INVESTMENT & RETIREMENT
A Tenet Group Publication Issue 9 | Spring 2020
A focus on… Investing in a rapidly changing world Premier Miton INVESTORS
FOR INVESTMENT PROFESSIONALS ONLY
POWERFUL MULTI -ASSET INCOME FUNDS Enticing yields from proven multi-asset funds.
Helping vulnerable clients de-risk their retirement Megatrends - the forces
shaping our future The value of advice goes beyond money
ALSO IN THIS ISSUE: Are we heading towards economic recovery this year? Is diversification dead? 4.9 % Income paid monthly historic yield
Premier Multi-Asset Distribution Fund
Premier Multi-Asset Monthly Income Fund
Income paid quarterly historic yield
PROD-proofing your business
0333 456 9033 premiermiton.com/multiassetincome Find out more:
For investment professionals only. Not suitable for, or to be relied on by, private or retail clients. Source: Premier Miton. The historic yield reflects distributions declared over the past twelve months as a percentage of the share price of the fund, class C income shares, as at 03.02.2020. Past performance is not a guide to future returns and there is a risk of loss to capital. The yield is not guaranteed and will fluctuate.
FOR INVESTMENT PROFESSIONALS ONLY
Premier Miton INVESTORS
• Income strategies – with key focus on producing an attractive and sustainable income for your clients • A multi-manager investment approach with a substantial income bias focusing on carefully researched, quality, active fund managers • A multi-asset approach covering equities, bonds, commercial property and alternative investments
• Premier Multi-Asset Distribution Fund: 51 underlying funds representing up to c. 5% in position size • Premier Multi-Asset Monthly Income Fund: 55 underlying funds representing up to c. 5% in position size • Highly experienced, highly regarded and award winning investment team - led by Director of Multi-Asset Funds, David Hambidge, and includes a team of 5 fund managers
Premier Multi-Asset Monthly Income Fund
Premier Multi-Asset Distribution Fund
Income paid quarterly historic yield
Income paid monthly historic yield
180 160 140 120 100 80 60 40 20 0 -20
Premier Multi-Asset Monthly Income Fund Since launch, 05.01.2009 - 31.01.2020
Premier Multi-Asset Distribution Fund 24.06.2008* - 31.01.2020
IA Mixed Investment 20-60% Shares sector
IA Mixed Investment 20-60% Shares sector
Performance source: FE Analytics to 31.01.2020, based on a total return, UK sterling basis, class C income shares. On 20.01.2020, the funds moved from a single pricing basis (mid) to a swing pricing basis. Performance could be shown on a combination of bid, mid or oer prices, depending on the period of reporting, and is shown net of fees with income reinvested. *Date of change to multi-asset. Past performance is not a guide to future returns and there is a risk of loss to capital.
Premier Multi-Asset Distribution Fund - distribution history Premier Multi-Asset Monthly Income Fund - distribution history Jun 08 Jun 10 Jun 12 Jun 14 Jun 16 Jun 18 Jun 19 Jan 20
8 7 6 5 4 3 2 1 0
7 6 5 4 3 2 1 0
5.5p 5.5p 5.6p
Financial year ending 28 February
Financial year ending 30 April
¹Based on class A income shares.
INVESTMENT & RETIREMENT
A Tenet Group Publication Issue 9 | Spring 2020
A focus on… Investing in a rapidly changing world
Helping vulnerable clients de-risk their retirement Megatrends - the forces
shaping our future The value of advice goes beyond money
ALSO IN THIS ISSUE: Taking on the twists and turns of volatility Is diversification dead?
PROD-proofing your business
Fidelity’s Multi Asset solutions Because no two clients are the same, you need solutions that can help meet a variety of needs. Fidelity’s Multi Asset Allocator, Open and Income ranges offer something that could suit everyone. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. The funds can invest in overseas markets and so the value can be affected by changes in currency exchange rates. They may also use derivatives for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger-than-average price fluctuations. Whether your clients are looking for income, total return or simply low-cost access to global markets, we can help you put the person into personal portfolios .
For investment professionals only
No such thing as average.
Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and annual and semi-annual reports, free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited. UKM0220/26687/SSO/0720
INVESTMENT & RETIREMENT FOCUS | 3
Foreword From the Editor
Welcome to the spring edition of Investment & Retirement Focus. Technical Services & Research department’s article, ‘Agent as Client’ explains what you should know when investing with a Discretionary Investment Manager (DIM), focussing on the importance of advisers understanding the Agent as Client and Reliance on Others arrangements and their differences. Also featured in this issue: TOMD’s article asks, has the global economy now reached its nadir or does the outlook remain bleak? The latest batch of economic statistics indicate that the global economy faltered during Q4 2019. This gloom was reflected in downgrades to the latest global growth forecasts released by the IMF in mid-January. However, the projections do still imply a pickup in growth across 2020. The international soothsayer also said the downside risks to growth have eased somewhat in recent months, read more on pages 6 and 7. Andrew Tully Technical Director at Canada Life discusses the rise of vulnerable clients at retirement and how financial advisers can help while adhering to FCA guidance on the issue. Architas’ article, Megatrends – the forces shaping our future. What is a megatrend? In this article Architas finds out what they are and what they mean for investors, before examining five megatrends identified in a recent piece of research by a global asset manager. Simon Evan-Cook, Senior Investment Manager for Premier Miton Investors, considers the significance of diversification even when the market favours some asset classes over others. To help advisers with their PROD compliance journey, Schroders have teamed up with financial services consultancy the Lang Cat to produce a guide titled ‘How to prod proof your business’. The guide is available to download from their website. It covers some of the highlights of PROD and their article busts five myths that surround it. 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
Technical Services & Research - Agent as Client
TOMD - Has the global economy bottomed out?
10-11 Prudential - Build a balanced retirement journey
Vanguard - The value of advice goes beyond money
Fidelity - Taking on the twists and turns of volatility
Schroders - PROD-proofing your business
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.
Many advisers are turning to Discretionary Investment Managers (DIM) to run portfolios for their clients, whether this is because of increased regulatory pressures since the implementation of MiFID II or simply because they no longer have the time to constantly review, update and rebalance advisory Model Portfolios. Agent as Client 4 | INVESTMENT & RETIREMENT FOCUS
Kate Quarmby Technical Services and Research Consultant
How do I form an Agent as Client relationship? If you assume that because you are a regulated adviser with the FCA, that this is sufficient to act as an agent of your client, you are not alone. In fact, this is a common misconception and that alone does not give you permissions to set up on this basis with the DIM. So what is needed? Simply an agreement needs to be put in place where an informed client gives you specific consent to act as their agent. The agreement should include: n An explanation on the relationship they are forming i.e. agent as client n A detailed description on what this means i.e. the adviser is treated as the client of the DIM, not the investor. Tenet updated the client agreement in 2018 to reflect that advisers can act as the client’s agent when recommending a DIM. Investor Protection As mentioned earlier, the investor may potentially lose some regulatory protections. This is because the investor has no contractual arrangement with the DIM, in most cases the DIM has no information on the underlying investor at all. In the event of the DIM failing to fulfil their obligations, the adviser would likely be the one to take action under the DIM- Adviser agreement. Advisers Responsibilities n The adviser is responsible for ensuring the DIM proposition is suitable for the client. Research should be undertaken at the start and then reviewed on an ongoing basis to ensure the investment strategy remains appropriate for the client. This should include a review of the DFM’s strategy and the fund types they are using, especially if the adviser is treated as a ‘per se professional’. n As part of ongoing servicing, advisers should monitor the performance and ensure the DIM is investing within the mandate agreed up front, i.e. if in the mandate, the DIM agreed to only invest in instruments suitable for retail investors, advisers should check this is the case. n Advisers should ensure they understand the reporting responsibilities, including notification of a 10% drop in value (this is explained in more detail below). n The client should be informed that in the event of any complaint against the DIM, this will need to be directed through the adviser, as there is no contractual relationship between the end investor and DIM. The adviser can then complain on behalf of the investor. Discretionary Investment Manager Responsibilities n DIM’s should explain the investment proposition and mandate clearly to allow advisers to commence their research. n Once the adviser has reviewed and agreed the proposition, the DIM then has the responsibility of running the portfolios in order with this agreement. n Implications to the regulatory protections
When it comes to investing with a DIM, what you may not know is there are different ways the relationship with the client might be arranged, Agent as Client and Agent of the Client (otherwise known as Reliance on Others). There’s important differences between the two arrangements that you and the end client need to be aware of prior to setting up an investment mandate with the Investment Manager. Depending whether the DIM is bespoke or managed, held on or off platform, determines the structure of the relationship, please see a typical example below:
Who is the advisors client?
Who is the DIMs client?
