Investment and Retirement Focus Issue 7

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 7 | Autumn 2019

A focus on… Guiding your investments in the right direction

Investors should look to Asia for growth Generating ‘natural income’ through multi asset investing Advising on the 100-year life

ALSO IN THIS ISSUE: Why weaker pound has failed to turbocharge the economy The benefits of endurance FLASHFORWARD: Drawing parallels with 1999/2000

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 7 | Autumn 2019

A focus on… Guiding your investments in the right direction

Investors should look to Asia for growth Generating ‘natural income’ through multi asset investing Advising on the 100-year life

ALSO IN THIS ISSUE: Why weaker pound has failed to turbocharge the economy The benefits of endurance FLASHFORWARD: Drawing parallels with 1999/2000

Consistently seeking the brightest opportunities. Threadneedle UK Equities Range

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Important Information. For Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Past performance is not a guide to future performance. Your capital is at risk. The value of investments can fall as well as rise and your clients may get back less than invested. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. Issued by Threadneedle Investment Services Limited, Registered No. 3701768 and Threadneedle Asset Management Limited, Registered No. 573204, both registered in England and Wales. Cannon Place, 78 Cannon Street London EC4N6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. 06.19 | J28992 | 2443706

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Foreword From the Editor

CONTENTS

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Welcome to the Autumn edition of Investment & Retirement Focus. Warning signs from financial markets suggest a recession may be imminent…The latest raft of economic statistics has shown that the global economy faltered during Q2, stoking fears of a downturn. Downgrades to global growth forecasts reflect this darkening scene, for more on this article see pages 4 & 5. In a world of low interest rates, Hugh Young, Managing Director of Aberdeen Asia at Aberdeen Standard Investments discusses why investors should look to Asia for growth. Steven Andrew is manager of the M&G Episode Income Fund, a fund designed to provide growing income together with capital growth of 2-4% on average per year over any three-year period. He attempts to meet these objectives by the application of a global multi asset approach involving dynamic and diversified investment across and within asset classes. Steven’s article seeks to show how your clients may generate regular income and capital growth through multi-asset investing. Prudential look at Centralised Retirement Propositions (CRPs) and suitability reviews and have some hints and tips from Rory Percival including a template you should consider when looking at drawdown for clients. Retirement interest only (RIO) mortgages and standard interest only lifetime mortgages are similar, as they allow your clients to pay the interest on the loan monthly. However, there are significant differences. Learn more from Just’s article on page 13. Investors remain cautious and according to Simon Evan- Cook, Senior Investment Manager for Premier’s multi-asset funds, they’ve had a decade of FOJI (Fear of Joining In). In this article, he considers the dilemma still facing investors; whether to invest now. On page 19, Invesco’s Henley-based European Equities team look at the widening disparity of valuations within the European market and how this is impacting risk within portfolios. Canada Life’s article provides a summary of the final rules and guidance from the FCA retirement outcome review consultation. I hope you find this edition informative and supportive with the excellent and varied selection of articles supplied by Tenet’s provider partners. Kind Regards Cristina Marketing Consultant

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The Outsourced Marketing Department -  Recessionary fears grow

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Schroders -  Why weaker pound has failed to turbocharge the economy

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Vanguard - The benefits of endurance

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22-23 BlackRock -

Central banks support markets amid trade risks

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BMO Global Asset Management - Retirement options

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EDITOR Cristina Giovanelli

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 258 6959

This publication is for internal purposes only and is not intended as an advertisement. As a result this should not be issued in any form to clients. Not all the products in this feature are the responsibility of the Tenet Group Limited. Terms and Conditions. Although every effort has been made to ensure the accuracy of the information contained in this publication, The Tenet Group cannot accept responsibility for any errors it may contain. The Tenet Group cannot be held responsible for the loss or damage of any material, solicited or unsolicited. No reproduction of any part of this publication, in any form or by any means, without prior written consent from The Tenet Group. The views ex- pressed in this publication do not necessarily reflect those of the advertisers or the publishers.

Recessionary fears 4 | INVESTMENT & RETIREMENT FOCUS

The latest batch of economic statistics has shown that the global economy faltered during the second quarter, stoking fears of a significant downturn. This gloomy picture was reflected in downgrades to global growth forecasts for both this year and next when the International Monetary Fund (IMF) released its latest soothsaying in mid-July. The IMF also stressed that risks to growth remain skewed to the downside, with an escalation of US-China trade tensions and a disorderly Brexit cited as major risk factors. Policymakers have begun to respond with the US Federal Reserve (Fed) cutting interest rates for the first time in over a decade, but will this be enough to revive global economic fortunes and stave off recession?

