Investment and Retirement Focus | Summer issue

INVESTMENT & RETIREMENT F CUS

A Tenet Group Publication Issue 10 | Summer 2020

A focus on… Supporting you throughout this challenging time

Are you up to speed on vulnerability

ALSO IN THIS ISSUE: Getting close to vulnerable customers during social distancing Positioned to take advantage of

Tenet Online Events 2020 Supporting your development How 3 advice firms transformed their client review process

recovering markets Pension Drawdown -

a useful tool for inheritance tax planning? What lessons should we learn from cuts to dividends?

ARE YOU up TO SPEED ON vulnerability? Protecting vulnerable consumers is a key priority for the FCA and vulnerability, whether actual or potential, can affect anyone – regardless of wealth or age.

Latest thinking from FCA

How many clients do you record as vulnerable?

FCA EXPECTATIONS: 50% customers could be vulnerable at some stage.

The FCA’s Guidance Consultation 19/3 highlights three key areas for f irms to focus on: 1 Understanding the needs of vulnerable consumers 2 Developing skills and capability of staff 3 Taking practical action

66% FIRMS REPORTING: Less than 5% customers are vulnerable*

40% FIRMS REPORTING: Less than 1% customers are vulnerable*

(*Source: Just report “Dealing with vulnerable customers: the industry response” , Jan 2019).

We’ve teamed up with the Society of Later Life Advisers to produce free online training that’s designed to give you: 1 An in-depth understanding of what constitutes vulnerability, how to identify it and adapt working practices appropriately. 2 A test to help you and colleagues evidence your knowledge . 3 One hour of CPD and the Certificate in Older and Vulnerable Consumer Care if you pass the test. BENCHMARK AND BOOST YOUR VULNERABILITY KNOWLEDGE

Great reaction to the training:

Surprised at who would be classed as vulnerable and you don’t always link it to the situation you

are dealing with.”

Recognised by the FCA as an example of good practice in their latest paper on vulnerable customers, GC 19/3.

If you’ve dealt with someone for years

you would take for granted everything’s always fine.”

Get THE TRAINING HERE justadviser.com/free_vulnerabilitytraining

View our recent webinar ‘Who are you calling vulnerable?’ on-demand here: justadviser.com/webinar-library

FOR MORE INFORMATION

0345 302 2287 Lines are open Monday to Friday, 8.30am to 5.30pm

support@wearejust.co.uk

justadviser.com

Please note your call may be monitored and recorded and call charges may apply.

1314354.1

03/2020

INVESTMENT & RETIREMENT FOCUS | 3

Foreword From the Editor

CONTENTS

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Welcome to the summer issue of Investment & Retirement Focus.

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A Picture Paints a Thousand Words…. Enhancing client engagement with cash flow modelling

Since the last issue there has been for everyone major upheaval in the way we currently work and live since the introduction of lockdown. Just to reassure you that Tenet recognise the challenges faced at the moment, with advisers struggling to keep up with the daily changes to product ranges, services and underwriting criteria. As your support provider we are making every effort to help our advisers as much as we can to continue delivering a quality service. We open this edition with an article from one o f our Paraplanners, Jennifer Lancaster, based in our Technical Services & Research department, who demonstrates how cash flow modelling can help your clients understand their protection needs during these uncertain times. Also featured: Dynamic Planner’s article asks, How do you upgrade your review process for clients - so it is repeatable, saves you time and demonstrates your firm’s value? Inside, three firms tell us how they achieved it. Simon Evan-Cook, Senior Investment Manager for Premier Miton’s multi-asset funds, introduces Goodhart’s Law and explains it’s a big dynamic driving markets and economies today. As credit spreads have widened to their highest level in many years, opportunities have arisen for bond managers to add yield to their portfolios and build on future income streams. Co-Head of Invesco’s Fixed Interest Team, Paul Causer, provides an update on his portfolio positioning on page 15. Andrew Tully, Technical Director at Canada Life looks at whether pension drawdown can be a viable IHT strategy in retirement, or stick to what it knows best – providing a tax- free lump sum and a flexible income. Dividends have been a vital part of equity returns in recent years, particularly given the low growth environment. However, the expectation of widespread dividend cuts in response to the coronavirus pandemic is putting portfolios under pressure. What might be the lessons for income-seeking equity investors? Read Vanguard’s full article on page 17. I hope you find the content in this issue helpful and supportive. Here’s hoping the summer weather is kind to us, wishing you and your families the very best.

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Tenet Events 2020 Supporting your development

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Dynamic Planner How 3 advice firms transformed their client review process

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P remier Miton Investors The Law of the Land?

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I nvesco Positioned to take advantage of recovering markets V anguard What lessons should we learn from cuts to dividends?

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18-19 T atton Investment Management We’ve got your back

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Kind Regards Cristina Marketing Consultant

EDITOR Cristina Giovanelli

Tenet Group Limited, 5 Lister Hill, Horsforth, Leeds, LS18 5AZ Tel 0113 239 0011 Fax 0113 239 5322

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.

