Selected issue 7 - Autumn 2019

A Tenet Group Publication

Issue 7 Autumn 2019

SPECIAL FEATURES Up Close & Personal with Mark Scanlon, Chief Executive Exclusive software deals

OTHER FEATURES NEW for 2019 - DA Firm of the year award!

SM&CR is coming... Are you ready?

A unique later life cover option with our Serious Illness Cover Dementia and FrailCare Cover

The Latest Provider Support Offering insight into market conditions and adviser opportunities

POSITIVELY DIFFERENT LIFE INSURANCE

The need

THERE ARE AN ESTIMATED PEOPLE IN THE UK LIVING WITH DEMENTIA 2 850,000

THIS WILL INCREASE TO PEOPLE BY 2051 2 . 2 MILLION

The risk of developing dementia increases from one in 14 over the age of 65, to one in six over the age of 80 1 .

TYPICALLY SOMEONE WITH DEMENTIA WILL SPEND

£100,000

ON CARE 3

1in6 80

Average annual cost for dementia suffers living in a care home 3 £38,000

40% more DEMENTIA CARE CAN COST UP TO THAN STANDARD SOCIAL CARE 3

Sources: 1. Prince, M et al. (2014) Dementia UK: Update Second Edition report produced by King’s College London and the London School of Economics for the Alzheimer’s Society | 2. Alzheimer's Society, Facts and Media | 3. Alzheimer’s Society, Dementia – The True Cost, May 2018.

adviser.vitality.co.uk/SIC

A Tenet Group Publication

Issue 7 Autumn 2019

SPECIAL FEATURES Up Close & Personal with Mark Scanlon, Chief Executive Exclusive software deals

OTHER FEATURES NEW for 2019 - DA Firm of the year award!

SM&CR is coming... Are you ready?

The Latest Provider Support Offering insight into market conditions and adviser opportunities

WELCOME – 3

Editor’s Foreword

CONTENTS… what’s in this issue

5 SM&CR is coming, are YOU ready?

The countdown has begun, make sure you know what action you need to take.

Here is your Autumn issue of selected The countdown to SM&CR has well and truly started and the FCA has begun calling solo-regulated firms to determine what preparations they have in place. If you don’t currently have plans in place now is the time to take action. Take a look at page 5 to find out what key actions you should already be on with and how Tenet can help you prepare with our themed audit. Also in this edition We are very pleased to introduce Mark Scanlon, the new Chief Executive. Mark is under the spotlight in this issue in our Up Close and Personal article. We hear from him about his home and work life as well as his reasons for choosing Tenet. See page 6 and 7. Tenet has launched some exclusive software deals with Distribution Technology & Intelliflo. Take a look on page 4 for details of the services available and the discounted pricing arrangement. Supplement enclosed with this issue With this edition we are including our supplement – ‘Protection Insight’. This protection focused publication provides an opportunity for us to help you focus on the protection market, understand customers’ protection needs and offer suitable solutions. Following feedback from advisers, we have decided to introduce a new award at our annual adviser forum this year. On page 12 find out how you could be crowned the first TenetSelect DA Firm of the Year. Nominations must be completed by 15th October, so get your entry in quick to be in with a chance. Finally, we include a reminder about our marketing toolkit, to ensure you are fully aware of all the development opportunities we can offer to you and your business. I hope you find selected an informative and useful magazine. If you want me to include anything else in future issues, don’t hesitate to get in touch – you can email me: Katie.nutter@tenetgroup.co.uk

6 Up Close and Personal

5

Under the spotlight in this issue is our new Chief Executive, Mark Scanlon.

8 The Tenet Platform

– going the extra mile in Platform evolution

9 Build your business with

our comprehensive range of marketing support

7

10 Events coming up …

Take a look at the events coming up including Masterclasses, Later Life Lending events, the Non-Investment Roadshows plus the latest on the Adviser Forum.

12 DA firm of the year award!

18

Find out how you could be crowned TenetSelect’s first DA firm of the year at our annual adviser forum awards ceremony.

PROVIDER SUPPORT 13 - 36 Latest News and Products

24

Best wishes Katie Nutter Marketing Consultant

39

WINNER BestNetwork

BESTNETWORK

Contacts

Editor Katie Nutter

Published quarterly by Tenet Group Limited 5 Lister Hill, Horsforth, Leeds, LS18 5AZ

selected Magazine 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 expressed in this publication do not necessarily reflect those of the advertisers or the publishers.

