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The Federation of European Independent Financial Advisers
THETRADE PRESS
NOVEMBER 2020
Launch of our AutumnConference Series
See page 16
Our Autumn Conference Series has commenced – starting with a great
webinar on 3rd November. Keith Richards, CEO of the PFS, and David Coombs, from Rathbones, provided an excellent Keynote and presentation respectively, all under the title of “Brexit & COVID: Advising in a Digital World”. Initial feedback from attendees has been excellent.At 10am GMT, on every Tuesday and Thursday in November, we will be hosting a webinar. These comprise a combination of presentations, keynote speeches, panel sessions and TED talks. And CPD is available for each one.If you haven’t registered already, please do so asap here. You can elect to see the remaining events live – and we will circulate links that will enable you to watch past ones online, as Video on Demand.
Regards
Conference gets off to a great start
EditorialComment
Paul Stanfield - CEOMob: +44 (0)7875 219 462Email: [email protected]
CONTENTSISSUE No 127
COVER ARTICLEPAGE 16
Inaugural FEIFA Autumn Conference Series launches!
Paul
FEIFA: The Federation of European Independent Financial Advisers. Email: [email protected]: www.feifa.eu
This document is intended solely for the use of FEIFA members, who are invest-ment professionals, financial planners and/or IFAs. Past performance is not a guide to future performance and the information provided in this publication is not intended to offer advice. Neither FEIFA nor any contributors can accept any responsibility for any action taken or refrained from being taken as a result of the information contained within.
Also in this issuePAGES 2 & 3
Tomorrow’s world – six key investment trends after COVID-19.PAGES 4 & 5
Can digitalisation and tech help support revenue in lockdown? PLUS
The Luxembourg Specialised Insurance Fund.
PAGE 6
All that glitters is not gold.PAGES 8 & 9
Four dimensions to understand your client’s financial personality.PLUS
Specialist ETFs offer unique opportunities and risks.PAGES 10 & 11
Same destination but via a different route.PLUS
Navigating your retirement journey.PAGES 12
Is it now or never, for transferring a pension overseas?PAGES 14 & 15
Why patience is a virtue for investors.PLUS
Answering the ESG call.
While investors have been focusing on market movements during the pandemic and poli-ticians are trying to deal with the massive economic fallout, this crisis will doubtless leave
a lasting imprint on our daily lives. Here we highlight six key themes for investors that may play out post COVID-19.
1. New lifestyles lead to new technology trendsThe work-from-home and online shopping revolution that would normally have taken 10 years happened in 10 weeks. These activities will become entrenched and some companies are likely to reflect that in their real estate by reducing their city centre footprint. New systems, habits and patterns have emerged, changing our day-to-day lives forever, and this is likely to keep the information technology sector booming.
2. Flexibility and innovation are key to the recovery
Crises have historically yielded innovation and creativity, sometimes in surprising ways. Business creativity will be tested in the recovery from this outbreak, whether it’s in how to deal with social distancing, re-establishing a profit model or launching new products or services.The challenges we face are driving creativity to meet changing customer and world needs. Those businesses and individuals who are most flexible and innovative in their approach will successfully navigate a COVID-19 recovery.
3. Wealth inequality could lead to higher taxesSocial changes may lead to policy changes. As the rich have cut back on spending in the US, the UK and Europe, the poor have been the victims and the governments have piled up the debt to rescue the economy.
It is unclear whether there will be a political price to pay for that, but higher taxes, maybe even wealth taxes in various countries, cannot be ruled out. We believe various tax changes over the next 12 – 24 months are probable. Fortunately, some could be mitigated by careful and timely wealth planning.
4. ESG will become a core investment themeThis crisis will add to young people’s concerns about the environment and social injustices. We see ESG principles (environmental, social and governance) becoming front and centre in everything we do and in the way companies are perceived by investors and society overall.
ESG is much more of a reality for younger generations than simply a greenwashing slogan and we believe the opportunities for ESG investing are potentially enormous and will be incredibly important for many years to come.
5. Generational dividesOur attitudes to COVID-19 and how we live with it may well diverge depending on our age, social status and level of concern about the virus. Society may split into younger, carefree people who will say: ‘you only live once and even
if I catch it I’ll survive’ and older, more concerned people who will socially distance and stay at home beyond the government edicts.
This could have an impact on spending and investing and result inshifts in consumption, wealth planning and investment patterns.
6. The rise of healthcareAfter each crisis, people always try to prepare for a repeat of the same, rather than something completely different. Warning signs for a potential pandemic during the last decade fell on deaf ears, as many were trying to prepare for another 2008 financial/property crisis. Our focus on healthcare will therefore become sharper and more constant and will keep feeding into medical technological advancements.