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Jennifer Lancaster Paraplanner, Tenet Group

A Picture Paints a Thousand Words…. Enhancing Client Engagement with Cash Flow Modelling Cash Flow Modelling (CFM) is a visual way to engage with your clients, allowing

Cash flow modelling will show your client, in black and white, whether their current financial circumstances will be sufficient to meet their future financial goals and aspirations, when considering the impact of unexpected events on their financial circumstances. Visualising the impact via a cash flow modelling report is powerful and will help underpin your recommendations for other products too, whether that be mortgages, pensions or investments. Paint The Picture – Case Study Tim (40) and Sarah (38), have two children, Emma (6) and Billy (4). Tim works full-time and Sarah works part- time. Their adviser, Kate has input their income and expenditure (including the mortgage repayment) into the cash flow modelling tool. Through cash flow modelling, the adviser is able to demonstrate that, at present, Tim and Sarah have sufficient income to cover their expenditure and to save for their future. They haven’t taken out any financial protection policies in the past, as they are young and haven’t thought it necessary. Kate then goes on to demonstrate how their circumstances would be affected if Tim was diagnosed with a critical illness at age 42

when discussing financial planning needs and requirements. It can be used in both initial client meetings and ongoing reviews, providing structure to your discussions with your clients. The Current Climate Although most clients have multiple protection needs, the affordability of financial protection premiums during these challenging times may come into question. Many advisers will be dealing with clients on a reduced salary and therefore it is imperative that your clients’ policies remain affordable and within budget. Financial Protection is one area where advisers can really add value at this time. CFM can help when: n Demonstrating the sum assured required to allow clients to continue their current lifestyle, in the event of changes in their circumstances, n Determining the effects of taking out a policy versus not taking out the policy, n Demonstrating the ongoing affordability of premiums, n Sharing a range of options by comparing multiple scenarios quickly and easily and discussing the impact of choosing one policy over another.

you to discuss ‘what if’ scenarios at the touch of a button, and can enrich the client/adviser relationship. The technology is already widely used for retirement planning, particularly for pension drawdown cases. A thorough and comprehensive cash flow plan should not take hours to create, the most important part of the client/adviser relationship is to ensure the client is engaged and able to interact in the planning process. The ability to bring to life different scenarios and adapt the model to your clients’ circumstances during a review is an extremely powerful tool. Cash Flow Modelling and Protection Advice Protection discussions can prove to be a difficult conversation to have with your client. CFM can be used to provide a detailed picture of a client’s circumstances versus the implications of premature death, disability or accident. It offers a visual starting point for protection discussions before deciding which strategy to adopt. CFM is a tool that can be used with customers face to face as well as remotely, enabling clients to visualise themselves

INVESTMENT & RETIREMENT FOCUS | 5

“If information is presented orally, people remember about 10%, tested 72 hours after exposure. That figure goes up to 65% if you add a picture.” 1

pension contributions from his employer once he was forced to leave work, however, they would be able to maintain their current standard of living. Kate has clearly demonstrated when they would be most affected financially, resulting in the clients agreeing to set up the recommended policy. Client Retention and Compliance We can see in the case study how a Critical Illness could impact this family unit in both the short and long term. By proving the sum assured required and demonstrating the affordability of premiums, the adviser has safeguarded Tim and Sarah’s future. Utilising a Cash Flow Modelling tool ensures the recommendations you make to your client are robust. They are tried and tested under various scenarios to ensure the correct policies are recommended, and they will set you apart from other firms selling protection products. Your client will thoroughly understand their financial future, which will assist you in building that all important trust between you and your clients. 1 Dr. John Medina, in his book Brain Rules talks about the Pictorial Superiority Effect (page 233-234)

and was unable to work again. As Tim and Sarah currently have no cover in place, they do not have alternative means to replace the lost income. Their situation would change dramatically, resulting in a substantial shortfall in their income between the start of Tim’s illness and age 57, which is the earliest age Tim would be able to access his workplace pensions to top up their income. Through cashflow modelling, Kate is able to visually demonstrate the level of financial protection required and the impact on their lifestyle had they suffered a Critical Illness with appropriate insurance in place. By demonstrating how a Critical Illness Policy could benefit Tim and Sarah, and showing that the monthly cost is affordable and within the budget they discussed when inputting their income and expenditure, Kate is able to arrange cover that would allow their existing monthly expenses to be covered until they are able to access their pensions to cover the shortfall. They are still able to go on holiday each year and keep their home. Tim and Sarah’s pensions wouldn’t be worth as much in retirement following a critical illness as Tim would not receive

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First quarter data confirms COVID-19 impact projections do suggest the global economy will bounce back in 2021 as economic activity normalises, the uncertainty caused by the pandemic is clearly placing huge pressure on economies all around the world. braced Global economy In its latest ‘World Economic Outlook’ published in mid-April, the International Monetary Fund (IMF) warned the necessity of imposing COVID-19 lockdown measures will result in an economic contraction much worse than witnessed during the 2008–09 financial crisis. Fast- forward four weeks and the international soothsayer was already backpedalling, as a raft of subsequently released stats proved even weaker than had been assumed in its base forecast. While IMF

