Interest

Addendum to the CPC 2012

• 5. Target Market Analysis

New Regulations

How do I Prepare for January 2018?

New Regulations in January 2018

How do they affect my firm and how should I prepare?

• PRIIPs
• Ensure a KID is available for all products recommended
• Provide the KID to each retail investor in hard copy before each sale
• Maternity Clause: prepare to provide an updated KID each year
• MiFID and CPC 2012 Addendum
• Make a decision regarding “independence”
• Familiarise yourself with MiFID II (direct or indirect impact on all firms)
• New Procedures for dealing with the new requirements of MiFID II

and/or the Addendum to the CPC 2012 (9 identified and 4 illustrated in detail in this presentation)

New Regulations in January 2018

How can Broker Solutions and other Product Providers help?

• Broker Solutions
• PRIIPs: will provide a KID for all products (prepared by PRIIP

manufacturer). Available in hard copy and on our website

• PRIIPs: Will provide an updated KID each year
• MiFID II: Assistance with Target Market Analysis and Product Information

via our Broker Training Guides

• Overall: We will assist in building your understanding of the PRIIPs,

MiFID II and CPC 2012 Addendum as you transition into 2018 and continue to recommend our products to your clients. Just call us!

• Other Product Providers
• Ask if they are willing to provide the same product supports?
• What other training and guidance can be provided?

Questions and Answers

PRIIPs & KID MiFID II and the Addendum to Consumer Protection Code 2012 Any Other Topics?

Risk Warnings/Disclaimers

This presentation is intended for and is only for use by regulated Financial Broker firms. Broker Solutions has no expertise in the area of

• Regulation. The Regulation Information in this

presentation is designed only to assist Financial Brokers in understanding their duties and responsibilities following the changes that come into effect in January 2018. Please refer to the relevant product Brochure for a list of warnings applicable to each product.

Structured Investments

Offering Solutions That Traditional Funds Can’t

Structured Investments

What do Investors Want?

Structured Investments

Offering solutions that traditional funds can’t

• Life Company Fund Choice
• It’s all risk category 3 & 4
• But how can you deliver a return and get paid?
• Deposit Rates!
• Bond Yields!
• Structured Investments offer
• Hard & Soft Capital Protection
• Investment Grade Counterparties
• Various Investment Objectives
• e.g. Income, Growth and Protection
• Different tax treatments

Reasonable Returns without Growth!!

Structured Investments

How do they work and Current Offering

Structured Investments

Agenda

• A. How they work
• Mechanics of a Structured Retail Product (SRP)
• Putting some Capital at Risk
• Use of Derivatives
• Examples
• Recent maturity of a Kick Out Bond
• Features of a Guaranteed Income Bond
• B. Our Current Investment Offering

Structured Investments

How do they work? Capital at Risk/Capital Protection + Use of Derivatives (to create upside potential) = Structured Retail Product (SRP)

Mechanics of a Structured Retail Product

Part 1 - Putting some Capital at Risk

• Hard Capital Protection
• Defining the potential Investment Loss
• 100%, 95%, 90%, 80%.....Capital Protection

Mechanics of a Structured Retail Product

Part 1 - Putting some Capital at Risk

• Hard Capital Protection
• Defining the potential Investment Loss
• 100%, 95%, 90%, 80%.....Capital Protection
• Soft Capital Protection
• Defining a Barrier or Market Level below which capital can be lost
• Example – Capital is Protected unless underlying asset(s) fall by 50%
• Observed continually or at a particular date

Mechanics of a Structured Retail Product

Part 1 - Putting some Capital at Risk

• Hard Capital Protection
• Defining the potential Investment Loss
• 100%, 95%, 90%, 80%.....Capital Protection
• Soft Capital Protection
• Defining a Barrier or Market Level below which capital can be lost
• Example – Capital is Protected unless underlying asset(s) fall by 50%
• Observed continually or at a particular date
• Conditional Capital Protection
• Defining an Event that will result in capital loss
• Example – Capital is Protected unless underlying asset(s) default
• Usually observed continually

Mechanics of a Structured Retail Product

Part 1 - Putting some Capital at Risk

• Hard Capital Protection
• Defining the potential Investment Loss
• 100%, 95%, 90%, 80%.....Capital Protection
• Soft Capital Protection
• Defining a Barrier or Market Level blow which capital can be lost
• Example – Capital is Protected unless underlying asset(s) fall by 50%
• Observed Continually or at a particular date
• Conditional Capital Protection
• Defining an Event that will result in capital loss
• Example – Capital is Protected unless underlying asset(s) default
• Usually observed continually until maturity
• Risk v Reward
• The more capital put at risk, the higher the potential/fixed return