Some of the concerns will be warranted (during COVID-19 many other health issues have been left untreated) and some of them exaggerated. However, healthcare spending in our countries will likely be on a steep upward slope.
There will be many societal changes following this pandemic and many implications for investors. However, we believe some of the opportunities are excellent, even with the uncertainty that remains.
For more information about investing through Canaccord Genuity Wealth Management, contact Richard Burden – [email protected] or tel: +44 (0)7624 499 590.
Canaccord Genuity Wealth Management discusses.
Tomorrow’s world – six key investment trends after COVID-19
November 2020 The Trade Press 32 The Trade Press November 2020 2020 The Trade Press 3
OneLife considers innovative investment solutions for investors in Portugal and France.
Europe and the UK are struggling to maintain control with hospitalisation rising in 39 states across the US. That in an environment which has now seen one of the USA’s biggest voter turnouts in history.
Statistically speaking the numbers during this second wave are worryingly higher than the first. More testing? More spread? There is much debate as to why that is which we are not in a position to answer.
What is clear is that Governments are taking stronger and quicker action, often very localised, in tackling the spread of the virus which means Financial Advisers and clients will be finding it increasingly more difficult meeting with clients and driving business forward. Maintaining clients is easier than finding new ones and COVID is not helping the hunt for new sources of revenue
Whilst we are all very lucky to have options such as Skype/zoom or Teams, it is difficult to beat an old fashioned sit down meeting, Some clients can be more visual and those ones in particular will miss the face to face opportunities to sit with their financial adviser and point at a portfolio print out and discuss how their investment is performing and future needs.
TAM has a very developed technology offering. The report delivery and 24/7 platform access has proved to provide some of
the most in depth analysis tools available. It was designed by Advisers…for Advisers providing access to unprecedented levels of information an adviser or even a client need for ongoing servicing. What could be seen as a daunting library of information does allow information delivery into many formats and concise reports.
Through TAM, one can access narrative for every investment bought or sold, when it was acquired, when it was sold and “reasons why”. Access to instantaneous reports allows the process of
clients review to happen re-motely or for those to be delivered succinctly in a digital format. The list does develop into a huge library of client information at your fin-gertips.
More recently, to sup- port Advisers we have included instantaneous access to MIFiD II state- ments on a Quarterly and Annual basis to ensure we can all comply with the new normal.
Highlighting this only as more and more meet-ings between clients and financial advisers will be “screen to screen”.
Dealing with MIFID and report management is however only part of the story as TAM has also taken the recent decision and digitalised all our
application process and proposal forms, which means that there is no longer a need for “wet” signatures.
Our hope is that this facilitates an easier business process for the Financial Adviser working on client set up and it also keeps everyone in the process a little bit safer by minimising contact.
This year TAM has continued to perform well in difficult and volatile times, therefore along with this digital capability, its European direct licencing, and diverse offering (including ESG), we feel very confident in our ability to support our partners and financial advisers and deliver the best possible experience for their clients.
In short, digital and tech development can allow revenue retention and indeed expansion.
If you would like to set up a demonstration of our screen to screen meeting capabilities please feel free to contact [email protected]
Can digitalisation and tech help support revenue in lockdown? The Luxembourg
Specialised Insurance Fund
The Luxembourg financial and insurance industry has always differentiated itself through an innovative approach meeting the requirements and expectations of private clients and their families living in Europe
and beyond.One key example within the context of the insurance
industry is the well-known Specialised Insurance Fund, or SIF, created following the issuance of the Circular Letter 15/3 by the Commissariat aux Assurances (the Luxembourg Insurance Regulator, or CAA) on 24 March 2015.
What is the SIF?The SIF is an internal fund of the insurance company, which serves as an investment support or vehicle for a unit-linked life insurance policy.
Besides, the SIF is an internal fund which distinguishes itself from other investment supports such as the well-known Internal Dedicated Fund or IDF. Indeed, whereas the IDF is typically managed by a “single or unique manager” as defined in the CAA regulations, the SIF is not bound by such regulatory limitations.
It is however important to highlight that this specific vehicle cannot be used in all markets so it is strongly recommended to get in touch with your insurance intermediary / insurance carrier representative to assess possibilities.
On this point it is worth mentioning that OneLife developed a fully compliant SIF solution for the French market in 2019, and for the Portuguese market in 2020.
Continued on page 7
The thoughts of TAM.
November 2020 The Trade Press 54 The Trade Press November 2020 2020 The Trade Press 5
How can the SIF be used to optimise investments?One of the key advantages of the SIF is that the policyholder chooses the underlying investments. Therefore, the subscriber remains the key decision maker regarding the underlying investments in his/her policy. This approach offers an additional advantage in terms of costs, as subscribers willing to opt for such a solution will not have to face the supple-mentary costs applied by asset managers in discretionary managed portfolios.