Tel 0113 239 0011 Fax 0113 239 5322

selected - a Tenet Group publication­

4 – EXCLUSIVE SOFTWARE DEALS

Tenet has negotiated an exclusive deal with Intelliflo, the supplier of the award- winning business management system for financial advisers, Intelligent Office. Intelligent Office provides a fully integrated, web-based software solution that achieves lower costs and efficiency improvements to the entire advice process. Benefits include:

EXCLUSIVE SOFTWARE DEALS FOR TENETSELECT

3 Automated compliance process

3 Management reporting that adds value

Tenet launches new deal with Distribution Technology

3  Effortless reconciliation of provider income payments 3  Automated provision of consolidated valuation

We are pleased to announce that Tenet have negotiated a 6 year deal with Distribution Technology to provide a range of market leading financial planning tools from the Dynamic Planner system. Dynamic Planner is the most widely used risk profiling and asset allocation process in the UK, utilised by thousands of advisers, paraplanners and private client management firms up and down the country. It is a multi-award-winning service with a 15-year track record supporting advisers to make suitable investment recommendations and monitoring the suitability over the longer term. Dynamic Planner includes an extensive range of financial planning tools which can serve as the backbone of any adviser firms’ processes. The Dynamic Planner system is a market leading risk profiling tool and is fully integrated with iO, so you don’t have to enter information into multiple tools. It provides an end-to-end process for each client from risk profiling, existing investment reviews, fund selection or portfolio construction and recommendation for both an investment and retirement planning objective and therefore could reduce or remove the need to use multiple tools for each case. Distribution Technology (DT) is the company behind the Dynamic Planner suite of financial planning tools. DT has been in the industry since 2003 and has extensive experience and expertise with the financial services industry including the

financial planning process, asset and risk modelling and research. DT is committed to providing tools which add value, simplicity and reduce risk to adviser firms’ financial planning processes. How much will Dynamic Planner Cost? We have negotiated access to the Dynamic Planner tool for the heavily discounted rate of £15+VAT per month, per adviser, representing an 84% discount on the market rate of £97+ VAT per month. This offers all the benefits of level 1, with level 2 functionality provided free of charge until 30th June 2020. From 1st July 2020, you have a choice to retain level 2 access at the revised rate £85+VAT per month or revert to a level 1 license and continue paying £15+VAT per month, per adviser. Please note, existing Dynamic Planner subscribers can move to Tenet’s pricing model, but will have to give 3 months’ notice to DT. Where can I get Further Information? For additional support on the risk profiling process you can contact Technical Services & Research on 0113 239 5317. For any other enquiry including your contractual arrangement with Tenet please contact your Tenet Account Manager.

3 A secure messaging client portal

All TenetSelect advisers qualify for the following discounted prices: 3  Financial Adviser full licence with access to suitability letters - £129 + vat 3  Financial Adviser licence excluding suitability letters - £117.50 + vat 3  Administrator licence with access to suitability letters - £129 + vat 3  Administrator licence excluding suitability letters - £117.50 + vat

3  Mortgage Licence - £59 + vat

3  Implementation discount of 75%

3  Data migration discount of 10%

3  Training discount of 10%

Further details can be obtained from www.intelliflo.com or by calling 020 3814 2813 to arrange an exploratory discussion and demo. For more software details available to TenetSelect clients please visit the Tenet deals page on the

extranet at https://extranet. tenetgroup.co.uk/grow-your- business/tenet-deals/

SM&CR – 5

The countdown to SM&CR implementation has begun - Be prepared with our themed audit

3 months to go We have recently added to the Extranet a guide for Individual Senior Managers and a template Implementation Plan. As you’ll see from the timelines in the Implementation Plan we’ve put together as a guide, you should now be making progress in a number of areas such as: • Deciding which SMFs will apply to your firm; • Allocating Prescribed Responsibilities to those Senior Managers that will hold SMFs; • Drafting Statements of Responsibilities, ensuring that any prescribed responsibilities are specified clearly; • Deciding which individuals in your organisation will be subject to the Certification regime and providing those individuals with training on the Code of Conduct.

The Senior Manager & Certification Regime (SM&CR) comes into effect on 9th December 2019. The FCA has confirmed: ‘These changes will affect all firms authorised and regulated by us under the Financial Services and Markets Act (FSMA). The requirements for solo-regulated firms depend on whether firms are classified as Limited Scope, Core or Enhanced’. As a business owner are you clear on your firm classification and how the regime impacts upon your business? The regime places personal accountability and obligations on almost all personnel working in the regulated financial services sector in the UK, so clarity is paramount for you. We understand the FCA has begun calling solo-regulated firms to determine what preparations they have in place for SM&CR. • Do you understand how the regime impacts your business? • Would you be confident explaining your firm’s position if the FCA contact you to establish the plans you have to implement SM&CR? • Are you confident that you understand the specific requirements for your firm? • Do you have a plan in place to meet the SM&CR implementation timeline? If you are unable to answer ‘YES’ to the above questions, then we recommend you take urgent action. The SM&CR cannot be ignored, EVERY DA firm will be affected no matter how big or small, so make sure you are ready by utilising the help and support from TenetSelect. Are YOU on track with your SM&CR Planning?

