Pillar 3 Disclosures
Nugenis Financial Planning ("Nugenis") is authorised and regulated by the Financial Conduct Authority (FCA) and provides both financial advice and investment model portfolio manager services. As a model portfolio manager Nugenis is subject to the capital adequacy rules set out in the FCA’s MIFIDPRU sourcebook (Prudential Sourcebook for Banks, Building Societies and Investment Firms). The Capital Requirement Directive (CRD) of the European Union established the regulatory capital framework for which FCA regulated firms must comply with and sets out the amount and nature of capital they must maintain. The FCA framework consists of three “pillars”:
- Pillar 1 sets out the minimum capital firms must maintain to cover its credit, market and operational risks;
- Pillar 2 requires firms to assess any firm-specific risks not covered by Pilar 1 and, if necessary, set additional capital aside to mitigate them; and
- Pillar 3 requires the public disclosure of key information relating to the firm’s risk management controls and capital resources, for use by the market
Scope & Application of the Requirement
Nugenis is a discretionary investment management firm with permission to control client investments, but not hold client money. Nugenis is required to have a minimum Pillar 1 capital requirement of the higher of the base capital requirement £475,387 (equivalent to €50,000 using the closing exchange rate on 31/08/2022), the sum of the credit risk and market risk requirements and the fixed overhead requirement.
Approach to Risk Management
The Board of Nugenis determines the firm’s business strategy and risk appetite, considering financial and operational issues, thus enabling the Directors and senior management to play an integral part in the early identification and successful management of risk. Nugenis prepares, at least annually, an Internal Capital Adequacy and Risk Assessment (ICARA), in line with FCA expectations, which identifies and analyses the material key risks faced by Nugenis which may impact its business and the controls that are in place to mitigate them. The most recent ICARA review was undertaken in September 2022. The ICARA considered the risks that Nugenis is exposed to and the controls that exist to mitigate those risks. It further considered whether additional capital was required to meet the risks that Nugenis faces, including, as required by the FCA rules, the potential cost of closing Nugenis down in the unlikely event that such action was necessary. The Board of Nugenis has identified the following principal risks to its business which largely fall within “business risk” and “operational risk” categories:
- Credit risk
Nugenis does not carry any outstanding financial loan agreements or arrangements and considers the risk from financial credit to be minimal. Nugenis does not transact in, nor does it intend to, products and services such as derivatives and margin products, that incur counterparty risk. Nugenis has very limited exposure to credit risk since it does not offer credit and does not operate a trading book.
- Residual risk
Residual risk is not considered an issue for Nugenis as all fees are paid on time through agreed deductions from model portfolios through the host platform. These platforms are themselves subject to the same legislation and so we feel there is minimal risk.
- Market risk
The main business risk that Nugenis could be exposed to is a fall in the value of funds under management due to an economic downturn resulting in a fall in income. This risk has been assessed and is incorporated into Nugenis’s ICARA.< br/> Recent global economic factors such as Brexit, Covid 19 pandemic and, most recently, notably, the war in Ukraine continue to impact markets significantly, and steps have been taken by Nugenis Financial Planning team and Investment Committee to mitigate these risks. This includes using tactical asset allocation to temporarily reduce market exposure as well as implementing increased portfolio diversification.
Nugenis does not deal as principal and therefore does not have a proprietary trade book and associated market risk. All trading activities are executed as an agent of the client who is informed of and takes account of any market risk. Nugenis has outsourced custody, brokerage and instructions and are responsible for trading and settlement activity. None of the Nugenis’s non-trading assets are held in foreign exchange or commodities. Nugenis does not have a trading book; not does it maintain positions or portfolios that we manage for our clients so as to spread the risk. Clients are made aware that they should view investments as a long-term commitment.
Consequently, market risk is primarily a risk of harm to the customer. However, Nugenis does not consider it necessary to allocate additional capital to deal with market risk as it does not consider that there is a material exposure to this risk.
- Liquidity risk
This is the risk that Nugenis, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due, or can secure such resources but only at excessive cost. The main ongoing liabilities affecting the Nugenis’s cash flow that the firm has are commercial costs and expenses of running the business.