Structured Investments

How do they work? Part 1 – Capital at Risk/Capital Protection + Part 2 – Use of Derivatives (to create upside potential) = Structured Retail Product (SRP)

Mechanics of a Structured Retail Product

Part 2 - Use of Derivatives to create Upside

• Capital Protected Bonds
• Call Option provides the Upside Potential
• Example: Product will provide 100% of the return if underlying is positive

Mechanics of a Structured Retail Product

Part 2 - Use of Derivatives to create Upside

• Capital Protected Bonds
• Call Option provides the Upside Potential
• Example: Product will provide 100% of the return if underlying is positive
• Guaranteed Income Bonds
• Reverse Convertible Bond with a Knock In Put Option
• Example: Guaranteed Annual Income of 2% (regardless to performance)

Mechanics of a Structured Retail Product

Part 2 - Use of Derivatives to create Upside

• Capital Protected Bonds
• Call Option provides the Upside Potential
• Example: Product will provide 100% of the return if underlying is positive
• Guaranteed Income Bonds
• Reverse Convertible Bond with a Knock In Put Option
• Example: Guaranteed Annual Income of 2% (regardless to performance)
• Kick Out Bonds
• Autocallable Bond with a Knock In Put Option
• Example: Annual Coupon of 10% if return condition is met at a particular

point (e.g. underlying(s) above initial level)

Structured Investments

An Example of how they work – Kick Out Bond 7

Stocks Option Index Option Soft Capital Protection Unless any stock falls by >40% at maturity Unless any index falls by >40% at maturity Underlying Investments Heidelberg Cement Marathon Petroleum Mylan Vodafone 13.62% 11.03% 8.21% 11.75% EuroStoxx 50 S&P 500 FTSE 100 Nikkei 225 3.17% 20.70% 9.90% 13.64% Average Return 11.15% Average Return 11.85% Return Condition All above 95% of initial every 6 months All above initial every 6 months Risk Level 5 4 Return 13.2% (26.4% per annum) 27.5% (11% per annum) Maturity Date 13 August 2015 (6 months) 14 August 2017 (2 years, 6 months)

Structured Investments

An Example of how they work – Eur HY Equities Fixed Return Note

• Started: 2 May 2013
• Maturity Date 9 May 2018
• Annual Guaranteed Income: 7.25% per annum (29% total

income paid to date), further 7.25% in May 2018)

• Capital at Risk: If any of the 4 underlying stocks are below -

40% at maturity

Underlying Stock Performance to date Vivendi 14.65% BNP Paribas 52.95% BMW 9.85% BHP Billiton

• 22.67%

Average Performance 13.70%

Structured Investments

Our Current Investment Bonds

• Guaranteed Income Bond 5
• Income
• Kick Out Bond 5
• Capital Growth
• Secure Bond 5
• Capital Protection
• Capital Growth

Our Current Investment Bond Range

Description and Objectives

Guaranteed Income Bond 5

3% Annual Income

The Guaranteed Income Bond 5

Overview and Objectives

• Designed for Investors seeking Income
• 3% Income paid annually regardless of performance
• Underlying Investments
• Eurostoxx 50, S&P 500 and FTSE 100
• Soft Capital Protection provided by BBVA
• Investors protected up to a -40% Index fall
• Index valuation at maturity
• Returns subject to Income Tax
• Access to Capital during the term
• Risk score 3

EuroStoxx 50, S&P 500 and FTSE 100

Back Test – 3,842 Previous 5 Year Periods since August 1997 Back Testing

The Bond would have provided the following performance in back tests:

Probability of Capital Loss

Investors would have lost capital 393 times – a probability of 10.23%.

• Investors repaid 100% of capital plus 15% Income on 89.77% of
• ccasions.

Source: BBVA (24 August 2017)

Start Date of Back Test End Date of Back Test Worst Return Best Return Average Return 25 August 1997 24 August 2017

• 39.6%

15% 10.49%

Kick Out Bond 5

Potential European Buybacks

Kick Out Bond 5

Relatively low number of Buybacks to date….but set to increase

Kick Out Bond 5

Share Buybacks are coming…..

• At the outset of ECB’s QE in May 2015, we anticipated
• Combination of significant QE and negative deposit rates

would discourage corporates from hoarding cash

• Corporates to conduct shareholder friendly activities such as

share Buybacks

• So far, M&A has been favored in Europe
• BNP Equity Quality Buyback Index.
• 50 Stocks out of the largest 400 in Eurozone
• Net Debt/Market Cap Ratio < 75%
• Dividend Payout Ratio < 50%
• Free Cashflow Yield > Dividend Yield

Kick Out Bond 5

3 Stocks Chosen From BNP’s Top 50....

• Each stock must be one of the top 3 when combining

A. Past Risk Characteristics – Never fallen by >50% in any of the previous 3,131 five year periods this century B. Future Return Potential – Have the characteristics to provide a potential return of 9% if performance is > -10% each year.

• Provide the highest potential average return of 10.75% of all the

50 stocks available (assuming 90% autocall barrier)

• Underlying Investments
• Adidas, Michelin and Peugeot

The Kick Out Bond 5

Overview and Objectives

• Designed for Investors seeking Capital Growth
• Potential 9% Annual Return
• Stocks only have to be higher than 90% of their starting price!
• 1st Observation after 1yr and quarterly thereafter
• Soft Capital Protection provided by BNP Paribas
• Investors protected if any 1 share is above initial at maturity
• Investors protected up to a -50% fall in stocks at maturity
• Access to Capital during the term
• Returns subject to Capital Gains Tax (CGT)
• Risk score 4

Kick Out Bond 5

Back Test – 3,130 Previous 5 Year Periods since August 2000 Back Testing

The Bond would have provided the following performance in back tests:

Probability of Returns

In the 3,130 5 year periods tested, the Bond produced a positive return on 2,585 or 82.56% of all occasions. Capital was never lost in any of the 3,130 5 year periods tested.

Source: BNP Paribas (24 August 2017)

Start Date of Back Test End Date of Back Test Worst Return Best Return Average Return 25 August 2000 24 August 2017 0% 45% 10.75%

The Secure Bond 5

Offering 90% or 100% Capital Security

Secure Bond 5

Overview and Objectives

• Designed for investors seeking Capital Protection with the

potential for Capital Growth

• Invested in European Equities – Solactive Index
• Capital Security provided by BNP Paribas
• Access to Capital during the term
• Returns subject to Income Tax

Option A Option B Capital Protection 90% 100% Term 5 years 10 years Participation 120% 100% Risk Score 2 1

Secure Bond 5A

Back Test – 3,131 Previous 5 Year Periods since August 2000 Back Testing

The Bond would have provided the following performance in back tests:

Probability of Returns

In the 3,131 5 year periods tested, the Bond produced a positive return on 1,780 or 56.85% of all occasions.

Source: BNP Paribas (29 August 2017)

Start Date of Back Test End date of Back Test Worst Return Best Return Average Return 25 August 2000 24 August 2017

• 10%

153.76% 24.72%

Secure Bond 5B

Back Test – 1,826 Previous 10 Year Periods since June 2000 Back Testing

The Bond would have provided the following performance in back tests:

Probability of Returns

In the 1,826 10 year periods tested, the Bond produced a positive return on 1,826 or 100% of all occasions.

Source: BNP Paribas (2 June 2017)

Start Date of Back Test End date of Back Test Worst Return Best Return Average Return 1 June 2000 31 May 2017 0% 84.25% 22.54%

Q4 Investments

Summary

Q4 Investments

Summary of Objectives, Access and Remuneration

• Offering Investors a choice of…
• Income, Capital Growth & Capital Protection options with Daily Liquidity
• Risk Levels 1, 2, 3 or 4
• Taxation options
• Access
• Personal Investors, SSAP’s, Companies, Trusts, Charities etc…
• via Merrion Stockbrokers Account
• Insured Pensions…
• via Friends First SDIO
• Upfront Commission Payments
• Guaranteed Income Bond 5 – 2.50%
• Kick Out Bond 5 – 2.50%
• Secure Bond 5 – 2.25%

Q4 Investments

Information on our website – Investment Bonds Page

Q4 Investments

Information on our website – Investment Bonds Page

Launch Seminar Oct ’17 Closing Summary

Summary

• Broker Solutions
• Manufacturer & Wholesaler of Investment Product
• 100% Broker focused
• Broker FX
• A new FX and International Payments Platform
• MiFID II & the New Consumer Protection Code
• Changes & how to prepare for them
• Structured Investments
• Offering solutions that traditional funds can’t
• Questions & Answers

Risk Warning/Disclaimer

This presentation is intended for and is only for use by regulated Financial Broker firms