Whereas engaging an asset manager is not required, OneLife offers in France and Portugal, an innovative “Advisory” solution under which the participation of an “Adviser” is required in order to assist the subscriber with expertise in investment decisions, monitor the investment compliance and place the appropriate investment instructions by the dealing platform / custodian bank of the policy.
Which investments are eligible for the SIF solution?Whilst Luxembourg regulations applicable to the SIF envisage investment limits depending on the value of the policy and wealth of the subscriber, which are rather broad and flexible, OneLife has defined a universe of investments for its French and Portuguese unit-linked insurance product (i.e. Wealth France and Wealth Portugal) to better guide our clients. This solution intends to provide its prospective clients with the greatest flexibility while complying at the same time with the applicable regulations and minimising investment risks, especially for certain categories of highly illiquid and risky assets. Indeed, the SIF solution designed by OneLife for the French and Portuguese markets and aimed at catering for an active asset management, typically includes investment funds (for instance, UCITS), ETFs, structured products…
How does the SIF investment solution interplay with a unit-linked life assurance offered to French and Portuguese resident investors?The SIF remains one of the many investment solutions available to tailor investments under a unit-linked policy issued by Luxembourg insurance carriers and offered in European markets.
Therefore, the use of the SIF solution does not jeopardize any of the advantages or benefits provided by a unit-linked life assurance policy such as the Wealth France and Wealth Portugal products offered by OneLife. As an example, a Port-uguese life policy issued by a Luxembourg insurer offers an advantageous tax treatment for Portuguese investors and an enhanced asset protection scheme in case of insolvency or bankruptcy of the insurance company or the financial institution holding the assets of the policy.
For further information contact Marie Salvo – [email protected] or tel: +352 671 886 331.
Bedford Row Capital discusses.
In current markets, we look for comfort wherever we can. Gold. The reference point for true value. Remarkable that it has always been a sign of wealth and power; Egyptians, Phoenicians, Greeks, the early Church (in its various denominations) and
the “plate” which was deposited with the Church as nobles went off on Crusade (interestingly also the foundation of English trust law). Walking around the British Museum the lustre of golden objects from ancient kingdoms is a powerful reminder not only of ancient craftsmanship, but the undiminished attraction which gold has as a store of wealth. The chemical inertness of gold, the fact that it does not tarnish or react with other elements, means it does not need to be polished to glow in the sun like it does on gilded roofs of churches, palaces and in jewellery. The desire today to store wealth in rings, torcs, bracelets and necklaces would be appreciated by those long-dead Phoenicians. Given this obvious attraction it is equally interesting that investing in gold does not have the same untarnished image.
Gold is glittering now. When gold prices fluctuate this makes headline news. Why? Is it because any strong movement in market prices is news? Probably. Is it because rising gold prices are a sign of some deeper market sentiment and pessimism? This is more likely. In the past 20 years, “gold bugs” emerged after the GFC and then went quiet when the markets rebounded in 2010/11. In this period, we saw a number of potential transactions related to gold at various stages of the lifecycle; exploration mining, reviving old finds, tailings projects, purchasing unrefined and exporting for further refinement and of course pure gold play price instruments. In the past six months we have seen a resurgence of all of these themes; uncertainty and gold investments and the link
between these two is potentially quite near term.One of the textbook reasons to invest in gold is as a hedge to
inflation. Although gold has a nominal carry cost, rising gold prices are a better store of value than constantly depreciating currency (in real terms). Combined with negative interest rates (either real or because of banking costs), investment in physical, certificated, vaulted gold is an option. This is most likely a short-term solution given the potential volatility in physical gold prices. The longer the uncertainty prevails the more interesting becomes the opportunities to invest in extraction and increasing supply of Gold2.
Gold mining is usually associated with high risk countries (or third world countries) which may be geologically logical but does not help from a risk mitigation perspective but is an extra
level of uncertainty which is difficult to counter. There are also potential ecological damage and huge project costs to consider in most mining deals. In 2017, Bedford Row Capital helped bring to market a unique Tasmanian tailings project which just happened to have small grain gold which could be extracted from base metals. Although this was not in the plan, NQ Minerals has benefitted from the recent gold price rise. The most recent new mandate is the identification of new gold resources in British Columbia. This new transaction owns mineral rights alongside an established gold channel; the intention is to identify new potential concentrations of Gold and then lease (or sell) the rights to third parties to begin the riskier process of extraction. The “Cariboo Gold bond” issued by Dover Harcourt Plc may provide an alternative way to benefit from the increasing demand for Gold, without scary geopolitical risk (unless Canadians radically change their whole image) and based on a model of creating value through exploration (rather than actually trying to dig enormous holes to find gold) provides an interesting option for investors. Similar to NQ Minerals, there is value in locating gold rather than having to undertake massive capital projects and the inherent risks. You’re indestructible, always believe in, that you are… Gold. Spandau Ballet is not a classic reference to cite when considering potential solutions for investors but in this case, they were on to something.