If your firm wishes to amend/reorganise current Significant Influence Functions in advance of the new regime, you should be thinking about submitting your Form As and Cs now to help ensure that the right individuals will be approved and in the intended roles for automatic conversion (this won’t apply to Enhanced Firms). If your firm has a non-executive Chair currently approved as a CF2, remember that a Form K will be required because that role is the exception to the rule that non-executive directors will cease to require FCA approval under SM&CR.

Would you like to have an expert’s opinion to give you complete peace of mind? Book an SM&CR audit with our regulatory experts today! Our Regulatory Consultants are currently delivering SM&CR themed audits to firms that want to make sure they are SM&CR ready. As with any other themed audit it will be carried out by a dedicated Regulatory Consultant, who will provide support and clarity on SM&CR and ensure you have the systems and controls in place to ensure you meet the requirements of the FCA for the implementation date. Every audit includes plenty of time for discussion surrounding relevant regulatory topics and is backed up with a full professional report. The cost of an additional themed audit is just £765+vat per day, or if you still have a themed audit left to take as part of your package, now might be the time to book one to ensure you are SM&CR ready!

BOOK YOUR SM&CR AUDIT TODAY To book your SM&CR audit call your nearest regulatory consultant today:

Ron Skinner West Midlands 07979 340 927

Douglas Bernard South East 07900 820 089

Colin Evans Midlands & North West 07884 549 150

Simon Griffiths North East & Scotland 07810 552 103

Sarah Keyse South West 07855 256 584

6 – UP CLOSE AND PERSONAL

UP CLOSE & PERSONAL Under the spotlight in this issue is our new Chief Executive, Mark Scanlon. Can you give us a brief history of your career to date? I am a degree qualified electronic engineer. I began my career working for Schlumberger making solid state digital electricity meters in Felixtowe in Suffolk. I progressed to working for a supplier to Schlumberger which was small indigenous printed circuit board manufacturer in the North East which grew to be the largest of its kind in the world and its here that I really ‘cut my teeth’. Our customers were a who’s who of the telecoms, automotive and .com world. This saw me travel the planet and rise through the ranks. I had a period at BAE SYSTEMS after which I went to work for James Dyson where I established and led his commercial division with the Airblade as the first product. Wishing to own a business of my own I then bought into a Private Equity backed business in Huddersfield called FMG which worked out well for me and is still one of the biggest employers in the town. Our friends at Simply Biz have just bought the building I was in and will occupy it in October! Following FMG I lead a PLC called Personal Group moving it from an aging insurance company to a Fintech business. Why did you choose to work at Tenet? I think Tenet is an unpolished diamond with a lot a capability, potential and a great set of people. I can see the market we are in is enormous with emerging opportunities for us to go after. This comes after a period of challenges which I believe are now well and truly behind us. What are you hobbies and interests outside the office? I like automobiles and had one of the first Teslas in the country. I and the family were with Elon Musk for Tesla’s UK launch back in 2014. I was a keen sail-boarder in my youth but more recently have gotten into running. Other than that I have become involved in establishing a school in Africa through support for the Memusi charity and we have over 300 children attending the school and expanding! What music do you listen to in the car? My current interest is 21 Pilots but over the years its been Pink Floyd, Joy Division and of course U2 plus many others. We caught up with Mark to find out a bit more about his work and home life, as well as why he chose to join Tenet.

What is the last book you read? A book on China and its economic explosion.

What’s your favourite film of all time? The Blues Brothers

UP CLOSE AND PERSONAL – 7

If you could trade places with anyone for the day who would it be and why? My Brother. I’d really like to know how he views our family and my life as I think he’s had a front row seat! What’s the biggest lesson you’ve learnt in life? I am a tiny insignificant spec on the face of the planet and the risks of enjoying life are often exaggerated. And finally, tell us an interesting fact about yourself … I and 3 friends drove the entire width of the African continent from Dakar in Senegal to Mombasa in Kenya.

MARKETING SUPPORT – 9

Build your business with our comprehensive range of MARKETING SUPPORT If you’re looking to grow your business by recruiting new clients, or stay in regular contact with your existing clients, then a wide range of support is available.

1) Support provided by Tenet’s Marketing Team More and more advisers have recognised the benefit of using this package of support. The range of items includes leaflets, posters, brochures, press adverts, websites and letter templates to name just a few. Most of the support is available free of charge (you just pay for print if required) and a key benefit is that we streamline compliance processes by pre-approving most of the items for you. We can simply add your logo and contact details to the materials, which means you can take the marketing support away and use it immediately. The support includes: • Brochure and folder templates • Posters, leaflets and press adverts across a wide range of themes/product areas • NISA support items for the countdown to the tax year end and start of the new tax year • Introducer support • Letter templates • Protection and Mortgage Guides • Consumer leaflets for you to use with your clients to explain the support and backing you receive from Tenet.