The pandemic has already inflicted an enormous human cost right across the globe. The worldwide response, which has involved governments’ imposing a raft of necessary protection measures designed to combat the spread of the disease, has inevitably had a severe impact on global economic activity. Economic contraction across Europe Indeed, first quarter gross domestic product (GDP) statistics have provided a foretaste of the huge impact the pandemic is set to wreak across the global economy. In the UK, for instance, economic output fell by 2% in the first three months of 2020, with GDP contracting 5.8% in the month of March alone. Data for the 19-country Eurozone revealed an even bigger first quarter decline, with growth across the whole bloc contracting by a record 3.8%. Both France and Italy, the second and third largest Eurozone economies, were plunged into recession, recording quarterly contractions of 5.8% and 4.7%, respectively. While the German economy performed less badly, it also fell into recession with growth in the January– March period declining by 2.2%. Japan slips into recession The Japanese economy was already suffering from a sharp decline in consumer spending following a sales tax hike last October and the coronavirus outbreak has compounded the country’s economic problems. The world’s third-largest economy contracted at an annualised rate of 3.4% in the opening three months of this year; a second successive quarterly decline, thereby meeting the technical definition of a recession. Exports in the first quarter suffered their largest decline since the country’s devastating 2011 earthquake, as worldwide lockdowns and supply chain disruptions severely hit shipments of Japanese goods. The nation now inevitably looks set for its deepest post-war slump as the coronavirus crisis continues to ravage the economy.

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for record slump

Would you like a Monthly Economic Review or a range of other literature - customised with your logo and contact details, ready to send to your clients in a variety of formats? Why not consider subscribing to the Tenet Client Communication Package for £650 plus VAT per year? The Package gives you unlimited access to a range of professionally-written and professionally-designed materials - pre-approved by Tenet Compliance and available as PDF, HTML or print (extra cost applies to print). It is a very cost- effective subscription service, enabling you to enhance your ongoing service proposition and have regular contact with your clients. Communication Package Special Offer: Buy now, pay later In addition to our comprehensive toolkit, we have also introduced a package of client-facing 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. At a time when everyone’s finances are uncertain, our ‘Buy now, Pay Later’ special offer will help you to communicate with clients when it’s most needed – get in touch for further details . Please contact us if you would like to see samples of the following items: Monthly Economic Review, Monthly Property Market Reviews, Quarterly Newsletters, Budget Updates, Tax Guides and various Topic Guides. If you would like an online demo, have any questions or would like to order the Communication Package, please call 01279 657555 or email

US growth streak ends The latest GDP figures released by the Bureau of Economic Analysis showed that output in the US also declined during the first quarter of 2020. According to preliminary estimates, the world’s largest economy shrank at an annualised rate of 4.8% during the January–March period, the lowest recorded GDP figure since the nadir of the financial crisis in the final quarter of 2008. This contraction ended the US economy’s record expansion streak which had stretched right back to the second quarter of 2014. The government attributed the decline to ‘stay-at-home’ orders issued by governors as the coronavirus pandemic brought swaths of the country’s economy to a shuddering halt during March. China abandons growth target Official data released by the National Bureau of Statistics also confirmed that output in China contracted during the first three months of the year, with the economy shrinking at an annualised rate of 6.8%. This was the first recorded contraction in the world’s second-largest economy since at least 1992, when official quarterly growth statistics were first published. The Chinese authorities have also announced they will not be setting a specific growth goal for this year but will instead focus on stabilising employment and ensuring living standards. This appears to be an acknowledgement of the significant challenges the country now faces with a struggling economy and rising international hostility due to the fallout from the COVID-19 outbreak. Sharpest downturn since 1930s Unsurprisingly, the IMF’s latest economic assessment, which was published before first quarter GDP figures had been released, paints a sombre picture of global economic prospects. The central projection suggests the world economy will contract by 3% during 2020 as a result of the coronavirus- driven collapse in activity. This would represent the steepest economic downturn since the Great Depression of the 1930s. This baseline prediction assumes that, in most countries, COVID-19 outbreaks peak

during the second quarter before fading across the second half of the year, with business closures and other containment measures gradually easing. However, the IMF also suggested that a longer pandemic lasting through the third quarter could cause a further 3% contraction during 2020. In addition, the IMF subsequently signalled a potential downward revision to its April forecast after first quarter economic data for many countries came in below the fund’s already pessimistic assumptions. IMF managing director, Kristalina Georgieva, said: “With no immediate medical solutions, more adverse scenarios might unfortunately materialise for some economies. It is the unknown about the behaviour of this virus that is clouding the horizon for projections.” Potential rebound in 2021 While the IMF has stressed that its predictions are marked by ‘extreme uncertainty’ , it is forecasting a rebound next year with the global economy expected to grow at a rate of 5.8% as activity normalises. However, if a second COVID-19 outbreak did occur during 2021, forcing further lockdowns, then that could result in a reduction of between 5–8 percentage points from this baseline figure; effectively keeping the world in recession for a second consecutive year. The IMF also warned that any rekindling of the US-China trade dispute could jeopardise a potential recovery. Since the pandemic hit the US, President Trump has become increasingly aggressive towards China and on a number of occasions, has threatened to punish China for its handling of the coronavirus outbreak through the imposition of new tariffs. However, the IMF has urged both countries to resist reigniting geopolitical tensions. Uncertain times ahead Continuing uncertainties surrounding the future spread of COVID-19 and the likely success of efforts to develop a vaccine and therapies to counter the virus, make it extremely difficult to predict the most likely path for the global economy over the coming 12 months. One thing though does seem to be apparent: this ongoing health crisis will continue to have a severe impact on economic activity.