For more information contact Madli Pihel – [email protected] or tel: +372 5565 3733.1 Merchant of Venice in case you were in doubt. And yes, “Glisters” is the exact but this is not the penguin classic edition.
2 Again, Spandau Ballet. Indestructible. Interestingly, because gold is inert, it is possible that some of the gold you are wearing today could have adorned an Egyptian priestess.
All that glitters is not gold1
The Luxembourg Specialised
Insurance Fund
Continued from page 5
November 2020 The Trade Press 76 The Trade Press November 2020 2020 The Trade Press 7
Investing involves uncertainty, which means that returns may be higher or lower than what we originally expect and sometimes these differences are significant. A key consideration in deriving an appropriate investment strategy is therefore the clients risk
profile.This is driven by behavioural and financial factors.
The behavioural input plays a significant role in meeting a client’s long-term goals and objectives. Capitulation in the face of losses or market turmoil can have a devastating effect on long-term returns and maintaining composure through these periods is vital.
There are four dimensions a financial planner can use to better understand client behaviour:
Loss aversionLoss aversion is defined as the tendency to prefer avoiding losses in contrast with acquiring gains. People tend to react differently to these experiences. On average, the negative reaction to losses is roughly twice that of the positive reaction to gains.A person with a high level of loss aversion would typically prefer stability within their portfolio. Conversely, someone with a lower aversion to loss views achieving superior returns as more important, even if it entails higher risk. One way of gaging this would be to ask a client about the level of regret they feel when experiencing a loss versus missing out on a profit.
Gain attractionThe riskier an investment is, the greater the possible swings experienced in the value of that investment and the greater the possible emotional fluctuations experienced.People with a high gain attraction experience disappointment when they miss the chance to
generate returns. They are drawn to investment opportunities where the outcome may be uncertain and typically have a lower aversion to losses. Those with a low level of attraction to gains however, would disagree with the statement that investing is about taking chances because the opportunity could pay off.
Volatility anxietyVolatility anxiety measures the degree of discomfort experienced when the value of an investment fluctuates, regardless of whether losses are realised.Anxiety levels are linked to the magnitude and frequency of fluctuations as well as the consequences of not meeting financial goals. High levels of volatility anxiety are often experienced over the short-term and increases the possibility that a client will deviate from the chosen investment strategy. People who do not have a high level of volatility anxiety feel comfortable accepting short-term movements and have a perspective that is consistent with their investment time horizon.
Intervention riskIntervention risk measures the likelihood that a person will choose to deviate from the selected investment strategy. It is a function of either negative sentiment or overconfidence and optimismin times of rising markets and strong returns.Whilst there may be many good reasons for altering strategy, it is important that changes are
rational and warranted to avoid a destructive “buy high, sell low” syndrome. Clients should take a long-term view on investing to filter out the noise often presented in the media. Those with a low level of intervention risk are happy to commit to their chosen strategy and remain composed in the face of alarming news.
Where expectations meet realityCritical to holistic financial planning is an appropriate investment strategy that offers an efficient trade-off between risk and return. A widespread issue with risk-profiling is that the relationship between risk and time is not sufficiently incorporated in portfolio construction, with a common result being that longer-term portfolios end up under-risked, whilst shorter-term portfolios may be over-risked.
Financial advisers are well positioned to assist clients in forming clear opinions that are in line with their personal attitudes as to how their money ought to be managed. This results in financial plans that are suitable for a client’s objectives and risk tolerance while considering their financial circumstances, future cash flows and the current disposition of assets. A successfully implemented plan provides certainty and comfort to clients that their lifetime returns are maximised through composed behaviour and suitable, well-constructed portfolios.
For further information contact Olivia Geldenhuys – [email protected] or tel: +44(0) 7413 243 727.
Four dimensions to understand your client’s financial personality Highlighted by Olivia Geldenhuys, PortfolioMetrix Business Development.
Some specialist exchange-traded funds (ETFs) are all the rage at the moment, like ‘working from home stocks’ or Biden and Trump baskets, which select stocks according to whether they are likely to benefit from a victory by the respective candidate. But this approach
could go wrong, which is why it’s important to take a close look under the hood before investing in ETFs.
The humble ETF has come a long way since the first one launched in 1993. The essence of mimicking the investment return of an index is still present, but product engineering and entrepreneurial marketing have propelled ETF providers into innovative areas. Specialist ETFs tapping into global mega trends are growing in number and size, capturing the imagination of investors. These funds adopt passive or rules-based guidelines to invest in equities that provide exposure to these themes.