Agent as Client or Reliance on Others? Reliance on Others Reliance on Others
Bespoke DIM Investor
Direct Managed Portfolio Platform Managed Portfolio
Agent as Client
As you can see from the above table, where a Bespoke DIM or a Managed Portfolio held directly with the provider (not via a platform), this is typically set up on a ‘Reliance on Others’ Basis. Things start to get more complicated when holding the Discretionary Investment on a Platform, this is where ‘Agent as Client’ rule comes into play. Agent as Client Many Discretionary Managers offer the ‘Agent as Client’ rule as a standard, this in short means the adviser is treated as the client , not the end investor. When an adviser acts as an agent, they may act on behalf of the client within the scope of the authority given by the client. In most cases, the DIM will classify the adviser as a ‘per se professional client’, rather than a retail investor. This can cause significant implications to the regulatory protections designed for retail clients that you need to be aware of: n The DIM may invest in assets/products which are only suitable for professional clients (in most cases, the DIM design their portfolios to be suitable for retail clients but it is important that you check with the provider);
n There is likely to be a loss of access to the FOS
n There are no cancellation rights
To mitigate the risk of unsuitable advice been given, advisers should set out a clear agreement, both with the DIM and the end Investor and ensure everyone is in an informed position regarding the investment mandate.
INVESTMENT & RETIREMENT FOCUS | 5
Agent of the Client Agent of the client, otherwise known as the ‘reliance on others’, is an alternative arrangement as opposed to the Agent as Client. Some DIM’s may offer this as standard or offer this as an alternative option. On the surface both processes are similar, the main difference being that both the DIM and Adviser have contractual responsibilities to the underlying investor. A tripartite agreement is usually formed between the three parties. Both DIMs and Advisers should set out their own individual arrangements with the Investor and detail their respective responsibilities in the client agreement. The Discretionary Manager relies on the adviser to provide comprehensive and accurate information which the adviser obtains as part of Know your Client (KYC). The DIM can then ensure that the investment mandate and each trade is suitable for said client. The main differences between the two arrangements are shown in the figure 1 table below. 10% Drop Notification Following the implementation of MiFID II, a rule was introduced where the client must be notified of a 10% drop in the value of their investments. This seems fairly straightforward on the face of it, however, who is the client, and who is responsible? There is no one answer to this question I’m afraid and it depends on the provider, the agreement and whether the investment is held on a platform. 1. In most Agent as Client relationships, the DIM won’t have any knowledge of the end investors and would likely therefore inform the adviser, the obligation would then fall on to the adviser to notify the client of a 10% drop. 2. In the reliance on others scenario, both adviser and DIM have a relationship with the Investor and either one could be deemed responsible for the reporting requirements. In this case, the responsibilities should be documented in the agreement. 3. In some instances where the portfolio is held on a Platform, the Platform provider may be able to notify the client direct.
In each one of the scenarios, there is no clear cut reporting line and it is therefore imperative that the responsibilities are clearly and undeniably construed in the agreements between each party, including Platforms.
Existing DIM Arrangements If you’ve now realised you have been operating under the Agent as Client structure for previous clients and you are concerned it is incorrectly set up, don’t panic, there are a number of options to consider: n In most cases, agreements should be correct as Tenet updated the Client Agreements in 2018 to reflect the Agent as Client situation. If, in the event the Agreements did not include any wording you should now establish the correct paperwork and process and continue on the agent as client arrangement. n Contact the relevant DIMs, and if possible to change this to the ‘Reliance on Others’ arrangement. Consideration should be given to the implications on the client, whether this would mean coming off platform etc. n If you do not want to act as an Agent, consideration may be given to moving to a provider who already offers the ‘Reliance on Others’ arrangement as standard. However, thought must be given to any potential Capital Gains Tax implications, whether performance has been satisfactory, and whether the investment solution is still suitable for the client. A Reliance on Others agreement may involve an off-platform solution direct with the DIM and this may not be ideal where the assets are already being managed on a platform. Whatever option you chose, the client needs to be contacted and all agreements and paperwork, written or re-written to include all relevant information. Summary There are pros and cons to both Agent as Client and Reliance on Others scenarios and no right or wrong way to set up the structure. However you choose, the important part is the paperwork! Setting up agreements with clients, investment managers and platforms detailing who does what in terms of responsibilities will result in suitable and compliant investments for the end investors.
Agent as Client
Reliance on Others
Are you operating on an advisory basis? No
Adviser – Suitability of the mandate Adviser - Investment management to the mandate Yes – to ensure funds are suitable for a retail client Sufficient to meet the terms of the agreement I have with my client and the DIM
Adviser – Suitability of the mandate DIM – Investment management to the mandate
Who is ‘on the hook’ in case of a complaint?
Do I need to monitor the DIM’s investment decision?