Second quarter growth weak across Europe After a relatively positive start to 2019, second quarter gross domestic product (GDP) data has revealed a significant weakening in growth across most major advanced economies, with the decline particularly noticeable in Europe. Growth in the 19-country Eurozone, for instance, slowed to 0.2% during the second quarter, half the rate recorded in the first three months of the year. This decline was largely due to Germany’s economic woes, as a fall in exports resulted in the continent’s largest economy shrinking by 0.1% between April and June. Early signs for the third quarter do not look overly promising either, with some economists predicting a second successive quarter of negative growth – the ‘technical’ definition of a recession. If the economy does contract in the third quarter, then it would signal Germany’s first recession since 2013. The UK economy also suffered a quarterly contraction, its first since 2012, with the economy shrinking by 0.2% during the April-to-June period. While the Office for National Statistics did point out that Brexit planning has resulted in GDP figures being ‘particularly volatile’ this year, the data has raised concerns that the UK economy may be heading for recession. US and China also in decline Data released by the Bureau of Economic Analysis also showed the US economy slowed during the second quarter as exports declined and business investment shrank. US second- quarter GDP rose at an annualised rate of 2.1% which, while higher than most economists had predicted, was significantly lower than the 3.1% growth rate recorded during the first three months of the year. Official data from China also signalled a further loss of momentum in the world’s second-largest economy. While still spectacular by western standards, China’s second quarter annualised growth rate of 6.2% was the country’s weakest since at least the first quarter of 1992, which is the earliest quarterly data on record.

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Would you like a Monthly Economic Review or a range of other literature - customised with your logo and contact details, ready to send to your clients in a variety of formats? Why not consider subscribing to the Tenet Client Communication Package for £650 plus VAT per year? The Package gives you unlimited access to a range of professionally-written and professionally-designed materials - pre-approved by Tenet Compliance and available as PDF, HTML or print (extra cost applies to print). It is a very cost- effective subscription service, enabling you to enhance your ongoing service proposition and have regular contact with your clients. Please contact us if you would like to see samples of the following items: Monthly Economic Review, Monthly Business Review, Monthly Property Market Reviews, Quarterly Newsletters and Magazine, Budget Updates, Tax Guides and various Topic Guides, including Equity Release and IHT. If you would like an online demo, have any questions or would like to order the Communication Package, please call 01279 657555 or email

Preliminary data released by the Japanese Cabinet Office suggests that the world’s third-largest economy fared somewhat better during the second quarter. Indeed, Japan’s economy expanded at an annualised rate of 1.8% in the three months to June, a significantly better performance than analysts had been expecting. IMF cuts global growth forecast The IMF’s latest economic assessment, which was published before the relatively weak second-quarter GDP figures were released, paints a gloomy picture of global economic prospects. Indeed, the forecast suggests that the world economy will grow by only 3.2% in 2019 and 3.5% in 2020, both figures a downgrade of 0.1 percentage points from the organisation’s April predictions. In addition, the IMF stressed that the downside risks to its forecast have intensified in recent months. In particular, it warned that further imposition of US- China tariffs or a disorderly UK exit from the EU could sap confidence, weaken investment, dislocate supply chains, and severely slow global growth below the organisation’s baseline projections. Trade war hitting growth prospects The report, by implication, is strongly critical of President Trump’s protectionist agenda. Indeed, the IMF clearly feels that the current problems facing the world economy are at least partly man-made, with the organisation’s Chief Economist Gita Gopinath commenting: “Global growth is sluggish and precarious. But it doesn’t have to be this way because some of this is self-inflicted.” However, despite these warnings, the bitter and protracted trade dispute between the US and China still rumbles on. Although several rounds of talks have tried to resolve the issue, the fractious dispute that began in 2018 has continued to escalate, with President Trump’s August announcement of a 10% tariff on a further $300 billion of Chinese goods signalling another downward spiral. Although the President later announced a delay in the imposition of some of these tariffs until 15 December, there is

currently little sign of a genuine thaw in US-China relations. And President Trump still appears convinced that his tactics are working, despite increasing evidence of their negative impact on both the US and wider global economy. The Fed sanctions a cut in rates While concerns over a potential downturn may not have prompted a change in trade policy from President Trump, they have induced a policy response from the US central bank. On 31 July, the Fed cut its key benchmark interest rate by a quarter of a percentage point, to a range of 2%- 2.25%, the first reduction in US borrowing costs since 2008. In addition, the Fed signalled its readiness to provide further support if the outlook for the world’s largest economy deteriorated further. The European Central Bank has also hinted that it may be ready to adopt a more accommodative monetary policy in order to tackle a slowdown in the Eurozone economy. The Bank has stated its concern that a weak manufacturing sector, allied with uncertainty surrounding Brexit and trade is threatening to derail growth across the Eurozone bloc. The Bank also stated that it was considering other supportive measures, including Over the course of the past few months, global growth momentum has clearly waned and the balance of risks to future growth very much appear tilted to the downside. The US-Chine trade dispute continues to cast a long shadow over the global economy while the increasing likelihood of a disorderly Brexit is also a major area of concern. While decisive action from policymakers may be enough to avert a widespread downturn, warning signs from financial markets suggest a recession may be imminent. Recessions are generally proceeded by a yield curve inversion – when interest rates flip and it becomes cheaper to borrow over a longer period than a shorter one. Such a situation spooked markets in mid-August and certainly provided a stark warning that a recession may just be on the way. resuming quantitative easing. Turbulent times ahead?

priority@tomd.co.uk – we’re happy to help.