Many of these ideas have profited enormously this year from changing habits brought about by the pandemic — including new technologies and software that helps us work from home and medical innovation as more capital is made available to find a COVID-19 vaccine. ETF providers have been quick to take advantage by launching new funds, giving investors ideas that they may not have thought about before with the aim of generating strong future returns.
What’s in a name?Investors tend to appraise ETFs based on their ability to mimic an index, as well as cost. Is there anything we can learn by applying these principles to new ideas? In the first instance, what these new ETFs are tracking is not always straightforward. Well-established indices such as the FTSE 100 or S&P 500 are large, transparent and independent from ETF providers, and criteria for inclusion are well understood.
In contrast, many newer ideas use proprietary measures for stock selection, which can blend objective and subjective criteria. These can make new ETFs difficult to understand and introduce unintended exposures into an investor’s portfolio. Not all ETFs are the same, but some can be concentrated in fewer names, have exposure to less liquid smaller businesses or hold unprofitable companies. This approach can make the investment more risky.
The subjective element to security allocation is arguably an active decision but can also cloud exposures. Investment themes often comprise different industries, but fund providers might also select companies that benefit from trends rather than drive them. For example, e-commerce companies might feature in robotic and automation ETFs, which could introduce other stocks to the fund that are more sensitive to economic cycles. Some cyber security ETFs hold companies that specialise in other areas like defence. So pure-plays
on specific themes and trends might not be easy to identify, or indeed gain exposure to without incorporating other, unrelated risks.
ETFs are usually cheaper to invest in than active funds, with the annual fees on many regional passive funds costing just 0.05% to 0.2%. Thematic ETFs can also boast a lower average cost relative to active funds. However, the cost advantages can be eroded by their propensity to invest in harder-to-trade smaller companies and in some cases rules that can generate higher trading costs, such as the requirement to have an equal weight in all holdings. Many of these strategies have performed well over the short term owing to the global health crisis, but it is hard to know whether they have long-term appeal. It can also be tricky for investors to allocate between the different trends and keep track of all the risks.
The law of averages suggests that if you invest in lots of different ETFs, some will perform well. Active managers can allocate capital in a risk-aware manner that blends the investment thesis of a company and a top-down theme. This approach can help active funds generate better returns when adjusted for risk.
Thematic investing as a long-term investment strategy can be successful, and investors should not discount new ETFs immediately. But it’s important to do your homework so you know what’s on the inside.
For further information contact Chris Wanless –[email protected] or tel: +44 (0)7584 349 482.
Specialist ETFs offer unique opportunities and risksRathbones contends.
November 2020 The Trade Press 98 The Trade Press November 2020 2020 The Trade Press 9
Speaking with an adviser recently, he was complaining that the retirement income request process for an International SIPP
was much more complicated than the equivalent with a QROPS. To a degree he had a point, but once we discussed the various nuances, he agreed that now fully aware of the process, the end result was identical for his client.Thus he could now fully justify a transfer in order to access considerably lower scheme fees for his client going forwards.
So what are the key differences? If we use a Maltese QROPS for comparison purposes, the retirement income process is pretty straightforward from an administrative perspective. As long as the client lives in a country that has a double taxation agreement (DTA) with Malta (and that DTA gives primary taxing rights to the country of residency), then the QROPS trustee will generally request: n Retirement benefits form; n Up to date proof of address; n Evidence of tax residency in country
that has the DTA with Malta;Upon satisfactory receipt of the above
details the trustee will then pay the requested retirement income without the deduction of any tax locally in Malta and the client declares that they will settle any local income tax with the tax authority in their country of residence instead.
When it comes to an International
SIPP, the retirement income is assessed to any UK Income Tax by way of the Pay As You Earn (PAYE) regime. As a result, in addition to the same retirement benefit form and proof of address request, there is a bit more administration involved around any request for income and in the absence of a Form (P)45 from the ceding scheme, will most likely be subject to emergency tax.
What is emergency tax and how does it work?Usually the first income paid from a pension will have emergency tax applied to it, as the pension scheme will need to contact HMRC to get the correct tax code to apply to the member. As there is no tax code at that point, emergency tax must be applied to it. Broadly speaking, if payments are to be made monthly, this will give 1/12 of each of the relevant tax bands and this is then applied to the payment (see table below).
Therefore, a payment of under £1,043 would have no income tax applied, then the other bands start to be used and additional rate at 45% will be applied on any income payment requested in excess of £13,543 (£1,043 + £3,125 + £9,375).