What controls and oversight should I have in place? Can the client bring a case with FOS to the DIM? Do my T&Cs with a client need to address a number of issues to allow me to operate under this framework? Does the end client need to sign the DIM’s mandate to give them discretion? No
Enough to ensure the DIM remains fit for purpose
Figure 1 : Source - Personal Finance Society
6 | INVESTMENT & RETIREMENT FOCUS
A weak European finale to 2019 Fourth quarter gross domestic product (GDP) statistics painted a bleak picture of the global economy at the end of last year. In the UK, for instance, the economy stagnated, with no growth at all recorded across the final three months of 2019, as political uncertainty gripped the country. Data for the 19-country Eurozone also revealed a lacklustre end to the year, with growth across the whole bloc slowing almost to a halt after the French and Italian economies unexpectedly contracted during the final quarter. The German economy also endured another weak performance in the October–December period; although Europe’s largest economy did see some expansion, growth was rounded down to 0.0% with the sluggish performance reflecting a fall in exports. Japan’s economy in the doldrums Preliminary GDP estimates released by the Japanese government show the world’s third-largest economy performed even more woefully during the fourth quarter. Indeed, Japan’s economy actually shrank by 1.6% during the final three months of 2019, the country’s largest quarterly contraction in five years. The fact that growth slowed was not a surprise. Analysts had widely predicted a fall as Japan grappled with a triple whammy: a sales tax rise, a major typhoon and weak global demand. However, the scale of the decline was far more severe than expected and left economists fearing a recession looks all but inevitable. US growth steady but easing In contrast, the latest GDP figures released by the Bureau of Economic Analysis showed that US growth remains at a respectable level. The world’s largest economy grew at an annualised pace of 2.1% during the fourth quarter of 2019, identical to the rate recorded during the preceding quarter and exactly in line with analysts’ expectations. However, while the US economy continues to grow at a reasonable rate, the level remains significantly below President Trump’s lofty prediction of at least 3% annual growth, made after his tax cut announcement in 2017. And economists believe the latest
The latest batch of economic statistics shows that the global economy faltered during the final quarter of 2019. This gloom was reflected in downgrades to the latest global growth forecasts released by the International Monetary Fund (IMF) in mid-January. However, the IMF projections do still imply a pick- up in growth across 2020 while the international soothsayer also said the downside risks to growth have eased somewhat in recent months. So, has the global economy now reached its nadir or does the outlook remain one of relative gloom? bottomed out? Has the global economy
INVESTMENT & RETIREMENT FOCUS | 7
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Decisive policy action supporting growth
statistics confirm a broader trend towards steady but decelerating growth rates that has been evident over the past year. China slowdown remains a cause for concern Official data released by the National Bureau of Statistics also confirmed China’s rate of growth remains on a downward trajectory. The world’s second-largest economy recorded an annualised GDP growth rate of 6.0% during the final quarter of last year. Although this was unchanged from the third quarter and in line with analysts’ expectations, it leaves growth hovering around a 30-year low. IMF cuts global growth forecasts The IMF’s latest economic assessment highlights this deterioration with global economic prospects downgraded from its October projections. Its global growth estimate for 2019 was reduced from 3.0% to a fresh 10-year low of 2.9%, while growth across the world economy in 2020 and 2021 is now forecast to be 3.3% and 3.4%– a downgrade of 0.1 and 0.2 percentage points, respectively. These downward revisions, however, largely relate to reduced economic activity in a handful of emerging market economies, most notably India. While the IMF did make it clear the projected recovery in global growth remains uncertain, it is at least still forecasting that the world economy will expand over each of the next two years. Some potential risks have receded In addition, while the IMF highlighted rising geopolitical tensions and further worsening of relations between the US and some trading partners, notably the EU, as potential growth threats, it also stated that risks to global activity were now less tilted to the downside compared to its autumn forecast. Principally, a thaw in US-China trade relations and an orderly Brexit mean that two of the chief economic uncertainties have dissipated. stability over the coming year, recent developments have been favourable. In particular, the signing of a phase-one trade deal in mid-January sent a clear signal that the bitter and protracted trade dispute between the US and China is less likely to deteriorate further. While both situations still have the potential to threaten economic
The IMF also said that decisive action by policymakers has already provided a boost to economic growth and will continue to support activity over the coming months. The US Federal Reserve and a number of other central banks cut interest rates during the second half of last year; without this monetary stimulus the IMF stated that its global growth estimate for 2019 and forecast for 2020 would both have been 0.5 percentage points lower. While the IMF has warned that room for further monetary intervention is now limited, authorities around the world are expected to provide ongoing support to foster a sustained recovery. In December, for example, Japan announced a massive $120 billion stimulus package in a bid to One significant risk not accounted for in the IMF forecast is the threat caused by the coronavirus. The international soothsayer produced its predictions just before the Covid-19 outbreak was confirmed, but the virus’s economic impact will undoubtedly reverberate across the global economy. While producing reliable estimates of the likely impact is understandably difficult, economists have suggested that China is facing a short-lived but potentially sharp economic shock. Given China’s significance on the global economic stage, this will certainly have implications for growth rates across the rest of the world. However, the extent of the impact will clearly depend on the success, or otherwise, of international efforts aimed at controlling the spread of the disease. Tentative Stabilization, Sluggish Recovery? The IMF’s latest economic assessment was entitled Tentative Stabilization, Sluggish Recovery? and this still appears to be the most likely path for the global economy over the coming 12 months. However, the IMF did say there are currently no clear signs of a turning point and the likely economic problems caused by the coronavirus outbreak may result in it being a while longer before any potential shoots of recovery are definitively apparent. shore up its ailing economy. But coronavirus will hit economic activity
email@example.com – we’re happy to help.