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

8 | INVESTMENT & RETIREMENT FOCUS Tenet Online Events Programme 2020 Supporting your development We’re pleased to announce that our online events programme will continue, throughout autumn, beginning on 1st September. We encourage you to attend as many online events as possible, not only to satisfy your CPD requirements, but to keep your knowledge and understanding of industry changes and developments at the highest level. All of our events are free to attend, and open to advisers, praraplanners and administrators.

Invest Two Online These events focus on investments and pensions. The events are designed to meet advisers’ development needs and provide a valuable insight into the current markets. They will offer a variety of important information from a wide range of provider partners, Tenet’s senior management and Tenet adviser training. Total CPD available: 5 hours structured & 45 minutes unstructured Book your place: https://events.tenetgroup.co.uk/ADP2020

Online Events available to watch On-Demand Our events programme moved online in April, and, if you didn’t manage to view any of the online events live, those that have already taken place are now available to view on-demand, at any time. Reflective statement documents can be downloaded from the online event pages.

Invest One Online

Online Event Date

Time

Length of sessions: A mixture of 30 minute structured CPD sessions and 5 minute elevator pitches Total CPD available: 4 hours and 30 minutes structured CPD & 45 minutes unstructured Access Invest One Events online: http://webinars.tenetgroup.co.uk/invest-one-2020

Tuesday 1st September 2020 Thursday 3rd September 2020

1.00pm - 2.40pm 1.00pm - 2.30pm

Monday 7th September 2020 1.00pm - 2.30pm Wednesday 9th September 2020 1.00pm - 2.30pm Friday 11th September 2020 1.00pm – 2.20pm

Invest Business Focus Events Online

Protect Two Online These events will focus on the protection market. With Tenet and the industries 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. Our provider partners will also look at other ways you can obtain further IDD CPD. Total CPD available: 4 hours and 10 minutes IDD CPD & 1 hour structured CPD Book your place: https://events.tenetgroup.co.uk/ADP2020

Length of sessions: 30 minute structured CPD sessions and 5 minute elevator pitches Total CPD available: 5 hours and 30 minutes structured & 55 minutes unstructured

Access Invest Business Focus Events online: http://webinars.tenetgroup.co.uk/BFE-Invest-1

Specialist Investment Workshops Online

Length of sessions: 30 minute structured CPD sessions and 5 minute elevator pitches Total CPD available: 3 hours and 30 minutes structured & 35 minutes unstructured Access Specialist Investment Workshops online: http://webinars.tenetgroup.co.uk/specialist-Investment-1

Online Event Date

Time

Tuesday 29th September 2020 Thursday 1st October 2020 Tuesday 6th October 2020 Thursday 8th October 2020

1.00pm - 3.00pm 1.00pm - 3.00pm 1.00pm - 2.30pm 1.00pm -2.20pm

Protection Seminars Online

Specialist Investment Workshops Two Online These events 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. Total CPD available: 4 hours structured & 40 minutes unstructured Book your place: https://events.tenetgroup.co.uk/ADP2020

Length of sessions: A mixture of 30 minute, 15 minute and 5 minute IDD CPD Total CPD available: 2 hours and 55 minutes IDD CPD Access Protection Seminars online: http://webinars.tenetgroup.co.uk/protection-seminar

BOOK YOUR PLACE TODAY You can book our events online – simply visit: https://events.tenetgroup.co.uk/ADP2020 If you have any queries, please call the events team on 0113 239 0011, ext. 8132 or email events@tenetgroup.co.uk

Online Event Date

Time

Tuesday 13th October 2020 Thursday 15th October 2020 Tuesday 20th October 2020 Thursday 22nd October 2020

1.00pm - 2.30pm 1.00pm - 2.30pm 1.00pm - 2.30pm 1.00pm - 2.30pm

INVESTMENT & RETIREMENT FOCUS | 9

WELCOME TO THE TENET MARKETING TOOLKIT New Coronavirus support materials

Don’t forget that your membership gives you access to a free marketing toolkit which you can utilise to receive branded marketing support items for your business across a wide range of themes. So far, during the crisis, we’ve supported our members by personalising nearly 70 Coronavirus client-facing information sheets, to help you keep in touch with people when they need it most. Plus, we have also produced a range of compliance approved social media posts, tailored for use in the current climate.