Of course, if the client is a resident in one of the +100 countries that has a DTA with the UK then this could result in an overpayment of income tax. However, the good news is that such an overpayment can be reclaimed from HMRC if the DTA enables the client to
successfully apply for a NT PAYE tax code. If further payments will be made from the pension in the same tax year, then once the NT tax code is received this would be sorted out if applied on the next requested income payment which will consist of the drawdown payment PLUS any previous overpaid income tax.
However, if the originally taxed income payment and subsequent income straddles a UK tax year eg. taxed income payment paid in March 2020 and the next income payment was made after 6th April 2020, then the originally overpaid tax will have to be reclaimed from HMRC manually – but importantly the ongoing income payments are not taxed whilst the NT code is applied. Again, any local income tax liability in this scenario is settled by the client with the tax authority in their country of residence instead.
So as you can see from above, a little understanding of the steps involved in obtaining the NT tax code can go a long way for advisers and enables them to display their worth to expat clients. This will be especially valued by them if the end result if a more cost effective vehicle for their retirement income provision going forwards.
For further information contact Paul Forman – [email protected] or tel: +44 (0)7395 793 450.
Same destination but via a different routeNovia Global explains how advisers can show their worth to clients.
Continued on page 13
We are all living longer. Medical progress, better living conditions, and improvements in lifestyle have all contributed to the advanced age that most of us can expect to reach (estimated at 81 years in the UK1).
After working hard for many years, the prospect of having more time to spend with family and friends, enjoying hobbies or travel the world is an attractive one. But it can also be a source of worry when thinking about those retirement dreams, and the reality of how these years will be financially supported.
Accumulated wealth is increasingly relied on to provide this long-term income stream. There will always be some uncertainty – we don’t know precisely how much we’ll spend in the future, or the exact number of years we’ll require funding for. In most cases, a portfolio will also need to grow over time to keep supporting withdrawals. This growth is usually achieved by investing in financial markets which means that the level of growth might fluctuate over time.
This can be summarised into two risks; longevity risk, and sequencing risk.
1. Longevity RiskLongevity risk is the risk of living longer than a portfolio of financial
assets and is a key factor in determining what level of income should be withdrawn.
2. Sequencing RiskSequencing risk refers to the timing of investment returns and is
highest at, or shortly after, the point of stopping saving, and starting withdrawals. If periods of poor investment performance are experienced around the early years of withdrawal, these withdrawals can magnify this negative effect on overall portfolio value - making it difficult to subsequently recover and fund future income requirements.
How to keep your plan on trackThere are four key areas to consider:
1. Reliable Cashflow PlanningA key consideration is that we might end up spending more in the
future than we thought we would.This could be because of an unrealistic initial estimation, an unforeseen
change in circumstances, or because of inflation - those investors who are relying on their portfolio to provide an income over a longer time frame are particularly impacted by inflation.
Regular meetings will help to ensure that cashflow planning stays on track - that withdrawals are both realistic and achievable, and that any changes in circumstances can be incorporated into the overall investment plan.
2. Invest. And remain investedIt can be tempting for investors to consider investing in cash in order
to reduce risk, but this is unlikely to keep pace with inflation over the long term or generate enough growth to combat longevity risk.
So, it is important to invest the portfolio in a suitable mix of investments, to deliver an appropriate level of return.
Equally important is that the portfolio remains invested for the long term – trying to ‘time the market’ is a strategy that carries with it the risk of missing out on some better periods of market performance, impacting on long-term returns.
3. Tailor the portfolio allocationIn a retirement income portfolio, there is a dual objective of generating
enough long-term growth to combat longevity risk, while also protecting
By Matthew Wintour, Head of Adviser Solutions, Brooks Macdonald Dominion Funds discusses.
Navigating your retirement journey
November 2020 The Trade Press 1110 The Trade Press November 2020 2020 The Trade Press 11
Human nature is that we want what we can’t have, and this manifests itself in all walks of life. Making difficult or complex decisions in a timely manner can be very difficult, even though the direction of travel is obvious, meaning we
may lose some of the option we had permanently.Complexity abounds in the world of pensions, best highlighted in
the words of Andy Haldane, Chief Economist of the Bank of England, who commented in 2016, “I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions”.
2006 the start of something bigIn pensions speak, 2006 was called ‘A day’. Over the post war decades, a number of disparate pension regimes had evolved. When sweeping changes to personal and workplace pensions came into force on 6 April 2006 – forging 8 regimes in to one - with consistent tax rules, retirement ages and benefit regimes, the aim was to make pensions simpler and more appealing. It also introduced caps for tax relief on contributions (the annual allowance) and for the total savings pot before penalties applied (the lifetime allowance).