2) Support provided by selected third parties In addition to the free of charge items produced by the Tenet Marketing team, we also work with selected third party companies to bring you the following... Websites We work with Web Pro IT to bring you a compliant website from as little as £30+VAT a month. Take a look at their services – simply visit: Investment firms - http://www.adviserprotenet.co.uk/ Mortgage & protection firms - http://www.mortgageprotenet.co.uk/ Communication Package In addition to our own comprehensive toolkit, we have also introduced a new package of support, as we recognise that keeping in touch with your clients is critical to maintain a relationship with them and to meet new advice needs. The package includes: • Monthly economic review bulletin • Monthly property market review bulletin • Quarterly client newsletters – ‘Money’, ‘Wealth’ and ‘Home Finance’ • Tax rate guide • Product and topic guides e.g. pensions • Budget and autumn update • Integrated email facility (small extra charge) • Free data audit to ensure your client data is accurate All items will be branded with your logo so that it looks like yours and will be pre-approved by our compliance team. PDF files are included so you can email them to your clients and/or add to your website and you also have the option of ordering printed copies at an additional charge. The cost for this communications package is only £650+VAT p.a. for an annual package, or you can pay a £150 set up fee and £65+VAT a month, on a rolling basis. This is a Tenet exclusive discounted offer.

Want to know more? If you want to take a closer look at Tenet’s Marketing Service, Websites or the Client Communication Package, simply visit the Extranet, click on ‘Grow Your Business’ in the top menu bar and you’ll see a link to the Marketing Toolkit. If you have any questions, give the Marketing team a call on 0113 239 0011 .

10 – EVENTS FOCUS

EVENTS available this Autumn… All events are free of charge and your support staff can attend too, so don’t miss out – book your place(s) today! Attending our events will provide you with an excellent insight into current markets, changes to legislation, new products and services. It is also a chance to network with your colleagues, product providers and Tenet staff, plus you get 3-4 hours of CPD awarded and recorded for you.

1) 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 Approximate Timings: 9.00am arrival 9.30am start – 3.00pm finish CPD: Approx. 3hrs 30 minutes structured and 30 minutes unstructured To book your place on a Masterclass Two visit: https://events.tenetgroup.co.uk/masterclasstwo2019 Date Location Venue 05/11/19 Glamorgan The Vale Hotel 06/11/19 Manchester Haydock Park Racecourse 07/11/19 Leeds Village Leeds South 12/11/19 Southampton Hilton at the Ageas Bowl 13/11/19 London Amba Hotel 14/11/19 Birmingham Village Solihull 19/11/19 Belfast Stormont Hotel 19/11/19 Cumbernauld The Westerwood 2) 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: All Advisers Timings: 9.00am arrival for a 9.30am start, finishing at 2.45pm CPD: 3 hours & 10 minutes unstructured (including 1 hour & 20 minutes IDD), 30 minutes structured CPD To book your place at the Non-Investment Roadshow Two just visit: https://events.tenetgroup.co.uk/noninvestmentroadshow Date Location Venue 08/11/2019 Durham Ramside Hall Hotel & Golf Club 09/11/2019 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

3) 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: Approx 9.00am-12.00pm CPD: Approx. 2 hours unstructured CPD

To book your place at the Later Life Lending Event just visit: https://events.tenetgroup.co.uk/laterlifelending Date Location Venue 22/10/19 Manchester

Mercure Haydock Hotel

23/10/19 24/10/19

Bristol London

Aztec Hotel

Millennium Knightsbridge

Finally, don’t forget our CPD Webinars with 30 minutes of CPD for each webinar you view! Throughout 2019, Tenet will host 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

EVENTS FOCUS – 11

We’re delighted to invite all advisers and support staff to our Adviser Forum, which will be held at the Queens Hotel, Leeds, on Thursday 5th December. At this Forum we will take a closer look at what’s on the horizon and, with support from our provider, fund manager and lender partners, we’ll provide invaluable insight, sales tips and that all-important CPD. The ever-popular trade fair will be open from 9.00am, with breakout sessions starting from 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. We will also have an evening to remember, where you can enjoy the 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. The event is open to all Tenet advisers, paraplanners and support staff and is completely free of charge to attend including the gala dinner. (The gala dinner is optional to attend). Adviser Forum 2019

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

12 – PROVIDER SUPPORT

Could you be the TenetSelect Directly Authorised Firm of the Year?