8 | INVESTMENT & RETIREMENT FOCUS TENETEVENTS - Supporting your development throughout 2020 Our Events programme includes everything you need to keep abreast of the latest developments in our industry and latest sales tips, as well as providing a ‘one stop shop’ for all your CPD. Tenet events are open to advisers and support staff from all three Tenet brands.
SPECIALIST INVESTMENT WORKSHOPS COMING SOON… Target Audience: Investment and Pension advisers Timings: 9.00am arrival, 9.30am start - 3.00pm finish CPD: 3 hours structured These events will focus on specialist investments and the value they can add to your business. 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 and planning scenarios to provide you with a greater understanding of each product and a proposition’s place in the market. To book your place on a Specialist 09/06/2020 Bristol , Village Bristol 10/06/2020 London , Amba Hotel NEW EVENT ANNOUNCEMENT: Special Investment Seminars We’re delighted to announce that we have included six additional investment events . These Specialist Investment Seminars will take place in July, visiting six locations across the UK focusing on specialist investments and the value they can add to your business. 07/07/2020 Nottingham , Doubletree by Hilton Nottingham Gateway 08/07/2020 Leeds , Oulton Hall 09/07/2020 Belfast , Stormont Hotel 14/07/2020 Maidstone , Hilton Maidstone 15/07/2020 London , Amba Hotel 16/07/2020 Glamorgan , The Vale To book your place: https://events. tenetgroup.co.uk/seminar2020 Workshops visit: https://events. tenetgroup.co.uk/workshop2020 Specialist Investment Workshops 02/06/2020 Cumbernauld , Doubletree Westerwood 03/06/2020 Leeds , Crowne Plaza Leeds
COMING IN JUNE 2020 - PROTECTION SEMINARS
Target Audience: All advisers Timings: Last Friday of the month, 9.30am–10am CPD: 30 minutes structured per webinar (unstructured for Mortgage webinars) You also have the opportunity to top up your CPD by tuning into our series of webinars which are hosted by Tenet on the last Friday of every month, with a single provider, fund manager or lender, which you can view from the comfort of your home or office. You will have the opportunity to view the webinar and interact with the speakers, asking any questions you may have. To help plan your diary for the year ahead, we would recommend booking these at the start of the year. All webinars are also available to watch on demand. Webinars coming soon… We recommend registering for all the webinars, then opt out as and when, if you are not available or the content is not relevant. Date Provider
Target Audience: Protection advisers across all brands Timings: 9.00am arrival, 9.30am start
- 3.00pm finish CPD: IDD CPD
Following the success of our first round of Protect events, we have added an additional 4 protection events into this year’s Adviser Development Programme. In June, we will host four Protection Seminars, visiting Cumbernauld, Leeds, Bristol and London. The events have an arrival time of 9.00am, with the first session commencing at 9.30am and concluding at 3.00pm. These events will focus on the protection market. With Tenet and the industry’s focus in this area, they are designed to meet advisers’ development needs and provide a valuable insight into this market. All of the sessions at these events will offer IDD CPD, and are open to advisers, paraplanners and admin staff. Our provider partners will also look at other ways you can obtain further IDD CPD. To book your place: https://events. tenetgroup.co.uk/protectionseminar2020 Protection Seminars 16/06/2020 Cumbernauld , Doubletree by Hilton Glasgow Westerwood 17/06/2020 Leeds , Village Leeds South
27/03/2020 Just 24/04/2020 LV= 29/05/2020 Precise Mortgages 26/06/2020 Zurich 31/07/2020 The Exeter
28/08/2020 TBC 25/09/2020 TBC 30/10/2020 TBC 27/11/2020 TBC
23/06/2020 Bristol , Village Bristol 24/06/2020 London , Amba Hotel
To register for any of these webinars visit: https://events.tenetgroup.co.uk/ tenetcpdwebinars2020
Note for your diary... TENET ADVISER FORUM & GALA DINNER Thursday 3rd December 2020 • The Principal Hotel, Manchester
If you have any questions about these events, or any of the other events we have planned for you this year, please speak to our Events team 0113 2390011 ext 8132 or email firstname.lastname@example.org .