More positively, it heralded the ability for UK pension scheme members to transfer, without individual HMRC approval, to an overseas arrangement, known as QROPS. This was the start of something big, with the trend accelerating rapidly for the best part of a decade, offering a number of interesting benefits, particularly for those abroad or retiring there. This wasn’t an act of deliberate generosity, but born out of EU freedoms legislation, which at the time as good European citizens, Parliament embraced.
2015 greater flexibility … but not for allIt all stated in 2014, with George Osborne looking to balance the books between membership appeal and cost to the Treasury. The resulting ‘pensions freedoms’ saw death benefits in UK money purchase schemes greatly improved, alongside flexible access during one’s lifetime after 55. For those with defined benefit schemes, exchanging an income stream for life for a store of flexible wealth, combined with high transfer values and number of high-profile scheme failures, hardly surprisingly fuelled demand. For some, particularly the millions in unfunded public sector schemes, the opportunity to transfer to a more flexible scheme was placed out of bounds, in order to protect the public purse.
2017 - the beginning of the endWith huge numbers transferring to flexible international schemes, often denying the Treasury revenue, March 2017 saw the introduction of the Overseas Transfer Change, imposing a 25% penalty for taking one’s pension overseas, with specific exceptions. One such valuable exception that remains, at least until the end of the transition period that we are very rapidly approaching, is for European Economic Area (EEA) residents transferring to EEA schemes.
20** - the end for overseas transfers (within the EEA)?Although the end isn’t definite, many consider it imminent, with
several forces at play.Firstly, the European political imperative. When the UK’s transition
period ends on midnight 31 December 2020, with the possible removal of one line of the Overseas Transfer Charge regulations, it would be immediately uneconomic for almost all European residents to transfer, effectively removing the option overnight.
Additionally, the rapidly growing concern by politicians that pensions are generous in terms of tax breaks, and that international schemes can and have since the introduction of QROPs, facilitated tax leakage, creates incremental pressure for change.
And finally, potentially impacting any final salary member, possible further changes to restrict or remove what was once the very valuable statutory right to transfer have been hinted at. The proposals, though primarily designed to prevent pension scams, may have the effect of slowing down the administration of a legitimate transfer.
Now or never?Is it now or never, for transferring a pension overseas? Of course, history tells us we are unlikely to know until too late, so with a hard Brexit increasingly likely, combined with a COVID induced debt that will need to be dealt with, understanding one’s pension options and making a conscious decision to act or otherwise was never more important.
For further information contact Peter Field – [email protected] or tel: +44 (0)23 8091 6713.
Is it now or never, for transferring a pension overseas? The thoughts of David Denton FPFS TEP International
Financial Services Specialist & Chartered Financial Planner.
the early years of income withdrawals from sequencing risk.
It can be beneficial to tailor the investment strategy according to these time horizons and use a different mix of investments for the shorter and longer time frames, and the level of risk being taken.
A multi asset approach means that you have the choice of a diverse range of return generating investments. Not all investment types behave in the same way at the same time, and so it’s important to be able to actively adjust the mix of investments in the portfolio so that it remains appropriate as the environment changes.
4. Ongoing Review and AdjustmentIt is important to ensure that income with-
drawal targets are realistic in relation to portfolio size, return expectations and risk profile. It is likely that needs will change as time goes on which means that a flexible approach to management is required. Both objectives and investment strategy should be regularly reviewed, and adjustments made as needed and in the context of suitability, in order to navigate the specific retirement journey and reduce the risk of an unexpected outcome.
For further information contact Matthew Wintour – [email protected] tel: +44(0) 1534 715 598. 1The World Bank, 2018 https://data.worldbank.org/indicator/SP.DYN.LE00.IN
Navigating your retirement journey
Continued from page 11
November 2020 The Trade Press 1312 The Trade Press November 2020 2020 The Trade Press 13
Graham Bentley, a Director of the Marlborough Group’s IFSL International, explains why the COVID-19 crisis has underlined the value of a long-term approach to investing.
The Marlborough Group’s Irish-domiciled UCITS fund of funds range has seen a remarkable rebound in performance since the bottom of the COVID-driven global market collapse in March this year, as the table
demonstrates:
The Marlborough fund of funds team have been running their portfolios for an average of 20 years. Their combination of deep knowledge and long experience has helped them to be patient when many others were losing their heads.
‘Advisers who withdrew client funds after the collapse will be under severe pressure as their clients question the justification for that decision. Missing the rebound will only accentuate any sense of loss.’
‘Time in the market’, not ‘timing the market’ We are leading exponents of ‘active management’ and also strong believers in ‘time in the market’ being more important than ‘timing the market’. Many other fund management firms might purport to share that view and it is a philosophy that is easily adopted when market volatility is within ‘normal’ bounds, where share prices move in an almost random manner daily, but in a generally upward direction over time.