Nugenis’s approach to liquidity management is to project on a prudent basis the expected net cashflows and to ensure that there are always sufficient funds available from cash deposits of an appropriate term and with a highly rated institution to pay these outflows. The Board do not believe any additional capital for liquidity risk is necessary.
Liquidity is considered both at the group level and at the individual firm level. Given it is possible to transfer funds between group companies, the main focus is on the results at the group level, however the analysis is undertaken at the individual company level as well to identify if it may be necessary to transfer funds between the group companies.
The Board have considered what other measures should be taken in order to mitigate the risk that the Nugenis experiences a liquidity shortfall, taking into account the results of the stress testing performed, and have developed a Contingency funding plan which covers the firm’s strategy for this.
- Operational risk
Operational risk is the risk of loss arising from failed or inadequate internal processes or systems, human error or other factors. The legislative environment within which Nugenis operates ensures that the firm maintains robust systems and controls which are subject to ongoing maintenance and continuous improvement in line with the expectations of our regulatory body, with risk mitigation being a key consideration. The risk is managed by the Board who have responsibility for putting in place appropriate controls for the business. Nugenis maintains legal and professional relations with external firms so as to provide it with up to date guidance and advice to mitigate risks raised in this area.
The Board accepts that there is a likelihood that Nugenis will experience some sort of operational loss over the course of a year. However, these incidents tend to be small in terms of impact. To ensure appropriate level of prudence for unforeseen operational risks, such as resource and IT, an additional capital provision has been made.
- People risk
Our people are recognised as valuable to the business and the Directors ensure that. where possible. all best endeavours are undertaken to retain staff that add to the business. All staff, including senior management functions, have potential locums that can take over responsibilities in the short or long term should the need arise. This risk is mitigated by a flexibility of the work force to cover each key person’s responsibilities with no individual being critical to the firm.
- IT risk
This risk is mitigated with daily back-ups, remote access and an efficient business continuity plan.
There are recurring potential risks of IT failure, however this is deemed to be immaterial and given more recent global pandemic remote working practices, which have been more widely adopted by Nugenis since, the business has maintained strong resilience. Whilst it is appreciated that adopting remote working may make Nugenis more susceptible to Data Breaches the business is confident that this risk is mitigated by strong IT security and protection software, such as anti-virus.
To ensure appropriate level of prudence for unforeseen IT risks an additional capital provision has been made. This amount would cover the replacement of equipment and resource needed to recover from a reasonably high impact event. Nugenis has recently invested in IT and therefore believe that this mitigates risk by having up to date and reliable hardware.
- Insurance risk
Professional Indemnity Insurance is in place aligned to FCA expectations, and we consider the level of coverage sufficient to mitigate any claims which may arise. Renewal risk also considered to be low given limitation of past financial advice risk, no specific defined benefit advice risk and low level of client complaints.
The only potential insurance risk that Nugenis is exposed to is in respect of the failure of an insurer to meet claims in respect of the firm’s own insurance arrangements. The risk that an insurance provider does not fulfil its obligations has been considered by Nugenis, but it was also considered that allocating extra capital would not be necessary due to the low likelihood of failure of the insurance provider and the relatively small potential size of any claim. It is important to note that insurance is taken out for nearly all significant insurable events, including buildings and contents insurance, business continuity, professional indemnity, and Directors’ and Officers’ insurance.
- Concentration risk
Concentration risk is the risk that Nugenis is overly dependent upon any one customer or any one group of connected customers, either in terms of income dependency or in terms of credit risk. Nugenis has a diversified income source and is not subject to concentration risk. We evaluate our risk on at least an annual basis to ensure that we do not concentrate our client base on a limited number of clients, or investment strategy on a geographical or sectorial basis. We do not believe that there is any measurable risk exposure in this area.
- Securitisation risk
This risk is not applicable, as no assets have been used for securitisation purposes.
- Business strategy risk
Business risk is the risk that Nugenis may not be able to carry out its business plan and could therefore suffer losses if its income falls. This is a risk that all businesses face.