INVESTMENT & RETIREMENT FOCUS | 9
Personalised underwriting can make a huge difference to the amount of guaranteed lifetime income available from an annuity. Non-underwritten vs Personalised Underwritten Rates
As a benchmark example, a pension pot of £100,000 would buy a guaranteed lifetime income of £4,371.58 each year on a non- underwritten basis. By personalising your client’s guaranteed income with underwriting, there’s a chance you can significantly increase the amount they receive. Following the introduction of PS19/1, firms are now required to ask customers who express an interest in buying an annuity questions to determine whether they are eligible to buy an enhanced annuity rather than comparing purely on a standard, non- underwritten basis. Client aged 65, £100k net fund, single life, no escalation with a 5 year guarantee period, monthly in advance*
To find out more about underwriting and increasing your clients income, call 0345 302 2287, or visit justadviser.com
The actual level of income will depend on the individual’s personal circumstances. There will be no return of capital to their estate from their annuity when they die, unless they include death benefit options. *Just rates 1 October 2019. Based on individual being married, 5ft 10in/13st 10lb, 7 units of alcohol weekly, unless stated otherwise. Allows for 2% adviser charge.
10 | INVESTMENT & RETIREMENT FOCUS
INVESTMENT & RETIREMENT FOCUS | 11
12 | INVESTMENT & RETIREMENT FOCUS
Andrew Tully Technical Director at Canada Life discusses the rise of vulnerable clients at retirement and how financial advisers can help while adhering to FCA guidance on the issue. Helping vulnerable clients de-risk their retirement
Andrew Tully Technical Director, Canada Life
In its report, the FCA laid out the drivers of vulnerability: • Health • Life events • Resilience • Capability The regulator’s expectations of advisers While advisers are undoubtedly best placed to help vulnerable clients, this comes with certain responsibilities. The FCA published the Product Intervention and Product Governance Sourcebook (PROD) in January 2018. It states that an adviser must: • Detail the fees the client has paid for both the advice they have received and the investments into which their money is placed. And this must be done annually. • Ensure that the cost and service offered is appropriate for that client. • Fully understand the financial instruments they are recommending. • Assess the compatibility of the financial instruments with the needs of their client, considering the manufacturer’s identified characteristics of the target client. • Ensure that financial instruments are only recommended when this is in the best interests of the client. • Consider the impact of cost and the financial strength of the provider on their client. Conclusion This is an incredibly important issue, and one that we must take seriously as an industry. Advisers and providers need to work closely together to protect all clients in retirement – not just those deemed to be vulnerable. In practice we know that means spending more time with your retirement clients throughout the advice process, and through subsequent regular reviews. That’s why our focus is on helping you streamline your service while giving you confidence that you’re recommending a bespoke, flexible and reliable solution that demonstrates good value for money.
When we talk about financial vulnerability, it usually conjures up images of people with no money struggling to make ends meet. But the reality is that anyone can be financially vulnerable. Whether you are rich, poor, young or old, it comes in many different guises. It can be there for everyone to see, or so well hidden that even the person with the vulnerability doesn’t know it’s there. It can be permanent or temporary, and it could be realised or unrealised. This issue is not new, but it has become particularly prevalent in the wake of pension freedoms and ensuring people don’t outlive their savings. The risks facing vulnerable clients The introduction of pension freedoms and the subsequent rise in non-advised flexi-access drawdown sales has potentially worrying consequences, which have set the regulator’s alarm bells ringing. And it’s easy to see why. The FCA’s Retirement Outcomes Review found that: • 33% of non-advised consumers have their drawdown investments in cash, receiving low rates of interest and missing out on potential investment returns. • 94% of non-advised clients had taken the default route of setting up drawdown with their original pension provider, meaning it may not be the most suitable product for them. As a result, there are swathes of potentially vulnerable clients who may well outlive their savings. This might be because they are under invested, meaning a risk averse approach could result in lower returns and irreparable losses. Or they may be taking too much risk, leaving them open to volatility and sequencing risk. At the same time, they may also be paying unnecessary charges. It’s this susceptibility to financial loss that underlines how important the role of a financial adviser is in navigating the potential pitfalls of financing retirement. How can advisers help vulnerable clients? In July 2019, the FCA published their guidance on the fair treatment of vulnerable clients. Running to 69 pages, it wasn’t for the faint hearted, and this alone underlined the complexity of the issue. It broadly defines what it means to be vulnerable as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’. Such customers are particularly at risk of buying products or services they don’t need, that are inappropriate, or worse - succumbing to scams.
To find out more about retirement solutions from Canada Life visit canadalife.co.uk/adviser/retirement or call 0800 912 9945 .