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Tenet Events 2019 Supporting your development We encourage you to attend as many events as possible, not only to satisfy your CPD requirements, but also to keep your awareness, comprehensive and understanding of industry changes and developments at the highest level.

LATER LIFE LENDING EVENTS At this event you will hear from lenders who can help with your clients later life lending needs where you may want to consider a different option to Equity Release. Meeting the financial needs of older people is one of the most significant challenges facing the financial services industry today. And with an ageing population, rising to that challenge is only going to become more crucial in future. You will also hear from Tenet training around the Tenet approach to later life lending including RIO, Equity Release, vulnerable customers and other aspects of Tenet policy you may need to be aware of. Timings: Arrival 8.45am-9.15am Start 9.15am Finish 12.00pm CPD: 2 hours & 20 minutes unstructured Date Location Venue 22/10/2019 Manchester Mercure Haydock Hotel 23/10/2019 Bristol Aztec Hotel 24/10/2019 London Millennium Knightsbridge To book your place at the Later Life Lending Event just visit: https://events.tenetgroup.co.uk/laterlifelending MASTERCLASS TWO – STARTING NOVEMBER Our final round of the exceedingly popular Masterclass events. Tenet will utilise the expertise of providers and fund managers, to create a valuable event; giving key industry insights, technical guidance and sales support. The purpose of these events is to provide a higher level of education, through the use of case studies, planning scenarios to provide you with a greater understanding of each product and a proposition’s place in the market. Target audience: Investment, Pension and Protection advisers Timings: Arrival 9.00am Start 9.30am Finish 3.00pm CPD: 3hrs 30 minutes structured and 30 minutes unstructured Date Location Venue 05/11/2019 Glamorgan The Vale Hotel 06/11/2019 Manchester Haydock Park Racecourse 07/11/2019 Leeds Village Leeds South 12/11/2019 Southampton Hilton at the Ageas Bowl 13/11/2019 London Amba Hotel 14/11/2019 Birmingham Village Solihull 19/11/2019 Belfast Stormont Hotel 21/11/2019 Cumbernauld The Westerwood

NON-INVESTMENT ROADSHOW TWO Our non-investment roadshows will cover topics such as Mortgage, General Insurance and Protection. The events will combine stand up formal presentations and interactive round tables. Target audience: Mortgage and Protection advisers Timings: Arrival 9:00am – 9:30am Start 9:30am Finish 14:35pm CPD: 3 hours & 15 minutes unstructured, 30 minutes structured CPD and 1 hour & 50 minutes IDD CPD Date Location Venue 08/10/2019 Durham Ramside Hall Hotel & Golf Club 09/10/2019 Leeds Village Leeds South 10/10/2019 Manchester Haydock Park Racecourse 15/10/2019 Southampton Hilton at the Ageas Bowl 16/10/2019 Bristol Doubletree by Hilton Bristol North 17/10/2019 Birmingham Village Solihull 05/11/2019 Cumbernauld Doubletree by Hilton Glasgow Westerwood Hotel & Golf Resort 07/11/2019 London Amba Hotel To book your place at the Non-Investment Roadshow Two just visit: https://events.tenetgroup.co.uk/noninvestmentroadshow

Finally, don’t forget our CPD Webinars with 30 minutes of CPD for each webinar you view! Throughout 2019, Tenet has hosted a series of CPD webinars which are available to view from the comfort of your home or office, at a time to suit you. So if you need to top up your CPD, take a look at the webinars that are available. All you need is a device to view it on and your headphones! For all the available webinars and to watch live or on-demand visit: https://events.tenetgroup.co.uk/ADP2019

To book your place on a Masterclass Two visit: https://events.tenetgroup.co.uk/masterclasstwo2019

If you have any queries, please call the events team on 0113 2390011 ext 8132 or email events@tenetgroup.co.uk

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ADVISER FORUM 2019 Thursday 5th December 2019 The Queens Hotel, City Square, Leeds, LS1 1PJ We’re delighted to announce that this year’s Adviser Forum and Gala Dinner is being held on Thursday 5th December at The Queens Hotel, Leeds. The event is open to all Tenet advisers, paraplanners and support staff and is free of charge to attend, including the gala dinner. Partners can attend the gala dinner at a cost. The ever-popular trade fair will be open from 9.00am, with breakout sessions starting at 9.30am. This year we’ve included 15 optional sessions for advisers to choose from throughout the morning, hosted by our provider, lender and fund manager partners. During the afternoon, our Main Stage event will include sessions from Tenet Senior Management and Keynote Speakers, and will include our annual Leading Lights awards ceremony. The awards ceremony will recognise top performing firms and advisers, and this year will also include Directly Authorised firms. We will also have an evening to remember, where you can enjoy an evening of food, drink and entertainment. The Gala dinner dress code is black tie, theme optional, and we’re delighted to announce this year’s chosen evening theme is James Bond. We also have secured bedrooms onsite at The Queens Hotel, Park Plaza and Crown Plaza which you can book directly through us. We look forward to seeing you there!

To book your place at the Adviser Forum just visit: https://events.tenetgroup.co.uk/ adviserforum2019

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As a worldwide investment house, we are commonly asked the same two questions wherever we go: what are clients looking for and, what opportunities do we see? Our answer to both is also the same: growth . Investors should look to Asia for growth

From a sector perspective we’re positive on the outlook for financial firms as proxies for regional economic growth. We also see materials companies – cement operators, for example – as being well-positioned to benefit from Asian infrastructure development. At the same time, steady income growth, increasing wealth and rising urbanisation should underpin demand for residential and commercial real estate. Still, we are a fundamental stock-picker, not a thematic investor. Our portfolio allocations simply reflect where we have found firms we like. That said, we do take an industry’s outlook into consideration when we analyse a company’s growth prospects. In summary, what clients want is exposure to growth potential with protection against downside risks. That’s what we aim to achieve in our Asian equity portfolios. We favour businesses with pricing power and strong cash flows that offer exposure to fast-growing emerging economies, where they have much scope to expand. Behind this lies our long-held conviction that structural drivers – such as rising consumer spending and emerging technological trends – will continue to power the Asian growth story. Hugh Young, Managing Director of Aberdeen Asia

A slowing global economy, disruption driven by populist politics and the potential impact of a full-blown trade war are issues at the forefront of clients’ minds. Add in pitifully low interest rates even after a decade of monetary and fiscal intervention, and it underlines why enhanced yield with downside protection remains at the top of clients’ wish-lists. What’s puzzling is that more investors aren’t searching for solutions in Asia. It is the world’s fastest growing region, after all. Within 30 years, China and India alone are forecast to account for more than half of global economic growth. Structural trends – greater affluence, growing workforces and the advent of new technologies – look set to power Asian economies for years. As investors, we aim to look beyond short-term noise and focus on finding well-run businesses best placed to benefit from this long-term structural growth. When we scoured the Asia universe a decade ago, we felt safer investing in companies listed in Hong Kong and Singapore, where strict standards of accounting and transparency afforded us clearer insights into firms’ earnings prospects.

But as governance standards have improved elsewhere, increasingly we have been targeting opportunities in emerging Asia. We have long been optimistic about India’s potential, while we have also been raising exposure selectively to stocks in China’s A-share market. No longer do we need to use Hong Kong- listed stocks as a proxy to access China’s growth. Similarly, we have taken money out of Singapore – which used to act as the gateway to higher growth Southeast Asian economies – and raised direct positions in markets such as Indonesia. What India and China have in common is huge populations and expanding middle classes. Rising wage levels will drive domestic consumption, making both markets more self-sufficient and less vulnerable to external factors such as trade wars or US rate hikes. As a result, we tend to favour firms linked to domestic demand, such as those in food and beverage, health care, tourism and financial services. These provide exposure to structural growth themes that will continue to play out. Consumer power

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Generating ‘natural income’ through multi asset investing

Everyone needs income… As more governments attempt to pass responsibility for their citizens’ retirement back to the individual, it becomes even more vital to make some plans for future requirements. This is particularly so in an environment where people are living longer, so likely to have to fund a longer time without a regular salary. The potential of rising inflation is another factor to consider. Even before retirement, people will have other demands on their savings, such as children’s education, holidays, or even a deposit for a home. …but regular distributions are harder to come by The yields on most traditional sources of income have fallen to historically low levels in recent years as governments and central banks have attempted to support their economies by suppressing interest rates. In particular, the returns from many government bonds have fallen so far that holding them to maturity will result in a guaranteed loss. What is more, investors have become increasingly concerned about the potential return of inflation and volatility. Investors looking to generate a regular income by taking cash from their savings are often faced with the decision of how to choose between guaranteed but potentially low-returning annuities and potentially higher-returning but riskier assets. Individuals have to make sure that the investment decisions they take generate sufficient income to keep pace with a rising cost of living without depleting their pot too soon. Hopefully, they will also have some capital left to pass on to their families. ‘Natural income’ as a solution to investors’ long term needs One possible answer to this conundrum is to take an approach that avoids drawing from capital altogether. I believe an attractive solution to the generation of income can be provided by investing in a range of income-generating assets with the aim of growing their capital value. By targeting a prudent but achievable income yield from a growing capital base, it should be possible grow a nest egg indefinitely, thereby avoiding the identification of a set period over which you can expect a pool of assets to last. In the current low rate world, investors who invest in a single asset class are increasingly forced to step up the risk curve to get the yield they require. In my experience, a genuinely diversified global portfolio comprising a variety of different

income generating assets can deliver a reasonable level of yield, while avoiding the need to hold riskier, higher yielding investments. By combining the advantages of different asset classes in one fund, it should be possible to generate steady capital growth while avoiding or minimising the risks of pursuing income from a single asset class. Taking a dynamic approach, whereby the exposure to the different asset classes is adjusted according to their relative attractiveness, is also important. The key to my approach is the generation of what I call ‘natural income’. By investing in a well-diversified blend of assets expected to deliver a sufficient level of income, such as dividend-paying shares, interest-bearing fixed income instruments and property, it should be possible to grow both income and capital without sacrificing your capital base. Equities currently offering better value and attractive income Recent evidence suggests that the global economy is experiencing a gradual slowdown, rather than an aggressive slide into recession. This is why I prefer to be positioned broadly in favour of risk, favouring attractively valued equities from Europe, Japan and the US. To guard against the inevitable uncertainties of the future, if economic growth was to collapse, for example, I also have exposure to US government bonds, for their potential diversification properties. I also like emerging market and Italian government bonds, which provide attractive levels of yield. On the other hand, I am convinced that other mainstream government bonds, from Germany, Japan and the UK, are highly overvalued and vulnerable to sharp price falls in the event of growth being even marginally better than currently expected.

Steven Andrew is manager of the M&G Episode Income Fund, a fund designed to provide growing income together with capital growth of 2-4% on average per year over any three-year period. He attempts to meet these objectives by the application of a global multi asset approach involving dynamic and diversified investment across and within asset classes.

Past performance is not a guide to future performance. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment. The fund allows for the extensive use of derivatives For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 907

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On 20 May, Rory Percival joined Prudential on webinars looking at centralised retirement propositions (CRPs) and suitability reviews. Some of the key points from these sessions were as follows: • Firms with more than one adviser should adopt a CRP to ensure consistency across a firm. • This should complement a firm’s Centralised Investment Process, but focus on the risks clients are exposed to when drawing an income. • CRPs must take account of PROD rules (see https://indd.adobe.com/ view/d55c61ca-fc51-4fbf-9aa1- e8b8f410c52e?icid=banner_hero_ link_Oracle.-January for further information on PROD), to ensure that appropriate products are being used against identified target markets. • How to combine disclosure requirements from different regimes to present to clients. • How to review client objectives on an ongoing basis. • Different options when looking at SIPP reviews. One particular point that really struck a chord with me, was when Rory talked about the fact-finding process for drawdown, and how lessons could be learnt from some of the information that the FCA has talked about in relation to the consideration of a DB transfer. Rory kindly provided the information and template opposite, and I believe this is worthy of consideration when looking at drawdown for clients, both at the outset and also at review time for those clients already in drawdown. drawdown, and how lessons could be learnt from some of the information that the FCA has talked about in relation to the consideration of a DB transfer. ” “ Rory talked about the fact-finding process for

Centralised retirement propositions and maintaining ongoing suitability, with Rory Percival

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What is your view on the risks and benefits of having an annuity? What is your view on the risks and benefits of having a flexible personal arrangement? What is your view on the certainty of income in retirement? You have outlined what additional amounts you will need in the future, over and above your regular income. Do you think there is the possibility that you will need to access further funds from a flexible personal arrangement? If so, please provide details. What is your experience of, and attitude towards, paying for advice on investments so long as the funds last? What is your view on the limitations of access from an annuity (ie that you have a tax-free lump sum and secure income but no further access or flexibility). Would you like to leave assets to your children? If so, how much? Does this include the value of your pension scheme? How important is this given that this will reduce the level of benefit you can have in retirement? Annuities: • Provide secure, level or increasing pension for life • Can opt to include spouse’s pension on death (amount optional) • Tax-free lump sum (up to 25%) available if you want • Doesn’t require managing or reviewing • Generally, benefits and taxation position less likely to change • Higher income available if in poor health or have certain lifestyle (eg smoker)

Flexible personal arrangement: • No security of income; income depends on investment returns and charges • Tax-free lump sum (up to 25%) can be taken without having to take income • Flexibility to take further (taxed) lump sums • Flexibility to increase, decrease, stop and start income • Hence, need to review and manage income, lump sum and investment return levels to ensure income is sustainable throughout life • Unused fund passed to beneficiaries on death (usually tax-free if taken as a fund)

What is your view now? What do you think your view will be in your later years, say 70s and 80s?

Since pension freedom, sequencing of return risk has continually been flagged as an important consideration. Encouragingly, only 4% say that they don’t give this any specific attention over and above normal advice and investment process, with nearly two thirds (62%) saying that they use a combination of strategies, including using funds that help reduce volatility, regularly monitoring the funds and withdrawing from those that have performed best, and calculating a sustainable withdrawal rate.

in terms of what they cover, perhaps worryingly, 37% say that they don’t specifically discuss annuity purchase. Conducting a drawdown review is a time- consuming process and rightly so, given the importance of getting it right and ensuring the client is making an informed decision. That is where a CRP can help. Crucially, the option to purchase an annuity should also be given due regard for an existing drawdown client at review time. In addition, the survey also showed that just under a third (31%) said that advisers in their firm haven’t received any specific training to identify vulnerable clients. This is an area that needs more focus, and I commend the Personal Finance Society guide for those wanting to take a look at some of the considerations here. This can be accessed at: https://www.thepfs. org/media/7774414/good-practice- guide-addressing-needs-of-clients-in- vulnerable-circumstances.pdf

During the course of the two webinars, we took the opportunity to survey just over 1,500 advisers who attended the recent webinars. These survey results made interesting reading. Over half of advisers (56%) say they don’t have a centralised retirement proposition that is used by all advisers in their firm. Rory commented after the event, “Clients who are in retirement and drawing down on their savings, have inherently different advice needs from those who are accumulating wealth earlier in life. Pension freedom has meant that clients require ongoing financial advice in retirement, and by having a centralised retirement proposition, firms can make sure that they adopt a standard approach and that their propositions are consistently matched with clients’ suitability requirements.” In addition, over half of respondents (56%) said it typically takes them anywhere between three and six hours to undertake a drawdown review, and

For those of you who were unable to join the webinar on the day, the recording is available at: www.pruadviser.co.uk/oracle-live

Advising on the

100-year life.

What’s the solution to the ageing dilemma? We’re living longer as a nation, which puts strain on the state and, crucially, on our own resources. According to The 100-Year Life: Living and Working in an Age of Longevity by Lynda Gratton and Andrew Scott, half the babies born in the UK since 2000 will see their 103rd birthday – changing everything from work and economics to our relationships. While living longer is welcomed, no-one wants to live longer in poor health and under financial stress.

Justin Taurog, Deputy CEO of VitalityInvest and VitalityLife

Find out more ... about how we’re tackling the 100-year life challenge at adviser.vitality.co.uk/nextevolution engage with our programme and reach the platinum tier of activity – a level attainable for everyone, not just the young or athletic. The changes are geared to helping more people benefit from our discounts and improve their prospects of a healthier, more financially secure future. We also offer discounts on a range of leading brands to encourage healthy living. We believe advisers are in a unique position to add a new layer of value. We help them do this through products and tools that enable us to meet the wealth and health challenges of the future. The VitalityInvest proposition tackles this challenge using behavioural economics to our healthy living programme. We’ve just launched changes to our ISA, Junior ISA and Retirement Plan, giving all new customers access to this programme at no cost. “Health and finances: The two are inextricably tied.” The programme and its benefits are now more accessible than ever before, with a refund of year one product charges and the opportunity to pay no product charge from year two if clients

The long-term care challenges are well documented. State pension ages have been increasing and governments have launched initiatives like pensions freedoms and auto enrolment to boost retirement savings. The 100- Year Life states, “If we live for longer we need to invest more to support a longer life. However, a longer life is not just about getting the finances right but also about making sure you invest in your health, your families and friends and your own productive abilities. A longer life will lead us to reassess how we balance these financial and non-financial forces over our lives.”* Snapshot of retirement savings In May 2019, VitalityInvest conducted research with around 6,000 consumers, via its Your Vitality Future calculator, to assess the nation’s retirement savings. The results were concerning, with women’s retirement savings set to fall short by 16 years, while men are on average likely to come up 10 years short. Although the average UK woman wants to retire at 63, if they did, their savings at retirement would run out by 69 (assuming £27k annual spend, average life expectancy of 85 and average £392 monthly savings). For Brits to fund living expenses to age 85, they need to drastically increase their savings or continue working significantly longer. Behavioural economics in action We think there’s a real opportunity for advisers to differentiate themselves by explaining to clients that living longer requires investment in both health and finances. The two are inextricably tied.

FOR INVESTMENT PROFESSIONALS ONLY. * http://www.100yearlife.com/the-challenge/ VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.

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With both products, the loan is redeemed when your client (or both clients if borrowing jointly) dies, or goes into long-term care. But there are some very important differences to consider when deciding the best option for your clients. The table below summarises the key differences between Lifetime Mortgages and RIOs. Retirement interest only (RIO) mortgages and standard interest only lifetime mortgages are similar, as they allow your clients to pay the interest on the loan monthly. However, there are significant differences. What’s the difference Lifetime mortgages and retirement interest only mortgages

LIFETIME MORTGAGES

RIOS

Your client can choose to stop making monthly payments and the mortgage will convert to an interest ‘roll up’ basis.

Your client must make every monthly repayment due throughout the term of the mortgage or until it’s redeemed. The amount they can borrow is based on their ability to pay the monthly interest payments. They’re able to borrow more but repayments can then be higher, potentially causing affordability issues. If they fail to make their monthly repayments, their home is at risk of repossession.

The amount your client can borrow is based on their age and property value.

They have the right to remain in their home until they (one or both of them if borrowing jointly) have died or move permanently into long-term care. Most products come with a No Negative Equity Guarantee, meaning the customer or their estate will never owe more than the value of the property when the mortgage becomes repayable.

If the property is worth less than the outstanding mortgage when it becomes repayable, your client or their estate will pay any resulting shortfall.

We can help you Need some help with next steps as you have a client that could benefit from considering it as part of their retirement income solution? We have different options to help you and

our contact details are below. Call: 01737 233297 Email: support@wearejust.co.uk Or visit: justadviser.com Lines are open Monday to Friday, 8.30am to 5.30pm

14 | INVESTMENT & RETIREMENT FOCUS

Why weaker pound has failed to turbocharge the economy Without an increase in exports, the expected benefit from the currency depreciation is lost.

trade-weighted exchange rate adjusted for unit labour costs — has almost been the same over this period. So the advantage of a depreciated sterling has largely been lost (against Germany) due to poor labour market performance. The second factor to consider is whether exporters have pricing power in foreign markets. Most of the value of the UK’s total exports is generated by a small proportion of companies, often large multinationals that are protected by patents and intellectual property. A good example is GlaxoSmithKline, a global top 10 pharmaceutical company that has the ability to price its drugs in foreign markets. But as sterling has depreciated, many British exporters have simply left their prices unchanged and become more profitable in sterling terms. This is great for investors, but less so for the economy in real terms — without the increase in exports, part of the expected benefit from the currency depreciation is lost. If sterling falls far enough, companies will choose to export rather than serve the domestic economy and the UK will be able to compete. But in order to not erode the competitive advantage, a much larger depreciation than what we have seen would be needed and labour costs would have to remain at current levels. The cost of such a currency fall in terms of higher inflation, lower purchasing power and the destruction of the value of savings would be devastating. This article was first published in the Financial Times: Why weaker pound has failed to turbocharge the economy.

role, but there is plenty of other evidence of the lack of improvement in the UK’s external performance. Currency is just one of several key drivers that a standard trade model would rely on to explain the volume of exports. Taking a simple weighted average of GDP growth using the UK’s export shares tends to be three to five times more powerful in explaining growth in exports than currency. When examining a nation’s export performance we should also take global trade into account — the question is, has the UK managed to take a bigger slice of the world trade cake? Since 2000, the volume of global exports has almost doubled, while the UK’s has risen by almost two-thirds, according to Schroders’ calculations. Britain’s share of global exports has therefore fallen, despite trade-weighted sterling falling 29% over the same period. Alongside currency moves, there are two additional factors to consider when explaining the UK’s dismal performance. The first is the competitiveness of the labour market. The UK has long been known for having one of the most flexible labour markets in the world. Yet it has not been able to keep up in terms of productivity growth, and has therefore allowed the cost of labour per unit of output to rise versus that of its competitors. The trade-weighted euro has risen 23% since January 2000, for example, while the sterling equivalent has fallen 29%. Despite this wide gulf, the performance of Germany’s and the UK’s real effective exchange rates — that is, the nominal

The sharp fall in the pound in the wake of the 2016 Brexit referendum would help “rebalance the UK economy”, in the words of Mervyn King, former governor of the Bank of England. But since then, the UK has struggled to improve its trade position and has certainly not seen any boost to GDP growth. The idea was that a fall in sterling would rejuvenate British industry: exports would become cheaper to overseas buyers, leading to higher demand and sales. Faster growth in exports would boost the economy, along with job creation and wages. The pound is once again under pressure, with a further depreciation expected if the UK leaves the EU without a deal. But while some commentators continue to argue that a weaker currency can help to stimulate the economy, the data suggest a different narrative is playing out. Between the end of 2015 and the end of the first quarter of 2019, trade-weighted sterling fell 12.1%. Meanwhile, the manufacturing sector as a share of the total value added of the economy rose from 10.02% to 10.07%. And as a share of total employment, manufacturing increased from 7.69% to 7.7% — hardly the rebalancing some had hoped for. The trade data are even worse. In the first quarter of 2019, net trade reduced GDP growth by 3.4 percentage points compared with a year earlier. This is the most negative quarterly year-on-year contribution from trade since records began in 1955. Granted, pinning this on sterling is unfair as the stockpiling of goods in the run-up to the March Brexit deadline played a large

Important information: Please remember that the value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. This marketing material is for professional investors or advisers only. This site is not suitable for retail clients. Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Schroder Unit Trusts Limited is an authorised corporate director, authorised unit trust manager and an ISA plan manager, and is authorised and regulated by the Financial Conduct Authority.

INVESTMENT & RETIREMENT FOCUS | 15

Beware of the FOJI! Should you invest?

Simon Evan-Cook Senior Investment Manager, Premier Asset Management

Investors remain cautious and according to Simon Evan-Cook, Senior Investment Manager for Premier’s multi-asset funds, we’ve had a decade of FOJI (Fear of Joining In). In this article, he considers the dilemma still facing investors; whether to invest now.

As with most things market, these decisions are complicated by a cocktail of behavioural biases. ‘Recency Bias’ is one of these, being our instinct to believe the near future will look like the recent past. So investors who witnessed a rocketing market collapse in 2007 have been waiting for the same thing to happen again. Knowing this doesn’t make today’s decision any less tricky of course. So what should investors do? Naturally, everyone’s circumstances are different, so there are no catch-all answers. (A 12-year time horizon, for example, allows plenty of time to recover from the odd sell-off or two; 12 months doesn’t). Most useful would be an ability to predict the future. Sadly I can’t do this. Also sadly, I know no-one else who can either, but there are plenty out there who think they can. By all means pass them a couple of quid at a fairground for a bit of laugh, but you should otherwise keep your money well away from such fantasists. You may well decide that it still looks too risky to invest and, if you’re the kind of person who will panic in a sell-off, staying out may still be right for you. But in a world where inflation is higher than savings rates, taking no risk is risky too. So as well as understanding how you’d feel if the market drops sharply in the next 12 months, you should also consider how you’d feel if it rises for the next 12 years while your cash dwindles away: From here, either scenario is possible. Find out more For more information about Premier’s funds, contact our Business Development team on 0333 456 9033 or email info@premierfunds.co.uk.

Since 2009, being a FOJI victim has been a costly experience: £100k stashed in a savings account for the last decade has grown to £105k (assuming it earned the UK base rate). With inflation higher than the base rate for most of that time, they are now poorer in real terms than they were in 2009. But if they’d put it into the UK stock market, they’d now have something in the region of £251k (Time period: 31.07.2009 to 31.07.2019). Travelling back ten years returns us to the end of the financial crisis. This is as close as we’ve been to a closing-down, all-stock-must-go equity sale in living memory. So it’s not surprising returns look good from then. Many would-be investors look back wistfully: “If it fell that low again,” they say “I’d definitely be a buyer”. Neatly forgetting, of course, that when it fell that low last time, they stayed out because it was too scary. Perhaps then, we should compare today’s should-I-or- shouldn’t-I investment dilemma to 2007: a time when years of good returns projected an enticing scene, but investors were uneasy that they’d be joining the picnic a little too late. What fate befell those that did that? Well, assuming they bought in and stayed put, they too would have been better off than those who stayed in cash. Put another way, if Peter put his £100k into UK equities at the very peak of that cycle (31st October 2007), the day before the UK market embarked on a 17-month, 46% slump, he’d still be better off today than Pauline, who left her money in a bank account paying the heady base rate of 5.75% (but soon-to-be-slashed). And by quite a long way too: Peter would now have £184k, while Pauline has only £111k (Data: 31.10.2007 to 31.07.2019).

This article is for information purposes and is only to be issued to financial intermediaries. It is not for use with customers. It expresses the opinion of the author and does not constitute advice. Past performance is not a reliable indicator of future returns. All data sourced to FE Analytics. Issued by Premier Asset Management, which is the marketing name used to describe the group of companies, including Premier Portfolio Managers Limited and Premier Fund Managers Limited, that are authorised and regulated by the Financial Conduct Authority. For your protection, calls are recorded and may be monitored for training and quality assurance purposes.

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This content is for professional adviser use only. Issued by Tatton Investment Management Limited. Tatton is a trading style of Tatton Investment Management Limited which is authorised and regulated by the Financial Conduct Authority. Financial Services Registered number 733471. Registered in England and Wales No: 08219008. Registered Office: Paradigm House, Brooke Court, Wilmslow, Cheshire SK9 3ND.

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