Nugenis continuously monitors income and expenditure levels and adjusts it’s plans accordingly. Nugenis have made a financial provision for client attrition and retention, and have recruited Financial Planners to ensure adequate resource is in place to deliver ongoing services in line with client expectations and therefore provide the firm with the best chance to deliver upon business objectives and strategic plan. As a subsidiary of Independent Wealth Planners (IWP UK Ltd) Nugenis benefits from further cost savings and economies of scale via the provision of ‘central’ resources such as HR, marketing, finance, operations and compliance. Nugenis has demonstrated its ability to maintain capital adequacy under various stress tests, and we are confident therefore that the level of additional capital resources are adequate.
- Interest rate risk
Nugenis have no long terms debts and is not exposed to interest rate risk.
- Reputational risk
This could be involved if Nugenis was to become involved with investment funds that fail. The risk is mitigated by ongoing investment research and analysis, only working with reputable, well established investment funds with high degrees of financial strength. Nugenis has competent investment managers able to provide model portfolio management services who are supported by a back office administration team. The Investment Team report to the Investment Committee which provides appropriate oversight, governance and compliance with FCA expectations.
The advisory services offered by Nugenis are well established with a wide customer base, and while there is a crossover between advisory and model portfolio management services the impact of losing a key client on the overall profits of the firm, while possibly measurable, is unlikely to have a significant impact on the financially stability of the business.
- Regulatory risk
Nugenis has enjoyed a good relationship with the FCA in the past, and does not expect this to change. Nugenis takes its regulatory responsibilities very seriously and has retained the services of external, independent consultancy specialists in order to support us to achieve our regulatory obligations. Considering the results of previous ongoing FCA monitoring and our own internal compliance framework, we consider the firm’s potential for regulatory risk is typical of any similar size firms in the industry and therefore no additional resources are required in this regard.
Nugenis acknowledges the introduction of Consumer Duty regulation by the FCA and, amongst other things, this will drive a review of the firms remuneration structure to demonstrate good value to consumers as well as deliver on commercial objectives.
- Legal action risk
To date, the business has not been subject to any claim in respect of services provided to clients. Given this history and the systems and controls in place the likelihood of failure to adhere to mandates is considered relatively low. We currently consider that Nugenis has adequate systems and controls in place to mitigate such risk to the extent that it is not material.
Although no legal advice risks exist since the variation of FCA permissions granted in 2020, the Board acknowledges advice risk will arise going forward and therefore allow for a small number of complaints which may be upheld. No Defined Benefit risk exists as Nugenis does not give advice in this specialist field.
Provision is made for potential legal costs regarding HR and employment matters, as well as commercial costs.
- Economic risk
At this time Nugenis has no plans to enter into new markets or launch new products. Therefore, these risks are not considered to be relevant.
Global economic factors, such as Brexit, global pandemic, costs of living crisis and war in Ukraine, which are beyond the control and influence of Nugenis, continue to present the possibility of further market falls and impact upon values of client portfolios, therefore causing a reduction in revenue for the firm. With this in mind Nugenis have simulated a reduction in revenue, through attrition and market downturn. Nugenis business planning carefully considers flexibility to react if actual economic conditions are less favourable than expected.
- Pension obligation risk
Nugenis does not operate a defined benefit scheme and thus has no pension obligation risk.
Nugenis is able to meet legislative obligations for group pensions auto-enrolment contributions.
- Remuneration risk
The nature of Nugenis’ remuneration policy is set by the Board with oversight from the Parent Company (IWP UK Ltd) and Non-Executive Directors. Only the Directors are considered “Code Staff” under the disclosure requirements.
Nugenis feels that its Remuneration Policy appropriately addresses potential conflicts of interest and that the Company’s authorised persons are not rewarded for taking inappropriate levels of risk.
No aggregate quantitative information on remuneration or breakdown by senior personnel or staff whose actions have a material impact on the risk profile of the business is published because of proportionality and confidentiality. The number of staff implicated is so small that such data would constitute personal data.
- Group risk
Nugenis belongs to a group of companies under the umbrella of a consolidator firm, Independent Wealth Planners Limited (IWP). Certain services such as compliance support, IT and some finance support are provided by IWP. In the event of a failure of the parent company, Nugenis considers that the most likely outcome would be the sale of all the parent company’s businesses as a whole to a different consolidator. This would likely cause some short-term disruption, but any shortfall that could not be provided internally could be covered by the use of external providers of these services.
Although it is thought unlikely that this risk would crystallise, the impact would be reasonably high as resource would need to be allocated to finding alternative providers of service at short notice and therefore an additional capital provision has been made.
- Risk to Customer
Part of the service that Nugenis provides to clients is a detailed third party risk profiling exercise to determine their attitude to risk. In addition, the process assesses the client’s capacity for loss and advice is tailored according to those profiles. All advice given highlights the potential risks to the client before they make the decision to invest.
Clients’ funds are not directly exposed as investments are made with third parties. However, Nugenis acknowledge that there is a risk of loss due to improper advice given by the firm, but this is mitigated through professional indemnity insurance, in line with FCA requirements.
- Risk to Market
Nugenis is not large enough to be systemically important to the efficient operation of the market. There is a large population of IFAs throughout the UK and clients would be able to switch to another IFA with relative ease in the highly unlikely event that Nugenis were to discontinue operations.
- Risk to Nugenis
Nugenis is exposed to risks in the course of its business and is willing to accept these risks as long as they are aligned with the stated conditions.
- Risk assessment
A “probability and impact” assessment is carried out as part of the ICARA to arrive at a suitable level of capital to be held in mitigation (Pillar 2). The Board has adopted a conservative approach to risk, which is achieved in the following ways:
- The appointment of experienced and independent senior managers to the controls and oversight functions within the firm;
- Regular investment strategy meetings;
- A comprehensive compliance monitoring programme;
- An appropriate range of insurance policies;
- The support of a larger Parent Company (IWP UK Ltd) to provide centralised service and expertise where required.
- Capital Requirements and Resources
The firm’s Capital Requirement is the greater of its Pillar 1 and Pillar 2 capital assessment. Pillar 1 capital is the greater of:
- The base capital requirements of €50,000;
- The sum of the market and credit risk requirements;
- The Fixed Overheads Requirement (FOR).
Nugenis has limited exposure to any business and institutional risks related to its discretionary investment activities, but could be impacted overall by such issues. The assessment of these risks is that the Pillar 2 capital requirement is greater than the base capital requirement (€50,000) but not the Fixed Overhead Requirement (FOR) which is £430,138 as at 31st August 2022.
The Capital Resources for Tier 1 capital consists of called up share capital, cash reserves and profit and loss, and is regarded by the FCA as the core measurement of a firm’s financial strength.
Nugenis Financial Planning Limited’s capital position as at 31st August 2022 (31st March 2022 for Tier 1 Capital figure) is as follows:
Pillar 1 requirement £475,387 Pillar 2 requirement £385,000 Total requirement £475,387 Tier 1 capital £1,716,478 Surplus £1,241, 091 Solvency ratio 361%
The Capital Requirements Directive (CRD) of the European Union and the FCA Code on Remuneration require regulated investment firms to establish and maintain remuneration policies, procedures and practices that are consistent with and promote sound and effective risk management. The Code also requires firms to report annually on their remuneration policy for employees termed Code Staff. Code Staff can generally be defined as employees who perform a significant influence function, senior management and other staff who have a material impact on the risk profile of the business. Code Staff for Nugenis are those holding the Senior Management Function SMF3 prescribed by the FCA.
How Nugenis staff remuneration is determined
The Board of Nugenis reviews remuneration annually for all staff. Basic salaries are reviewed in line with individual performance. Bonuses are discretionary and linked directly to the firm’s overall financial position. Nugenis has concluded that it does not need to appoint a remuneration committee and any decisions are made by the Directors having due regard to performance and profitability of the firm overall. The decision was made based upon the size, scale and complexity of the firm’s legal structure, as well as the type of business and the nature of risk that it takes on behalf of clients.
Nugenis believes that its remuneration policy appropriately addresses all potential conflicts of interest that may arise and persons are not rewarded for taking inappropriate levels of risk.
Quantitative Remuneration Data
Nugenis has concluded that it is not required to publish quantitative remuneration.