Our 2019 Adviser Forum will again feature our annual awards, recognising the top performing firms and advisers. New for this year, following your feedback, we are introducing a TenetSelect award for Directly Authorised firm of the year. Firms wishing to apply to be considered for the award should provide the following information for the period 1st October 2018 – 30th September 2019:

Voice of the Customer • Number of complaints • Customer TCF responses (headline numbers) Productivity • Overall turnover • Average turnover by adviser

To accompany the above data, firms should write a short statement outlining their approach to compliance and managing risk, including but not limited to: • Advice Quality • Competence of advisers • Breaches • Ensuring good customer outcomes Please email your entries to events@tenetgroup.co.uk by the 15th October 2019. Winner will be announced at this year’s Adviser Forum on Thursday 5th December at the Queens Hotel, Leeds. Good Luck!

PROVIDER SUPPORT – 13

Funds: it’s not like buying a car

Simon Evan-Cook, Senior Investment Manager for Premier’s multi-asset funds, explains that the challenges of picking a good fund and fund manager, and continuing to hold them during a ‘performance investment portfolio diversification. Even though we know they deliver for our investors, the best active funds are still susceptible to good and bad periods of performance. In contrast, buy a car and you can see it looks good and you can take it for a spin. You expect to drive it today, and every day, for the next five years. And if you do, it is a good car. Cars don’t tend to drive well for the first couple of years, terribly for the next two, then brilliantly in year five. Funds do this all the time though: both in absolute terms and - if they’re active funds – in relative terms too. Even the good ones. In fact, particularly the good ones: to be an outstandingly good active fund, the manager has to do something outstandingly different. And at times, it will look ‘bad-different’, not ‘good-different’ because the market has taken a shine to something else. The measure of whether the fund is ‘good’ or not, is that the ‘bad-different’ periods are considerably shallower than the ‘good-different’ times are deep. That kind of ambiguity just doesn’t work for car owners, but it’s integral to owning an active fund. This creates one of investment management’s biggest headaches: it’s extremely hard to match customers to cycle’, provides an important insight into the benefits of

the right products: the pro-racing drivers buy Volvos, while the learners and nervy, hat-wearing grandads buy Ferraris. Retail buyers often use recent performance to pick a fund. They particularly like the top-performers over the past three years. These tend to be the most intense versions of the ‘style’ that has been driving markets. Contrary to popular belief, this may actually be a reasonable way to find a good fund, but it’s an awful way of timing the purchase of a good fund. Such investors expect the next three years to look like the last but, more often than not, the fund’s current ‘good- different’ period is nearing an end. It will then reverse for a while – causing many of its new holders to jump ship. Invariably they switch into the ‘new’ three-year table topper, just as it too has peaked. And so it goes on. This is frustrating. There are plenty of excellent active funds, but they are frequently declared poor quality by performance-chasing holders. They expected the same kind of day-to-day consistency they get from their car. Sadly this is not realistic: in the funds world, you can have perfect consistency with sub-par relative returns (the tracker), or you can have outstanding relative returns on an inconsistent basis (well-run active funds). You cannot have both. We need to manage investors’ expectations and help our customers understand the above trade-off, which will hopefully make them more patient through the ‘bad-different’ patches.

We certainly believe that it’s possible to reduce the length and depth of the ‘bad-different’ by picking genuinely active funds, not quasi-trackers; and secondly not panic selling in the inevitable rough patch. Until we can get the drivers into the right cars, crashes, unfortunately, will happen. 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. 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. 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

Simon Evan-Cook Senior Investment Manager at Premier Asset Management

14 – PROVIDER SUPPORT

Risk management – sustaining client expectations

This is particularly important when we add alternatives to our portfolios, such as hedge funds. Investors are increasingly turning to alternative assets in an environment where it’s becoming necessary to take more risk for lower returns in equity and bond markets. While some hedge funds offer uncorrelated returns over the medium term, we put a lot of effort into ensuring the funds we use in portfolios do not have any short-term correlations with other asset classes. As an example, imagine a portfolio which was 100% long equity one month and 100% short the next, this would average out around zero in the medium term but at any given time you would directly be exposed to equity markets one way or the other. The same goes with standard, long-only fund managers. For instance, while many Japan fund managers view the Topix Index – which includes mainly large companies – as their benchmark, our analysis of their performance may reveal that they are in fact more correlated with the MSCI Japan Mid-Cap Index. Such a discrepancy can mean a fund behaves in a different way than expected in the portfolio and would therefore not be ideal. Ultimately, our risk management process aims to achieve one thing and one thing only: the best outcome for clients. We put considerable effort into understanding how the funds we have selected complement each other when used in various proportions in our portfolios. Only by conducting a thorough analysis of each underlying manager and closely monitoring portfolios basis can we achieve our intended result. Risk might create the fear of loss, but risk management should create the security afforded by meeting expectations. 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.

