Introduction of The Retail Distribution Review from 1 January 2013

The Retail Distribution Review (RDR) was introduced on 1 January 2013 meaning that Independent Financial Advisors (IFA’s) will no longer be paid commission by the providers of financial products. The RDR also requires financial advisors to be appropriately qualified in order to provide financial advice.

The RDR has been introduced in order to provide more clarity over the fees paid to IFA’s. Investors will have to pay the IFA’s directly for the financial advice they receive. Previously IFA’s received trail commission for every year the investor holds a fund purchased through them. In some cases investors may not be fully aware of the true extent of the fees they are paying for the advice received.

The RDR is likely to have an impact on wealth management firms and the type of advice they provide to investors. Investors on the other hand may receive less advice if they are not prepared to pay the required fees.

Commodity Prices Expected To Rise In 2013

Quantitative Easing by the major Central Banks has led to significant risk of inflation in the Western Economies. Investors will be looking to move their funds to hard assets such as property, timber and gold. We expect inflation to become more significant in 2013, particularly as Mark Carney, the new governor of the Bank of England has already hinted that he will focus on growth rather than inflation this year.

Commodity prices are likely to increase as a result. That is despite the slowdown in China and the possibility of a hard landing in the Chinese property market. We believe that China will continue to grow, albeit at a lower rate than in prior years, and will continue its appetite for copper and iron ore. Gold and silver prices will almost inevitably increase as a result of the excessive money printing by the Federal Reserve, the European Central Bank and the Bank of Japan.

Gold increased to record levels (just under $1,800) in 2012 however mining stocks do not appear to have increased significantly as a result. This is due partly to the increased fuel costs and the increase in the associated cost of extraction. Major miners had also locked in their prices for 2012 through the use of forward contracts. We would expect mining companies to perform well in 2013 but given the lacklustre performance in 2012 and a history of low yields, we would remain cautious over investing directly in mining companies. Investing in exploration rather than production companies can also be very risky. It may be preferable to invest in directly in Gold or to explore the possibility of locking in prices using forward contracts.

Markets Rally After Late Deal On The US Fiscal Cliff

News that the US Fiscal Cliff was averted at the final hour was met by a surge in the global markets on the first day of trading in 2013. The majority of blue chip stocks recorded increases in their share prices on 2 January with the FTSE 100 up 2% and breaking the 6,000 barrier for the first time since July 2011.

The huge market rally has been indicative of the volatility on the markets over the past 12 months with the market reacting immediately to the promise of good news. However, on further review, the news of the US Fiscal Cliff is extremely unsettling. The fact that the US government were unable to reach an agreement on such a major deal till the last minute is not positive. In fact the major decisions over the increase in the debt ceiling and the proposed spending cuts have been pushed back to March 2013. Quite simply, the US has a serious debt problem and postponing the issue can hardly be seen as positive news. The US has over $15 trillion sovereign debt and the government does not appear to have the appetite to impose the spending cuts and tax hikes required to address this issue.

The UK and Europe are in a similar position with high levels of sovereign debt. Whilst further austerity is likely in 2013, the respective governments are unlikely to make the tough decisions required for fear of sending their economies back into recession. We can expect more quantitative easing (or money printing) as this is the easiest option available. This is likely to continue until inflation becomes a problem.

Inflation can have a significant effect on your savings as the purchasing power of money held in the bank will be eroded. We recommend that our readers review their pension portfolios and consider seeking wealth management advice to protect their assets.