NEW! PRE-APPROVED COVID-19 SOCIAL MEDIA POSTS We’ve produced a new range of pre- approved Covid-19 social media posts as part of our Marketing Toolkit service to help you engage with your clients on social media during this uncertain time. Click to view within Tenet’s Marketing pages on the extranet https://extranet.tenetgroup. co.uk/grow-your-business/ marketing-toolkit/social-media- posts/coronavirus-posts

NEW! CORONAVIRUS CLIENT INFORMATION SHEETS Based on your feedback, we’ve created white labelled versions of our popular client-facing Coronavirus bulletins, to which we can add your company logo and contact details. Click to view within Tenet’s Marketing pages on the extranet https://extranet.tenetgroup. co.uk/grow-your-business/ marketing-toolkit/coronavirus- support

PLEASE VISIT OUR DEDICATED CORONAVIRUS (COVID-19) AREA ON THE EXTRANET To support you and your business, we’ve created a dedicated area within the extranet for all our Coronavirus related support and materials, so please use this as your first port of call which you can access from the home page of the extranet. To help you easily navigate to the support you need, it has been divided into the sections, which each show a summary of what they include.

BUSINESS SUPPORT Support available from Tenet, the Government and other third parties to support your business. https://extranet.tenetgroup.co.uk/news--views/ coronavirus-covid-19/business-support

TECHNICAL SUPPORT Technical support, market commentary and lender & provider updates from Tenet’s TS&R Team. https://extranet.tenetgroup.co.uk/news--views/ coronavirus-covid-19/technical-support

COMPLIANCE & REGULATION News and guidance on regulatory developments and data security in response to COVID-19. https://extranet.tenetgroup.co.uk/news--views/ coronavirus-covid-19/covid-19-compliance

WELLBEING Here we share some useful information in relation to working from home at this time of unprecedented change. https://extranet.tenetgroup.co.uk/news--views/ coronavirus-covid-19/wellbeing

To find out more about Dynamic Planner and to discuss your options as a Tenet Group member for 2020-21, call the Dynamic Planner Client Success team on 0333 6000 500 or email support@dynamicplanner.com

► Accurately risk profile your clients

► Adopt a consistent client review

through market-leading attitude to risk, investor experience and capacity for loss questionnaires ► Email your clients a secure link to complete risk questionnaires on their own, remotely prior to a meeting ► Match your clients with suitable investment portfolios, selecting from more than 1,400+ solutions, risk profiled by Dynamic Planner each quarter to ensure their ongoing suitability ► Avoid rekeying your clients’ data through full use of powerful, two-way integration with leading back office system Intelligent Office ► Quickly and accurately risk profile a client’s existing portfolio – and make suitable recommendations if rebalancing is required

process, which meets annual MiFID II requirements ► Cloud-based technology enables efficient and effective collaboration among advisers and support teams – and unlocks capability to increase the number of clients your firm serves ► Improve your clients’ understanding of how their money is invested – and demonstrate your firm’s real value - with holistic view of portfolio performance in high quality, easy to understand reports ► Screen share reports and insightful portfolio analysis with clients remotely, in tandem with popular video chat platforms like Zoom ► Use new goal and risk-based Dynamic Planner cash flow – a major upgrade coming soon in 2020 – to ensure a single, seamless definition of risk runs throughout your firm’s centralised investment proposition

www.dynamicplanner.com/tenet

INVESTMENT & RETIREMENT FOCUS | 11

How 3 advice firms transformed their client review process

How has the Dynamic Planner Client Review been adopted at your firm? Clare Edes: “It has allowed our admin team to do more work around client reviews. Before, it wasn’t cost effective for us to do that. Using Dynamic Planner, they can enter a lot of the information for a review and the adviser can then login themselves and review it and make any amendments. It’s a lot easier than having lots of different emails being sent.” Neil Gilbourne: “It makes the whole process of completing a review for a client easy. As the adviser, you can personalise wording within the report, so it includes different wording around how risk has been discussed and what the client is trying to achieve etc. That information can then be sent back to the admin team to include within the report. “Everything is repeatable, quick and easy - and every client receives the same service, whatever the size of their portfolio. From a compliance and suitability perspective, Dynamic Planner is absolutely brilliant.” Susan Hill: “The review report in Dynamic Planner allows me to include all of my charges for a client and in some cases, it made me realise that I wasn’t getting paid enough for the work I was doing. It opened my eyes and highlighted clients which weren’t profitable for the business. “What ultimately Dynamic Planner does is allow me to give a good service for clients, who don’t need much ongoing service and then free me up for those clients I really should be working harder for, because both I and they can see how much I’m charging. It has revolutionised my review service for clients. I’m really proud of what we’re doing now.”

Neil Gilbourne: “That’s exactly right. It allows you to save time doing normal, everyday things and then spend that time on more complex cases. The report itself is completely flexible and allows you to include as much or as little portfolio analysis as you want. You can then tailor it to the individual client.” Is Dynamic Planner’s Client Review saving you time as a firm? Neil Gilbourne: “Too much time is the short answer to how much time it was taking us to complete reviews before. Now it really is the click of a button. It might take 10 minutes to prepare a simple review for a client. If it’s more complicated, it’s still no more than half an hour.” Susan Hill: “Previously, it was taking me about six hours to complete a review for a client. Using Dynamic Planner, I have now reduced that to four hours. I have 100 clients, so that’s 200 hours a year. That’s really good.” What were the challenges to adopting Dynamic Planner’s Client Review? Neil Gilbourne: “It’s never easy to get a group to take something new on board. People fear change and yes, there were teething problems, but once we got over those, it was easy – really easy for us, as a firm, to adopt an approach to annual reviews which is the same every time.”