Canada Life Limited, registered in England no. 973271. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Telephone: 0345 6060708 Fax: 01707 646088 www.canadalife.co.uk Member of the Association of British Insurers. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
13 | INVESTMENT & RETIREMENT FOCUS
INVESTMENT & RETIREMENT FOCUS | 13
What is a megatrend? In this article we find out what they are and what they mean for investors, before examining five megatrends identified in a recent piece of research by BlackRock. the forces shaping our future Megatrends -
CFA Deputy Chief Investment Officer
Climate change and resource scarcity Our growing population means a greater need for energy, food and raw materials while our natural resources are dwindling. We must therefore improve efficiency, reduce waste and seek alternative resources. Hand-in-hand with this is the issue of climate change. It has become a big part of the public agenda – we just need to look at the backlash over single-use plastic or the increasing prevalence of renewable energy and plant-based diets. Demographic and social change Many countries have ageing populations, and this is expected to become more prevalent in the future. This shift will not only affect how our workforce earns a living, but will also increase the focus on healthcare for both individuals and governments. At the other end of the spectrum, the younger generations are growing up with vastly different priorities to their parents and grandparents. This affects everything from what they eat and how they travel to where they invest their savings. Emerging global wealth There is a growing middle class in many emerging economies. A great example is China – the country is expected to add 1 billion people to the global middle class between 2005 and 2030. Another is India, where the workforce is expanding rapidly. Both countries and many others offer big opportunities for global and local suppliers of consumer goods, telecoms and healthcare services to name but a few.
Technological breakthrough Technology is integral to each of these megatrends, but it’s a trend in itself too. The likes of 5G connectivity and artificial intelligence have the power to innovate and disrupt industries and societies across the globe. Technological advances can create plenty of opportunities, but also challenges. For example, what happens to a workforce if it’s replaced by robots? Can you invest in megatrends with Architas? Our funds of funds spread clients’ money across many different fund managers, each with their own unique investment philosophies and processes. Some of them consider megatrends like these when making investment decisions. They identify those companies, industries or countries that should benefit from these trends over the long term. Other fund managers take contrarian approaches – for example, looking for companies that are currently out of favour and have discounted share prices. And some fund managers take a completely different approach altogether. Our investment team meets hundreds of fund managers every year. Not only do they analyse their performance, they also speak to them at length about their investment philosophy and expectations for the future. This information helps them to create portfolios containing the right mix of underlying funds that they believe are most likely to help our clients achieve their financial goals. For more information, call us on 020 7562 4900; Monday to Friday 9.00am – 5.00pm, calls may be recorded, or visit architas.com
What is a megatrend? Megatrends are powerful changes that are expected to cause big structural shifts in the global economy over the next 10 to 20 years. They will create new opportunities and challenges, affecting everything from our governments’ priorities to the way we do business and how we spend money. Importantly, megatrends aren’t static – they evolve over time and manifest in different ways across the globe. What do megatrends have to do with investing? In simple terms, long-term investing is all about identifying companies or assets that will be worth more money in the future than they are today. One way to identify such assets is to look at the themes or trends that are changing society and picking the companies, sectors or countries that stand to benefit from these. The five megatrends BlackRock recently identified the five megatrends that they believe are most likely to shape society in the near future. Here, we look at them in more detail. Rapid urbanisation Hundreds of new cities have sprung up in the last few decades, and hundreds more are expected over the next few. Every new city requires infrastructure – from transport and communication networks to housing and schools. With dense populations, new cities can also serve as launchpads for young, rapidly growing businesses. Understanding these requirements and opportunities can help investors to identify new sources of growth.
This Financial Promotion is issued by Architas. This is for professional clients only and should not be issued to or relied upon by retail clients. AMML is an investment company that provides access to other investment managers’ services through a range of multi-manager solutions, including regulated collective investment schemes. AMML in the UK works with strategic partners and AXA Group internal fund managers, to find out more information about this please visit architas.com/inhousestratpartners/ AXA is a worldwide leader in financial protection and wealth management. In the UK, one of the AXA companies is Architas Multi Manager Limited, an investment company that provides access to other investment managers’ services through a range of multi-manager solutions, including regulated collective investment schemes. Architas Multi Manager Limited is a company limited by shares and authorised and regulated by the Financial Conduct Authority (FirmReference Number 477328). The company is registered in England: No. 06458717. Registered Office: 5 Old Broad Street, London, EC2N 1AD.
The value of advice goes beyond money Authors: Cynthia A. Pagliaro & Stephen P. Utkus
Measuring the value of financial advice is challenging. Data is rarely gathered on a sufficient scale or consistently over time. Success is subjective and it is difficult to know, over the longer term, if an alternative course might have proved superior.
Vanguard’s Adviser’s Alpha shed considerable light on the subject using a modelling approach to show the value of different components of advice. Other institutions, including Morningstar, have used similar methodologies. In a recent study 1 , we have been able to observe the effects of professional advice on a large number of clients with comparable experience. The data was mapped over a period of five years and we looked at the impact of advice from three perspectives, portfolio changes, financial outcomes and emotional wellbeing. The median age of the participants was 65, though ranges in separate areas of the study extended from under 30 to over 70. Median investible portfolios were between £190,000 and £390,000. KEY FINDINGS • Portfolio value: Over 44,000 participants were observed six months before and six months after obtaining professional advice. We saw that good advice can be particularly helpful in addressing private investors’ typical handicaps, such as procrastination, inertia, and home bias. • Financial value: We looked at the likely financial outcomes for over 100,000 participants, finding that around 80% of the individual advised investors were highly likely to reach their retirement goals. • Emotional value: In a survey of over 500 respondents, we found that the emotional, or personal, component of advice accounts for nearly half of the value assigned to the receipt of advice. PORTFOLIO OUTCOMES For this part of the study, we observed more than 44,000 investors who had been ‘self-directed’ and had subsequently joined Vanguard’s professional financial advice service over a period from 2014 to 2018. We looked at their portfolios six months before they received advice, that is, when they were constructing their own portfolios. We looked at them again six months after they had received professional advice. The most common change seen ‘post advice’ was the reallocation of cash to bonds. Self-
directed investors tended to prefer holding cash rather than buying longer-duration fixed income assets (see charts below). In aggregate, there was little change in the equity allocation, rising from 58% to 60%. At a client level, by contrast, there were significant changes. Two-thirds made material changes to their equity holdings of over 10%, either up or down. Nearly a third reduced their cash holdings by over 10%. Over 90% altered the balance between domestic and international holdings. Some 80% lowered costs by switching allocations from active to passive, while 10% sold off their single-stock holdings. FINANCIAL OUTCOMES Attaining an investment goal involves a number of financial planning activities beyond the management of the portfolio itself, including saving and spending, budgeting and handling debt. We measured the financial benefit of advice through a probabilistic forecast of an investor’s
‘relationship with a trusted adviser’, where we felt the emotional value was highest, ‘protection and assurance’ and ‘planning’. On analysis, it was apparent that many of the most highly rated statements were those with a significant emotional component. ‘Trust in the adviser’ was the most important factor driving the highest value rating, followed by having a ‘personal connection with the adviser’. Feeling ‘on track to meet goals’ and ‘reassured in down markets’ were also significant. Overall, statements relating to ‘relationship with a trusted adviser’ accounted for 55% of investor perceptions of value. Across the three categories, emotional value was rated at 45% against 55% for functional value. CONCLUSION Our aim in this study was not to define all of the possible measures for each of the three dimensions we observed, but to highlight the need to of financial outcomes, with the right advice, 80% of advised clients were put on track to meet their long-term financial goals for retirement. But the third, emotional, dimension, while harder to measure, was just as important, or maybe more so – accounting for almost half (45%) of the value assigned to the advice relationship by investors. Without trust or the feeling of a personal relationship with their adviser, most investors are less likely to feel a sense of financial wellbeing. Good financial advice, it turns out, has more than the potential to underpin financial security. It can add to the quota of our happiness. 1 See Assessing the value of advice https://www.vanguard.co.uk/documents/adv/ assessing-the-value-of-advice-eu-en-pro.pdf see advice from these different perspectives when assessing value. On the portfolio metric, getting good advice helped address well- known issues affecting previously self-directed investors, such as home bias and inertia. In terms
ability to meet a particular financial goal, in this case one of the commonest among advised clients, a secure retirement. Our data was drawn from success rates predicted in January 2019 for more than 100,000 advised investors.
We found that 76% had a 90-100% probability of achieving their objective. Another 4% were 80-89% likely to achieve their goal. Put together, this means that eight in ten of advised investors had a probability above 80% of meeting their goal of a financially secure retirement. EMOTIONAL OUTCOMES In this part of the study, we surveyed 504 advised investors to understand the value in the emotional security of the advisory relationship. In other words, we wanted to see how much advice contributed to clients’ ‘financial happiness’.
Respondents were asked to rank 24 statements 1–5 for importance and satisfaction. The statements were organised into three categories:
Investment risk information: The value of investments, and the income from them, may fall or rise and investors may get back less than they invested. Past performance is not a reliable indicator of future results. Other important information: For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). Not to be distributed to the public. It is for informational purposes only and is not a recommendation or solicitation to buy or sell investments. The opinions expressed in this article are those of the author and may not be representative of Vanguard Asset Management, Limited. Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority. © 2019 Vanguard Asset Management, Limited. All rights reserved.Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28
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