When clients think of investment risk, it tends to revolve around the potential for making a loss, whether small or substantial. While that is certainly true, the reality is that risk is a broad concept for investment managers that covers multiple facets. Rather than treat it as something negative, it is instead something to control so that an investment portfolio meets its objectives – a key element in managing client expectations. It’s easy for investment managers to say they have expertise in risk management given that it is a major aspect of their day-to-day operations. But effective risk management is more than a set asset allocation within risk bands and occasional portfolio rebalances to combat portfolio drift. The emphasis should be on ensuring portfolios maintain diversification so that there are no unintended risks or undesirable exposures. To do this, managing risk in portfolios has to be taken to a higher level. For example, it is no good for a balanced portfolio that has a 60% allocation to equities to experience a sudden exceptional drawdown. Outside of a market shock, this is not how a balanced portfolio should behave and this is not what investors would expect to happen. Many risk profiles can have fairly ‘blocky’ allocations to certain assets. Taking a balanced portfolio that holds 60% in equities as an example, it may in fact allocate 40% of the portfolio to international equities and 20% to UK equities, but not specify how much of this should be in large-cap, medium- cap and small-cap companies. The reason why this can be problematic is that it’s well known that small-cap companies do not behave in the same way as companies in the FTSE 100, so we shouldn’t view them as one and the same when meeting a portfolio allocation. We pay a lot of attention to managing portfolio drift. We will rebalance portfolios if it drifts above our thresholds when it’s necessary and not at specified calendar events, and this also applies to our tactical as well as risk allocations. Switching gears slightly, it is essential to analyse each underlying fund, be it active or passive, to understand their exposures and correlations with other asset classes. We achieve this by carrying out different modelling exercises so that we understand how individual managers have performed over time, often going back as much as 15 years to see how closely they track the most appropriate index for their strategy. This is important when managing a fund of funds because each underlying manager behaves in a different way.

James Saunders Deputy Head of Investment, Tatton Investment Management

16 – PROVIDER SUPPORT

SOLVING THE DEMENTIA DILEMMA

Dementia isn’t an inevitability in old age, according to latest research. Deepak Jobanputra at VitalityLife looks at what can be done in terms of prevention and protection.

The World Health Organisation (WHO) recently announced that there are ways to reduce the risk of dementia. After a comprehensive review of existing evidence, the WHO found that lifestyle factors such as poor nutrition, alcohol consumption, smoking and inactivity are increasing the chances of people getting the condition. This important announcement, is a welcome reminder of what people can do to lower the chances of getting this life changing condition. There are 850,000 people now living with dementia in the UK 1 , and this figure is set to rise. It is therefore vital that prevention is made a priority and people are encouraged to do all they can to reduce the risks. Exercise has been shown to be one of the key factors in cutting the chances of getting dementia. The WHO recommends that adults, including the elderly, should aim for at least 150 minutes of moderate intensity physical activity a week 2 . This is supported by recent Harvard Medical School research which showed that people who exercised more than three times a week were 34% less likely to be diagnosed with dementia than those who were less active 3 . However, despite this important evidence, levels of physical activity are actually declining in the UK. So what can be done to encourage people to be more active? Technology can play a part in incentivising people to exercise. In 2018, Vitality collaborated on a study with Apple and RAND which aimed to understand how people could be encouraged to live healthier lives. The study found that people who engaged with Vitality’s Apple Watch benefit saw an average 34% sustained increase in activity, equating to 4.8

extra days of activity per month. Data showed that activity increased across the full range of participants, regardless of age, gender or health status. This means that technology – in this case the effective use of wearables – to incentivise behaviour change can encourage people to become more active and so improve their health and wellbeing. This shift of focus to preventative care is significant for individuals, the insurance industry and wider society in terms of reducing the risk of getting conditions such as dementia. However, prevention isn’t the only consideration. One of the worst aspects of dementia is the wider implications it has for the sufferer’s family. It’s often they who, certainly initially, have responsibility for the care of their loved one. But who picks up the bill when that person doesn’t have a family that can help, or they need more extensive care? This is a debate that continues to rage in political circles. The government’s social care green paper has been in the works for a while and is expected soon. Ahead of this, the Rt Hon Damian Green MP published a paper (Centre for Policy Studies, 2019) that looked in more detail at funding models and solutions to provide care for those suffering from age related conditions such as dementia. Some of the suggestions for funding that he put forward included a taxation model, equity release, using existing savings and a new form of insurance. The challenge with most of these solutions is that they involve asking people to contribute towards conditions they may never get and they don’t necessarily align with the realities of life. It’s no secret that most people look at their short-term needs and don’t have the time or the inclination to look too far ahead or consider

the prospect of suffering from conditions like dementia in the future. The insurance industry is just one sector that can help protect people financially and enable them to retain their dignity and independence in later life. Much is dependent on what the forthcoming green paper proposes and how long those proposals take to implement, but what is certain is that the dementia dilemma isn’t going away. In fact, it’s likely to get much worse. Around 1 million people in the UK will have dementia by 2025, increasing to 2 million by 2050 4 . This will cost £66bn – over half the current NHS budget 5 . This means the country will also need about 1.7 million informal carers by that time, more than double the estimated number of people currently providing care 6 . These alarming statistics should provide the wake-up call we need to find solutions as soon as possible. July 2019. This article’s view is based on the law, practices and conditions as at the day of publication. While we have made every effort to ensure they are accurate, we accept no responsibility for our interpretation or any future changes. 2 World Health Organisation, Risk reduction of cognitive decline and dementia: https://www.who.int/mental_ health/neurology/dementia/guidelines_risk_reduction/en/ 2019 3 Harvard Medical School, A Guide to Cognitive Fitness:https://www.health.harvard.edu/mind-and-mood/ a-guide-to-cognitive-fitness 2017 4 Alzheimer’s Research UK, Prevalence by age in the UK, 2018. 5 https://www.dementiastatistics.org/statistics/cost-by- sector-in-the-uk/ Accessed May 2019 6 https://www.alzheimersresearchuk.org/wp-content/ uploads/2015/01/OHE-report-Full.pdf June 2014 1 https://www.alzheimers.org.uk/about-us/news-and- media/facts-media Accessed May 2019

PROVIDER SUPPORT – 17

Liquidity matters

Liquidity, or the ease of buying and selling an investment, has been at the centre of one of the big stories of recent months. Liquidity, or rather the lack-of, has contributed to the downfall of a number of former star fund managers. We look at how these situations came about and how at Architas we strive to avoid the pitfalls of investing in illiquid assets. Capturing the illiquidity premium Perhaps the greatest challenge for investors in recent years has been the quest for yield against the backdrop of central banks’ supportive action. Massive bond-buying programmes, also known as QE, have pulled bond prices higher, pushing bond yields lower. This has tempted fund managers who promise investors a certain level of yield to boost income by ‘capturing the illiquidity premium’. In simple terms, this means investing in assets which offer a higher yield because they trade in less liquid corners of the market. After all, a higher yield compensates for the risk of owning any particular asset. And that risk can be the lack of liquidity. Problems arise when fund managers are unable to meet client redemptions because they have too much invested in illiquid assets. Fall from grace Recent high profile examples are instructive, not least because their punishment was so dramatic. Consider a fund invested in large-cap stocks, a fairly trouble-free part

of the market. However, the fund is also permitted a ‘trash bucket’, investing in unquoted stocks, up to the 10% maximum allowed under the UCITS structure. After a period of underperformance, the fund is hit by redemptions. Holdings at the more liquid end of the portfolio are sold to meet the redemptions, meaning these illiquid stocks grow bigger and bigger as a percentage of the fund. Finally, the 10% limit is breached and the fund is closed to further redemptions, trapping investors for a period of time. Identifying potential liquidity traps So how best to side-step these traps? For the average equity fund manager, the process is a fairly simple one. By looking at the historical average trading volumes for a stock, a fund manager can judge if there is sufficient liquidity to exit a position if the stock becomes stressed. For a fund buyer, the puzzle is rather more tricky, as you are a step-removed from the assets. How to escape the illiquidity trap At Architas we have a set of metrics which we apply before investing in a fund. For some funds, such as investment trusts, daily averages of its trading volume are readily available. Otherwise, we can do this analysis and calculate an internal liquidity score. As a fund of funds specialist, we can also drill down into the underlying assets of a fund and analyse its portfolio positions. This is fairly difficult for most fund buyers to do.

We then apply our own scoring system, to judge where the investment sits on a scale between very liquid and very illiquid. We could use property as an example. It is obvious to anyone who has ever tried to sell property that the concept of daily liquidity just does not apply here. We also constantly monitor the underlying holdings of a fund, to gauge where liquidity and other risks might arise. This look- through analysis requires a good relationship with a fund manager, as these details are not typically found on a factsheet. A rule change? Where does regulation go from here? After a sequence of high profile, liquidity events it is likely that stricter limits will be applied. However, imposing tighter rules on existing funds risks triggering a wave of redemptions as investors look to exit before new rules come into force. The availability of a ‘10% trash bucket’ within the UCITS fund structure has proven to be problematic. Its use makes a fund at risk of suspending if it can’t meet redemptions and incentivises investors to be early redeemers, leaving loyal investors trapped with illiquid assets in a gated fund. The hunt for yield has only intensified over the last decade, which could continue to draw investors towards less liquid areas of the markets. For Architas, this makes continuous engagement with the fund managers we invest in, including close attention to their portfolio changes, ever more vital. This is for professional clients only and should not be issued to or relied upon by retail clients. Past performance is not a guide to future performance. The value of investments, and any income, can fall as well as rise and is not guaranteed. Architas Multi-Manager Limited (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/ Architas Multi Manager Limited is a company limited by shares and authorised and regulated by the Financial Conduct Authority (Firm Reference Number 477328). The company is registered in England: No. 06458717. Registered Office: 5 Old Broad Street, London, EC2N 1AD.

Solomon Nevins CFA, Senior Investment Manager

18 – PROVIDER SUPPORT

USING EIS AND VCTS TO MEET YOUR CLIENTS’ NEEDS

Scenarios to meet your clients’ needs Investing into EIS and VCTs can solve a range of investment scenarios. This includes: using EIS to diversify investment into private companies or defer capital gains tax on the sale of property or shares; using a VCT to achieve regular tax-free income; or using income tax relief from either to extract profit from a business tax-efficiently. For instance, a company owner wishing to realise a £100,000 dividend incurring 32.5% tax could invest the dividend into a VCT, which can deliver up to 30% tax relief to help offset this tax liability. As inheritance tax is often considered by older clients also drawing down from a pension, the combined income tax and inheritance tax benefits of EIS can make it an attractive proposition for the right client. Target investment criteria The new regulatory landscape for EIS and VCTs means investors can access higher-growth companies and support the SME backbone of the UK economy whilst benefitting from valuable tax reliefs and investments that can produce attractive growth or returns. However, growth-focused investing requires effective risk management. You should be able to assess the types of companies that qualify for EIS and VCT investment, know what managers look for and recognise investment criteria that helps mitigate risk. For instance, consider how closely an investment manager works with the companies in which they invest, how diversified their investments are, how they manage risk effectively and whether they work to de-risk by investing in scale-up companies versus start-ups. Our investment mandate At Puma Investments, we seek growing businesses with strong management teams who operate in sectors providing structural support for growth. Companies need clear and robust development plans, a profitable business model, an established offering and a visible exit. As EIS and VCTs are high-risk investments, our portfolio companies must always be proven in their marketplace. If you’d like to find out more about investing in this space, please get in touch with our business development team on 020 7468 7900. Risk factors An investment with Puma Investments carries risks, for more information please see below and visit www.pumainvestments.co.uk . Past performance is no indication of future results and share prices and their values can go down as well as up. An investment with Puma Investments can be viewed as high risk. Investors’ capital may be at risk and investors may get back less than their original investment. Tax reliefs depend on individuals’ personal circumstances and minimum holding periods, and may be subject to change. Some investments should be regarded as illiquid and it may prove difficult for investors to realise immediately or in full the proceeds. Puma Investments does not provide tax advice.

Introduced by the government in the 1990s to encourage growth investment into small and medium-sized businesses (SMEs), the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) can support your clients’ financial planning needs in different ways. To attract investment into SMEs, which is important for the UK’s future economic prosperity, EIS and VCTs come with some significant tax breaks. Both can offer low correlation to mainstream capital markets and, given the relatively recent caps on annual pension contributions, both can help investors save tax-efficiently for their retirement alongside pension contribution allowances. VCT key features VCTs are publicly-listed companies and investors hold shares in the trust itself, providing up to 30% annual income tax relief on a maximum investment of £200,000. To maintain the relief, shares must be held for a minimum of five years but can be held for much longer. Alongside potential growth, other key benefits include tax-free capital gains and dividends. These tax-free dividends often attract clients who, whilst potentially benefitting from upfront income tax relief, are also looking for income over the life of the investment. EIS key features Unlike VCTs, an EIS investment is made directly into unquoted trading companies – whether a single company or a portfolio of companies managed by an investment manager like Puma Investments. There are numerous tax incentives for taking the risk associated with investing into these businesses, including up to 30% income tax relief (on up to £1 million in any tax year or £2 million if anything above £1 million is in ‘knowledge intensive’ investments). Other tax incentives include 100% capital gains tax deferral for the life of the investment, Business Relief qualification giving 100% inheritance tax relief, tax-free growth on any gain, and loss relief where any loss made on EIS shares can potentially be offset against capital gains or income. Investments need to be held for a minimum of three years, but it could take four or five years to be fully invested into each of the companies. As EIS investments aren’t tradeable or readily realisable, investors should be comfortable with a long-term investment horizon to enable time to invest and potential growth. And as EIS doesn’t offer tax-free dividends, investments focus on generating long-term growth rather than delivering a regular yield. You can see some of the differences between EIS and VCT investments in the table below. Reflecting their growing popularity, 2018-19 recorded the second largest VCT fundraise to date, at £731 million.

Karen Sullivan Head of Strategic Partnerships, Puma Investments

1 Provided that at least £1 million is invested in ‘knowledge intensive’ companies. Please note: this is a high-level summary and not all VCT/EIS investments will have the characteristics set out above. Tax reliefs depend on the individual investor’s circumstances and may be subject to change.

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