The test, of course, is when market shocks like COVID hit us. At such times, the depth of a market fall is based on news rather than fundamentals, while recoveries often happen so quickly we do not recognise them as such until they are over.
In the latest crisis, even as the death toll rose in China during February, the S&P 500 and Nasdaq indices were hitting record highs and the virus was still being seen as a problem for China rather than an obvious threat to the global economy. However, February 24th saw a thousand-point drop on the Dow Jones; only four weeks later global equities had fallen by around 30%. Despite this, Marlborough’s managers stuck to their faith in the resilience of the companies featuring in the portfolios, and this has borne fruit.
Meanwhile, anyone taking to cash in late March will now be
feeling a deep sense of regret. Despite unprecedented negative economic conditions, equity markets, particularly those in the US, have shown an astonishing pace of recovery.
What has driven the rebound?However easily pessimists might argue that this lightning recovery makes no sense given the gloomy outlook, yet again ‘time in’ the market has mattered more than ‘timing’ the market. So, what is driving these gains? Is this exuberance irrational, and
will it all end in tears? Certainly, explaining market performance is easier than
predicting it. The ‘whatever it takes’ mentality of governments and central banks has seen trillions of Dollars, Pounds and Euros pumped into the economic system. Cash on deposit has an absolute return of virtually zero, so any reversal of the severe risk aversion that dominated investors’ thinking in March is likely to find some cash reallocated to riskier assets. There is also a ‘value’ tradition that buying equities when all seems lost generates higher returns than buying at a record high.
No one can forecast the future, but economists are especially useless at it. As the months pass, actual numbers will be revealed as companies publish their accounts, particularly at the year-end where the full impact will have become clear. That may not be pretty, but as the rebound in April demonstrates, ‘time in’ the market is more advantageous than ‘timing’ the market.
Our firm belief is that patience will remain a virtue however events unfold.
Long-term investors should be no more concerned with analysis or justification for rising asset prices, than fearing falling ones. To paraphrase Kipling, meet with Triumph and Disaster, and treat those two impostors just the same...
To find out more about the Marlborough Group’s Irish-domiciled UCITS fund of funds range please contact Linda Johnstone – [email protected] on tel: +44 (0)7986 972844, or Vasco Moreira – [email protected] on tel: +44(0) 7946 064535. Further information is also available at www.ireland.marlboroughfunds.com/
Why patience is a virtue for investorsGraham Bentley from Marlborough discusses. If there is one thing we have a lot of in the investment industry,
it’s acronyms. However, there is one acronym that has a lot of momentum right now and this is something that my colleagues and I at Quilter Cheviot have become increasingly fascinated by.
I’m talking about ESG. ESG stands for environmental, social and governance and is
having a huge impact on investing and the wider corporate world. These three little letters represent a momentous shift in attitudes and business practices, but what does this mean?
This is the starting point for understanding how the responsible investment process works in practice.
ESG issues are data points that can be used as an additional input into the investment analysis process. This information can often be qualitative and is not the kind of information that tends to be discerned from traditional financial statements or three year earnings forecasts.
So what does this mean in practice? From an environmental perspective it could be looking at how an oil company is creating a climate transition pathway and the targets and timeline that has been set for this. From an S (social) perspective this might involve (as it has done so far in 2020) thinking about how a company is treating its employees in a COVID-19 environment: for example are there proper social distancing measures in place where employees don’t have the luxury of working from home. From a governance perspective this would include for example, the remuneration policy for the executives and board diversity (is it all the same school tie?).
When these factors are taken into account within the investment process we call this ESG integration. The key message is that this is a process that analyses ESG data to help inform investment decisions, to ensure that all relevant factors are accounted for when assessing risk and return. This is an extra source of information, an additional input that supplements the traditional analyses of financial data –
and should ultimately lead to better informed investment decisions – when done effectively.
How are sustainable investment funds different from ‘normal’ funds?Morningstar report that there are now nearly 4000 sustainable investment funds, which reflects many different approaches to sustainable investing. For example some funds focus on themes like the environment or education. Other funds give a higher weight to companies with better sustainability profiles and a lower weight to companies with weak ESG practices. Some sustainable funds exclude several areas like tobacco, armaments, alcohol, fossil fuels. Others invest across industries. There is no one definition for what investing sustainably means.
Meanwhile, many ‘normal’ funds now incorporate ESG factors within their investment process as well. This does not mean that they are sustainable investment funds or that they exclude parts of the market on values based considerations like avoiding animal testing or armaments. What determines whether a fund is billed a sustainable investment fund or a mainstream / ‘normal’ fund, is how the ESG data is used. Does the fund manager use ESG factors to be fully informed of the potential risks to an investment (a mainstream fund)? