2. MANAGEMENT OF CONFLICTS OF INTEREST
What are conflicts of interest?
A conflict occurs where:
- our (or any subsidiary /representatives of Rowan Dartington) interests conflict with the duty owed to you; or
- where our duties to another client conflicts with our duty to you
In accordance with the requirements of the FCA (our regulator) we aim to treat you fairly by implementing adequate systems and controls to identify, monitor and manage these risks or any potential risks.
As the fair treatment of our clients is paramount to the ethical standard of Rowan Dartington it is incumbent on our Board and staff to consider and escalate any matter that they consider may conflict with our policies. The Risk Committee will review any new conflicts that have been identified.
Rowan Dartington provide Wealth Management Services, including investment advice and management as well as dealing and custodian services. We are part of the St. James’s Place Wealth Management Group.
We have an Independent Financial Adviser (Stafford House Investments) who provide financial planning advice on an independent basis. A C Mole is also independent financial planning advisers, who are a trading name of Stafford House Investments. The advice these companies provide may or may not involve referring clients to Rowan Dartington.
Purpose of this information
To explain to you what policies we have in place to manage conflicts and highlight what principle conflicts exist and what is in place to mitigate them. Should you wish to discuss anything further, please contact your Investment Manager.
FCA Principle 8 – ‘A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client’. The SYSC Rules also require us to have adequate systems and controls to manage risks. The new MiFID Rules require us to formally document this. It is not sufficient that we rely solely on disclosure of conflicts in customer agreements etc.
What we do
i.e. Staff recommend services or transactions which are not appropriate for the client
We have a robust training programme in place for our advice processes to ensure that our Investment Managers and Advisers provide appropriate advice. Our monitoring programme provides a control mechanism to ensure processes are being consistently deployed and advice is suitable.
There are internal policies in place to deal with scenario’s that may cause conflict in advice processes, such as;
All staff are expected to disclose outside business interested.
- Commissions receive from third parties;
- Staff having power of authority over an account i.e. Trustee, Executor, Director or Power of Attorney;
- Interest payments
Dealing and Trading
i.e. our staff may delay investments
We have a best execution policy which Investment Managers and Financial Advisers are expected to adhere to ensure that we act in your best interest.
Rowan Dartington have a transactional monitoring programme to review trades which have been completed to ensure best execution principles have been achieved.
Aggregation of orders
i.e. one client may be treated more favourably than an other
|To mitigate this we may combine one client’s orders with another clients order. The intention is to ensure fairness to all clients when placing particular trades, particularly for discretionary clients. This could result in a less favourable price or increased trading costs. When undertaking trades of this nature we will ensure our clients best interests are considered.
Placings and new issues
i.e. one client may be treated more favourably than an other
Where we agree to take part in a new issue or placing, we will do this in combination with other client orders. If the allocation is scaled back it will be applied pro rata across all participating clients.
Sometimes staff may take part in these trades also. Where they do and where the allocation is scaled back, we will scale back staff orders before applying any scaling to our clients.
Personal Account (staff) Dealing (PA)
i.e. Staff may deal on their own account ahead of clients and obtain better prices
All staff and connected parties are expected to comply with our Personal Account Dealing policy. This requires staff to obtain prior approval for trading.
The prior approval means that checks can be made to ensure that staff do not;
- Trade ahead of clients
- Trade ahead of any public announcements about the stock being traded
i.e. bonus and salary structures may entice staff to act inappropriately when managing client assets
We aim through our remuneration package to consider the long-term interests of our staff. These are designed to correlate with the interests and financial wellbeing of our clients, so to discourage inappropriate behaviour or excessive trading.
Therefore, activities are overseen and monitored.
|Gifts and Hospitality (Inducements)
i.e. The integrity of either staff or suppliers is compromised by excessive inducements.
We have enforced internal policies, through training and monitoring, to ensure that gifts or hospitality received from or provided to clients, supplier, company and other are not excessive.
Staff are required to disclose where they receive or give gifts or hospitality when they are over a notional value. Where the triggers are met pre-approval will be required, via our Compliance and Risk Department, to accept or provide a benefit like this.
In all cases, there needs to be a business motive for the gift or hospitality which aim is to enhance the quality of service we provide to you.
We also maintain a register or gifts and hospitality received or provided which is overseen by the Compliance and Risk Department.
i.e. our research team may be un-duly influenced to place stock or funds on to our core lists
Our research team are independent from other teams in the business. The remuneration package for these staff is designed not to influence their decision making process.
Any additions or deletions from the core list are discussed at either the Asset Allocation Committee or Investment Management Committee before the changes are made to the core list. This information will not be disclosed to staff ahead of formal announcement of the core stock list changes.
If we are unable to manage a conflict, or where we believe our measures and controls are not sufficient to protect your interest we will disclose the conflict to you. The aim of this is to allow you to make up your own mind as to whether to continue our business relationship with regard to the service or advice we provide you.
3. COMPLAINTS POLICY
Rowan Dartington & Co Ltd always aims to provide the highest standard of service to its clients but on occasions we may fall short of this goal leaving clients and potential clients dissatisfied.
When we receive any letter, fax, email, telephone call or personal communication which expresses dissatisfaction about services which we have provided or failed to provide, we will attempt to resolve the matter promptly and fairly. Consumers will also be able to tell us at any point that they don’t want to take their complaint any further.
Where possible, please include the following details with your complaint:
- Your full name, address, account reference and your telephone number to contact you on;
- A full description of your complaint and any details you can provide on what you feel would be appropriate in order to resolve your complaint, and;
- Any relevant documentation you wish us to consider as part of the complaint investigation
If applying on behalf of another person, you must be authorised to do so and we reserve the right to contact the individual who you are complaining on behalf of to confirm.
You can refer your complaint to Rowan Dartington via any form of communication, but where possible, please use the following contact details:
Address: Technical Operations, Rowan Dartington & Co Ltd, Colston Tower, Colston Street, Bristol, BS1 4RD
Telephone: 0117 321 0823
Expressions of Dissatisfaction
When we receive your complaint, we will investigate the issues raised and attempt to resolve them as quickly as possible. You may be asked to provide additional information to assist in this process.
Where possible, we will look to resolve the issue by close of business 3 days after receipt of your complaint and we will write out to you confirming resolution. You will still have the right to refer your complaint to the Financial Ombudsman Service (details below) should you not be happy with the outcome.
Acknowledgment of Complaints
Where it is not possible to resolve the issue within 3 business days, whether you complain during a telephone conversation or meeting, in a letter, email or any other form of communication, we will record your concerns and pass the details to our Technical Operations department for investigation.
You will receive an acknowledgement from us as promptly as possible and we will aim to issue this within five business days, detailing our understanding of your concerns and confirming the ‘next steps’. Should you feel these misrepresent the issues raised, or you wish to raise additional points, then you should contact us with the additional details as soon as possible.
We will usually resolve your complaint within eight weeks and issue you with a final response during this time. If we are unable to resolve your concerns within 8 weeks, a letter will be sent to you explaining why we are not in a position to make a final response and a date when a response can be expected. This letter will also inform you of your right to refer your complaint to the Financial Ombudsman Service, if applicable.
Our response will set out the facts that have been established during the investigation and any resolution to be offered (which may include financial compensation), if any, taking into consideration:
- Fair compensation for actual or potential financial loss and the circumstances involved
- Any reasonable costs you have claimed;
- Any distress or inconvenience that may have been caused; and
- Lost Interest which could have accrued since the date on which the loss was suffered.
Complainants have the right to refer a complaint directly to the Financial Ombudsman Service but only after Rowan Dartington have had an opportunity to consider it and have supplied a response or it is outside the 8 week timeframe outlined above and you have not received a response.
More information on the Financial Ombudsmen Service can be found here: http://www.financial-ombudsman.org.uk or you can contact them using the below details:
Address: The Financial Ombudsman Service, Exchange Tower, London, E14 9SR
Telephone (from within the UK): 0800 023 4567
Telephone (from outside the UK): +44207 964 0500
We will also issue you with a leaflet providing these details with our formal responses to your complaint.
Time limits for referral to the Ombudsman
In line with current rules, you will have 6 months from the date of our final reply to refer your complaint to the Financial Ombudsman Service if you remain unhappy with our response.
The Financial Ombudsman Service might not be able to consider your complaint if:
- What you are complaining about happened more than 6 years ago; and
- You are complaining more than 3 years after you realised (or should have realised) that there was a problem.
If the Ombudsman agrees with us, they will not have our permission to consider your complaint and so you will only be able to use the FOS’s service in very limited circumstances. The very limited circumstances referred to include where the FOS believes that the delay was as a result of exceptional circumstances.
Alternative Dispute Resolution
The main method of dispute resolution for financial services customers in the UK is through the Financial Ombudsman Service. If you remain unhappy and do not agree with the Financial Ombudsman’s final decision, you may still be able to pursue the matter through the courts (although court time limits will still apply).
4. CLIENT MONEY NOTICE
As a firm which is both authorised and regulated by the Financial Conduct Authority (FCA), Rowan Dartington is required to comply with the rules prescribed in the FCA Handbook. The handbook details rules on handling both client assets and client money.
Depositing client money & Interest Rates on deposit balances
FCA rules (CASS 7.13.3) also state that client monies need to be deposited with an approved bank of the firm’s choosing.
The current rate of interest paid by Rowan Dartington is:
- Holding under £1m - 0.00%
- Holdings over £1m - 0.25%
The above rates apply to individual cash balances held in each of your cash accounts at Rowan Dartington which may include separate Deposit, Income, ISA Deposit and ISA Income balances. These balances are not aggregated at a client level for calculation of interest paid. The interest rate band within which the individual cash balance falls is applicable to the entire balance.
Any interest due will be calculated daily and be paid quarterly in arrears.
Rate change with effect from 1 July 2017
With effect from 1 July 2017, the rate of interest paid by Rowan Dartington will reduce to nil.
5. ROWAN DARTINGTON & CO LTD (" THE FIRM") PILLAR 3 DISCLOSURES
The Capital Requirements Directive (“CRD”) of the European Union created a revised regulatory capital framework across Europe governing how much capital financial services firms must retain. The rules are set out in the CRD under three pillars:
Pillar 1 sets out the minimum capital resource requirement firms are required to maintain to meet credit, market and operational risks.
Pillar 2 requires firms to assess firm-specific risks not covered by Pillar 1 and, where necessary, maintain additional capital.
Pillar 3 requires firms to disclose information regarding their risk assessment process and capital resources with the aim to encourage market discipline by allowing market participants to assess key information on risk exposure and the risk assessment process.
The rules in the FCA Prudential Sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”) set out the provision for Pillar 3 disclosure. This document is designed to meet our Pillar 3 disclosure obligations.
These disclosures have been prepared in order to comply with regulatory requirements and provide information on risk management policies and certain capital requirements. They do not constitute financial statements and are based on unaudited financial positions and should not be relied upon in making judgements about the Firm.
Scope and application of the requirements
The Firm is authorised and regulated by the Financial Conduct Authority (“FCA”) to conduct investment business, with permission to hold and control client money.
Risk appetite and management
The Firm is exposed to a variety of risks, as analysed and quantified below. However, the Board has adopted a conservative approach to risk, resulting in a low risk profile for the Firm, for the following reasons:
- The business model is straightforward stockbroking and investment management. As principal positions are not taken, the Firm’s risk exposure is limited to counterparty risk and the impact on income;
- The recruitment of experienced personnel throughout the Firm;
- Limited exposure to credit risk;
- The corporate governance structure ensures that responsibilities within the Firm are apportioned correctly within ‘oversight’ functions staffed by experienced personnel with access to Senior Management;
- Comprehensive insurance arrangements which provide higher levels of cover than historic loss data would indicate is required.
Risk management is a fundamental part of the day to day management of the Firm, both within operational procedures to ensure that the risks associated with the provision of investment management and stockbroking services are mitigated by appropriate controls and processes and also within our fundamental approach to stock selection and daily management of the client investment portfolios, supported by our proprietary Portfolio Management System (PMS).
The Board meets Monthly, or as and when necessary, and has primary responsibility for governance and oversight of the Firm. The Director of Compliance & Risk provides independent oversight over the Firm’s risk management process and controls, and has overseen the development of the Risk Management Policy. This sets out the Firm’s processes for the management of internal and external risks arising from Market, Credit, Operational, Liquidity and other relevant risk categories, which form the basis for the risk management procedures. The Risk Management Policy is reviewed regularly.
Operational, market, credit and regulatory risks are reviewed monthly by the Risk Committee and monitored via a risk management system. A monthly management pack is produced by Compliance & Risk and reviewed by the Risk Committee, and a Board Pack is presented to the Board each month. The pack includes key risk metrics.
Capital adequacy and ICAAP
As at 31st December 2014, the Firm held regulatory capital resources that far exceeds its current requirements.
As the Firm is an IFPRU €125K firm, its capital requirements are the greatest of:
The Firm’s Pillar 1 Capital requirement for the year 2015 has been determined by reference to the Firm’s fixed overhead requirement and calculated in accordance with the FCA’s General Prudential Sourcebook (“GENPRU”). The fixed overhead capital requirement exceeded both the base capital requirement and the sum of the market risk and credit risk capital requirement.
The Firm’s overall approach to assessing the adequacy of its internal capital is set out in our Internal Capital Adequacy Assessment Process (ICAAP).
The ICAAP process involves separate consideration of risks to the Firm’s capital combined with stress testing analysis to determine whether any additional capital is required for Pillar 2.
The Firm has calculated its capital requirement in accordance with the relevant FCA rules and the final level of capital is calculated as the base capital requirement. On completion of the ICAAP process it was concluded that no additional Pillar 2 operational risk capital is required.
The material risks for the Firm are as follows:
Credit & Settlement Risk
Credit risk is the risk that unexpected losses may arise as a result of the Firm’s clients and counterparties failing to meet their obligations to settle transactions.
The Firm’s Credit risk is limited. The only material credit exposures are amounts receivable from market and client counterparties, including bank deposits. Since the great majority of business is carried out on a delivery verses payment basis, exposure to unsettled market and client positions is limited to the extent of market movements between trade date and settlement date. UK market counterparties are members of the London Stock Exchange and / or are FCA regulated, hence credit risk is significantly reduced. The Firm has a small number of overseas market counterparties which are reviewed on a regular basis.
Capital is set aside to mitigate the risk in accordance with the Pillar 1 Counterparty Credit Risk Requirement.
Liquidity risk is the risk that the Firm will not be able to meet its financial obligations as they fall due.
Working capital ratios are considered adequate given the nature of trade settlement and the stable nature of administrative expenses.
The Firm operates and reviews its Liquidity Risk Framework to ensure the Liquidity Position is acceptable. This is reviewed on a regular basis, and at times of material change in the business. The Board is satisfied that there is no specific risk arising from liquidity and, in the unlikely event of requiring additional capital, the Firm has contingency funding arrangement in place with the major shareholders.
The key business risk is a reduction in funds under management, following a market downturn or loss of clients, resulting in lower management fees and trade commission. Management carry out stress-testing in order to assess the impact on profit and loss from various scenarios where funds under management fall.
The Firm has a small exposure to foreign exchange risk through its foreign currency trade receivables and payables. Foreign exchange positions are held on an intra-day basis only and purely for settlement purposes. In the opinion of the Directors, the residual foreign exchange risk is adequately addressed through the Pillar 1 market risk capital requirement for this risk.
Operational risk is the risk of loss to the Firm resulting from failed or inappropriate internal procedures, people and systems, or from external events.
The Directors consider the Firm’s arrangements for monitoring, recording and mitigating operational risk to be appropriate to the size, nature and complexity of the business. Extensive management information is prepared on a monthly basis by the Finance and Compliance & Risk departments and there are clear lines of escalation within the Firm.
The Firm employs experienced staff in the management of operational risk, together with clear segregation of duties and robust documented operational procedures.
The management and monitoring of outsourcing relationships is a key control. The Firm monitors qualitative performance of functions outsourced to third party service providers to ensure adherence to contractual obligations.
Business continuity risk is the risk of interruption to the business due to the unavailability of systems or office space. The Firm has a comprehensive business continuity strategy.
The Firm also mitigates its operational risk by means of a comprehensive Professional Indemnity insurance policy providing cover of up to £10m per annum.
The Board of Directors recognise that not all of the risks to which the Firm is exposed can be mitigated by the addition of incremental capital, hence those other risks, such as reputation and legal risks, are managed by internal policies and procedures and monitored by management on an on-going basis.
Additional risks identified within the overall Pillar 2 rule have been assessed and evaluated by the Directors, and are not considered to be material to the Firm.
The Firm has been subject to the Remuneration Code (the “Code”) since 1 January 2011. The Code governs the remuneration policies of regulated firms and aims to ensure that firms establish, implement and maintain remuneration policies, procedures and practices that promote effective risk management.
The Firm provides discretionary, advisory and execution only services on an agency basis and does not trade on its own account. It is conservative in its approach to risk taking and has a comprehensive framework of systems and controls in place.
The remuneration policies of the Firm are managed and reviewed by the Remuneration Committee which has established and implemented policies which meet the requirements of the Code as applicable to a Tier 4 firm and are considered to be appropriate given the nature and scope of the business.
Overall remuneration in terms of salaries costs and bonus levels are reviewed annually by the Board.
6. THE STEWARDSHIP CODE
The principal business of Rowan Dartington and Co (“RD”) is discretionary and advisory portfolio management, primarily for retail clients but also, on occasion, for clients who can be classified as “professional” according to UK regulation.
In this capacity, RD invests on behalf of its clients in a wide range of securities – principally collective vehicles but also directly into the listed shares of UK companies (UK equities).
The UK Stewardship Code is overseen and published by the Financial Reporting Council (FRC), which is the independent body established to oversee financial reporting, accounting and auditing and corporate governance in the UK. The Code embodies guidelines for institutional investors to meet their obligations as owners of UK listed corporate securities.
RD primarily manages the assets of retail clients; we have only a small number of institutional or professional clients. To the extent that we do have professional clients, the FCA requires us to publish the extent to which we are signatories to, or comply with, the UK Stewardship Code. Regulation is silent on our obligations in respect of retail clients but the policy as described below applies to the entirety of our holdings.
As with the UK Corporate Governance Code, the UK Stewardship Code is not a rigid set of rules. It consists of principles and guidance. The principles are the core of the Code and the way in which they are applied should be the central question for the institutional investor as it determines how to operate according to the Code.
Those organisations that choose not to comply with one of the principles, or not to follow the guidance, should deliver meaningful explanations that enable the reader to understand their approach to stewardship – this is known as “comply or explain”. For each of the seven Principles underlying the Code, we explain our approach below.
The FRC recognises that not all parts of the Code are relevant to all firms. For example, smaller institutions may judge that some of its principles and guidance are disproportionate in their case. In these circumstances, they should take advantage of the ‘‘comply or explain’’ approach and set out why this is the case. Of particular importance are the size and complexity of the firm, the nature of the risks and challenges it faces, and the investment objectives of the firm or its clients.
RD is not a signatory to the Code, for reasons which are explained below.
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
This explains how we adapt the Code to our everyday activities.
RD is a small financial services organisation which invests on behalf of our varied clients in a wide variety of different asset classes. Some of those clients invest with us on an advisory or execution-only basis – in respect of those clients, we have no contractual rights to vote those holdings nor to exercise other stewardship activities. Furthermore, to a large extent, we derive many of those asset exposures via collective vehicles, where the opportunity for direct shareholder involvement, where the asset class permits, is very limited. Even where we hold on clients’ behalf direct UK equity exposures, for the most part the aggregate size of those holdings is very small and the scope for direct involvement with their governance limited.
Our approach therefore concentrates on the identification of a broad range of quality investment opportunities consistent with clients’ risk profiles and the disposing of those assets when, for whatever reason, they are no longer deemed suitable.
Principle 2: Investors should have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
RD is required by the FCA to comply with the rules governing Conflicts of Interest. As part of this, a statement of how we manage those conflicts is on our website. This policy applies to all conflicts of interest, including those in relation to stewardship.
Principle 3: Investors should monitor their investee companies.
It is a critical part of the investment process at RD that we actively monitor the underlying performance of the investment securities in which our clients’ funds are held.
In the case of direct UK equity securities, this will include regular contact by our Research team with the management of those companies and also prospective investee companies. This occurs at regular intervals and compliance with the spirit of the UK Corporate Governance Code is a factor which is taken into account when forming an investment view. If a company is perceived not to be acting in the best interests of shareholders, then we will not invest or consider disinvestment.
With regard to investments in collective vehicles, the level of ongoing monitoring and review of such vehicles is just as rigorous and the managers’ attitude to governance and stewardship is regularly assessed as part of that process.
Principle 4: Investors should establish clear guidelines on when and how they will escalate their stewardship activities.
Where we have significant direct holdings in equity securities, and we have concerns about the nature of corporate governance or whether management is acting in shareholders’ best interests, then we may consider it fruitful to inform management of that fact. But because our priority is to act in clients’ best interest, the usual course of action is to disinvest.
Principle 5: Investors should be willing to act collectively with other investors where appropriate.
In circumstances where we believe it would be in clients’ best interests, we are happy to engage with other investors on a case by case basis, while being mindful of our legal and regulatory responsibilities.
Principle 6: Investors should have a clear policy on voting and disclosure of voting activity.
Many of our investments are in collective vehicles where we do not have voting rights in respect of the underlying holdings. In respect of directly held equity securities, for the most part our holdings are immaterial to the outcome of the vote. For that reason, our voting activities are usually restricted to Extraordinary General Meetings governing corporate restructurings or other actions, where we have a material interest in the outcome – such events are rare. However, individual clients are welcome to vote in respect of their own holdings, either in person or by form of proxy, which RD can arrange.
We do not engage in securities lending with client holdings.
Principle 7: Investors should report periodically on their stewardship and voting activities.
It is not our current policy to report routinely to clients on our stewardship and voting activities. We consider such information to be so generic as to be potentially misleading. We do not seek independent assurance of stewardship activities or voting performance on the basis that the scale of the firm’s activities would not justify the expense.