At this year’s Dynamic Planner Annual Conference - in London in February, before the coronavirus crisis and lockdown impacted the UK - representatives from three advice firms took centre stage to discuss how they have adopted Dynamic Planner’s Client Review process and report, launched last summer, and how it has been a huge help. Here is what they said. What was your firm’s client review process prior to adopting Dynamic Planner? Financial adviser Susan Hill, of Susan Hill Financial Planning in Hertfordshire: “I had a template in Word for annual reviews, which was time consuming. Then, MiFID II came in and you had to include so much more information. It was dragging me down and it was hard work.” Financial adviser Neil Gilbourne, of Nottinghamshire firm 3R Financial Services: “It was just chaos. We had no definitive structure; nothing was repeatable; and we had so many data points. It was really just a mess and when you actually looked at it, annual reviews were accounting for 60 per cent of turnover for the firm.” Compliance Manager Clare Edes, of Skerritts Chartered Financial Planners, in London and East and West Sussex: “All our advisers had their own review process, which meant that the admin team had to know all those different processes if they were going to effectively support them. With MiFID II coming in, we weren’t sure we were able to carry on in that way.”

Find out more at www.dynamicplanner.com/elements

INVESTMENT & RETIREMENT FOCUS | 13

The Law of the Land?

Simon Evan-Cook, Senior Investment Manager for Premier Miton’s multi-asset funds, introduces Goodhart’s Law and explains it’s a big dynamic driving markets and economies today.

when the stock market rallies. It’s worrying because politicians’ efforts, particularly amid this pandemic, risk becoming focused on just the largest companies, as they dictate the direction of the indices. Smaller, particularly non-listed companies have little or no impact on performance of the better- known indices, so they risk falling down the list of priorities for politicians. Large-cap share prices have performed far better than small caps this year. At the same time, many smaller, private businesses are going under. This suggests big companies are benefiting more from the stimulus. But, like any ecosystem, smaller constituents (say, bees) matter for the health of the larger parts (like humans). Smaller companies collectively employ more people, so if they suffer, consumers’ purchasing power suffers too, which hurts companies of any size. So, while stimulus may have helped market-cap weighted indices to rebound, investors should assess whether this is backed by economic reality, and not just Goodhart’s Law on a massive scale. Find out more For more information about Premier Miton’s funds, contact our Business Development team on 0333 456 9033 or email info@premiermiton.com .

matters relating to investments should always speak with a financial adviser before making an investment decision. For your protection, calls may be monitored and recorded for training and quality assurance purposes. Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited whose funds rose while tech-heavy indices funds sold off. But the move to index investing resumed in 2008, and has snowballed over since. Index investing has now, worryingly, elevated Goodhart’s Law to a national level. Being so widely held, indices like the S&P500 are now (wrongly) viewed as measures of how well the economy is doing. This means they’ve become targets for politicians; witness President Trump’s tweets Managers realised they had to beat this target or they’d lose clients. So they changed their behaviour: Instead of analysing a selection of available companies, then buying the ones they thought were good, they started paying much more attention to what the index was doing. If they missed a big company that did well, they’d lag the index and lose their job. So they bought them all. Sadly, this meant that increasingly fewer managers could beat that index, because they weren’t sufficiently different from it to outpace their charges. This led to a wave of closet-tracking funds that peaked in the late 90s. At that point, clients began to twig that, if most managers were copying the market, they may as well cut them out and buy a cheaper index fund instead. There was a hiatus when the tech-bubble burst in the early noughties, as fund buyers flocked back to active value managers,

Important information For information purposes and only to be issued to investment professionals. It is not for circulation to retail clients. It expresses the opinion of the author and does not constitute advice. Reference to any particular stock does not constitute a recommendation to buy or sell a stock. Persons who do not have professional experience in get from a bank account. But they soon realised they didn’t know if their manager was good, or just riding a stock market that was going up anyway. So they started, quite reasonably, measuring their manager’s performance against a stock market index. Enter Goodhart’s Law: The index had been a measure, but now it became a target. Have you come across Goodhart’s Law? The law states that “when a measure becomes a target, it ceases to be a good measure”. You can see this across all walks of life. Business owners, for example, often assess the goals they want their staff to achieve, then measure them and award bonuses accordingly. This sounds sensible, but Goodhart’s Law can trip it up. When staff know what the key measures are, they will change their behaviour to match them. This might work, as employees focus more on activities that the owner considers to be important to the firm. But it might not: by focusing only on the measured activities, they may neglect parts of their job that the owner either didn’t realise were important, or begin to ‘game’ that measure to boost their pay. For the investment industry, benchmarks are the obvious example. The industry’s roots were simple: Clients paid an investment manager to pick a selection of good shares, and hoped they made money. At first, clients were simply happy to make more than they’d

is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE. 15052017172

14 | INVESTMENT & RETIREMENT FOCUS

Now that the nation is in lockdown, it seems the term ‘vulnerable‘ is being used more than ever. If ever there was a time to focus on how we improve the experience and outcomes for the most vulnerable, surely now is that time. The FCA has said that they want doing the right thing for vulnerable customers to be deeply embedded into firms. But how do you go about that now that we have the challenges of coronavirus and social distancing? The key is to maintain contact. Getting close to vulnerable customers during social distancing.

Keep in touch! Perhaps the most important thing is to simply stay in contact. According to consumer groups, there’s a danger of poor outcomes when consumers feel excluded or disengaged, and social distancing by definition leads to less contact with friends, family and colleagues. Certainly in person anyway. Those with appropriate policies in place may be able to easily identify their most vulnerable clients and may have already made them a priority for contact and reassurance. Understanding how clients and their families have been affected by coronavirus and seeking to understand their concerns is a good starting point. However, we need to be mindful that people may want to receive ongoing contact in different ways, and with different levels of regularity. Clearly, technology can play a role here, though this may present a challenge to some who may not be familiar with the technology that you wish to use. Understanding what would be easiest for them may require a degree of flexibility.

For some, it may involve liaising with other family members who may be living with, or in communication with, the client to help them navigate the devices and systems used. Let’s also not forget that well-known piece of tech – the telephone! Be Scamsmart Firms also need to keep in contact with clients during this period to ensure that clients know how to protect themselves from scams. This is reiterated in the FCA’s latest guidance, but has also been highlighted in respect of ‘corona-scams’. Right now, people are concerned about the performance of their pensions and investments. Add to that the anxiety caused by the spread of the virus, and it’s clear they need a trusted adviser to ensure that they don’t fall foul of some of the convincing tricks being used. Firms should be aware of the updates on the FCA’s ScamSmart pages and be able to advise clients of the key signs and what to do. Certainly, it would be a good idea to urge clients to speak to you before making any major financial transactions. But simple things like pointing out the

dangers in engaging in unsolicited calls or email correspondence could literally save someone a fortune. Get more vulnerability support There is a whole suite of resources available at justadviser.com that will help you to identify the key areas of focus identified by the FCA, along with articles and aide memoires with specific action points you can take to help guide people through this difficult period and beyond. Whilst these are challenging times, advisers really can make a huge difference to the outcomes of clients and their families and develop a vulnerability policy that is fit for the future. FOR MORE INFORMATION Call: 0345 302 2287 Lines are open Monday to Friday, 8.30am to 5.30pm Email: support@wearejust.co.uk Or visit our website for further information: justadviser.com Please contact us if you would like this document in an alternative format.

INVESTMENT & RETIREMENT FOCUS | 15

Positioned to take advantage of recovering markets Paul Causer, Co-Head of Fixed Interest, Invesco

The Invesco Monthly Income Plus Fund (UK) can take risk and has the flexibility to exploit opportunities across a wide universe so that it can deliver income to investors.

those securities at their true value. These risks increase where the Fund invests in high yield or lower credit quality bonds. The fund has the ability to make use of financial derivatives (complex instruments) which may result in the fund being leveraged and can result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment. The fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. As one of the key objectives of the fund is to provide income, the ongoing charge is taken from capital rather than income. This can erode capital and reduce the potential for capital growth. The fund may invest in contingent convertible bonds which may result in significant risk of capital loss based on certain trigger events. The fund’s performance may be adversely affected by variations in interest rates. For the most up to date information on our funds, please refer to the relevant fund and share class-specific Key Investor Information Documents, the Supplementary Information Document, the Annual or Interim Reports and the Prospectus, which are available from the Invesco website. Issued by Invesco Fund Managers Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

For a long time, the yields in areas of our markets have been relatively unattractive. But now things are in flux. Corporate bonds offer more spread at the asset class level than they have for years and the same can be said for sections of financial debt. At the level of individual bonds, we think there are bargains to be had. Stocks also offer the potential for real capital gain. At the same time, government bond yields have hit new lows – income provision from gilts and bank deposits is likely to be paltry indeed. We have always sought to position the fund to produce income while at the same time seeking to protect investors when markets were expensive and add risk during periods in which the balance of risk and reward was attractive. This approach was adopted during similar periods such as 2008-9 and 2011. Recent fund activity has seen us begin to add in areas of the bond market that offer attractive yields. But we are not in a rush. In high yield we have added in small size to bonds we know well at prices from the mid-50s up into the 90s. We also added a couple of better-quality oil majors. In financials we added to senior bank debt, legacy tier 2 and CoCos. But it is in investment grade where most of the activity has been so far. With central banks in the market buying bonds, companies have rushed to issue debt, in many cases at very attractive yields. Important information This article is for Professional Clients only and is not for consumer use. All data is as at 30/04/2020 and sourced from Invesco unless otherwise stated. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment

Within the equity section of the portfolio, fund manager Ciaran Mallon believes that strong companies will get to the other side of this crisis and will regain much of the earnings they are losing now. He is seeing companies in a number of sectors that look attractive on a longer-term view. We think equities are likely to be an attractive option for us at some point, but right now we are focused on the value we are finding in bond markets. With the market falls and additions that we have made to the fund we believe we have really started baking some value in for when markets recover, as well as restoring a high yield and the prospect for some capital appreciation. More info To learn more about the Invesco Monthly Income Plus Fund (UK), the investment approach and for further detail on the current positioning, please visit invesco.co.uk/mip Investment risks The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. The securities that the Fund invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity for the securities in which the Fund invests, may mean that the Fund may not be able to sell professionals and are subject to change without notice. This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

16 | INVESTMENT & RETIREMENT FOCUS

A useful tool for inheritance tax planning? Pension drawdown:

Andrew Tully Technical Director, Canada Life

Since the introduction of pension freedoms, there has been a new inheritance tax (IHT) solution in town - the pension. So, does that mean pension drawdown could become a viable IHT strategy in retirement, or should it stick to what it knows best – providing a tax-free lump sum and a flexible income?

IHT solutions in practice There’s no question that pension drawdown offers clients and their beneficiaries a valuable shelter from IHT. For clients who don’t need to take an income from their pension savings, they should consider using other sources to fund their retirement. Alongside the nil rate band and residence nil rate band, an individual can effectively pass down in excess of £1.5 million free of IHT, and a couple can leave more than £3 million. For many clients though, they will need to use their pension savings for the purpose for which they were intended – to fund their retirement. If they plan to take a phased approach – perhaps releasing tax free cash, and taking an income later, they might want to consider The Retirement Account, from Canada Life. This allows the client to ‘crystallise’ some of their pension savings, take tax free cash, and start drawing a small income as and when they need it. The Retirement Account also allows beneficiaries to place inherited death benefits from an annuity (such as a guaranteed income or a lump sum), into a drawdown tax wrapper, which enables them to take benefits when it suits them from a tax perspective.

at their marginal rate. The beneficiary can of course manage this to minimise their tax bill in any given tax year. They have control over the funds and can withdraw smaller amounts while keeping the rest within the drawdown wrapper. This also prevents a lump sum becoming part of their estate, and therefore subject to IHT. An additional benefit is that the beneficiary can now pass any remaining funds down to a nominated successor, thus the pension could carry on being passed down indefinitely or until the funds are depleted. Things to watch out for Assuming your client doesn’t need to take an income from their pension savings, the benefit of keeping them within a pension drawdown wrapper for as long as possible are clear. But there are some things to be aware of: If a client knows they are in serious ill-

The introduction of pension freedoms had a significant impact on the retirement income market. The rules brought about increased flexibility for clients, giving them control over how and when they choose to access their pension benefits. As a result, pension drawdown has gone from being a niche retirement income solution for the reasonably wealthy, to a mainstream product for advised and non-advised clients. But was income flexibility the only driver behind this rise in popularity? Perhaps not. Money held within a pension or pension drawdown, sits outside of a client’s estate for IHT purposes, and is tax-free if death is before age 75 or only liable to income tax if death is 75 or later. This means defined contribution pension savings can be passed down the generations more tax-efficiently than other assets and investments. As a result, there is an argument that says clients should use alternative sources of income to fund their retirement, such as an ISA or property income, while delaying accessing their pension savings (other than for their tax-free lump sum) for as long as possible. Benefits of drawdown as an IHT strategy There are obvious benefits of taking this approach. By moving their accumulated pension savings into a pension drawdown, clients can access their tax-free cash while being safe in the knowledge they will pay no capital gains tax on any investment returns, and the remaining savings will sit outside of their estate for IHT purposes. That means that if the client dies before they are age 75, their beneficiary can take a lump sum and/or an income while not paying any income or inheritance tax. If the client dies after age 75, their beneficiary will still not pay any inheritance tax, but will pay income tax

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health, any additional contributions made to their pension savings may be liable to IHT. Although pension drawdown sits outside of IHT rules, there’s a limit to the amount the client can shelter there thanks to the lifetime and annual allowance. The client can save a maximum of £1,055,000 into their pension in their lifetime, with a maximum of £40,000 allowed each tax year. If they have already started to take an income from their pension (in addition to their pension commencement lump sum), they will only be able to invest a maximum of £4,000 a year. The tapered annual allowance makes the annual allowance even more punitive for higher earners. For every £2 of income earned above £150,000 per annum, the annual allowance reduces by £1, up to a maximum of £30,000. So, if your client earns over £210,000, their annual allowance will be capped at £10,000.

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For more information on IHT, and The Retirement Account from Canada Life, visit: canadalife.co.uk/adviser/ retirementaccount or call 0800 912 9945.

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales no. 973271. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. MGM Advantage Life Limited, trading as Canada Life, is a subsidiary of The Canada Life Group (UK) Limited, and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales no. 8395855. Registered office: 6th Floor, 110 Cannon Street, London EC4N 6EU.

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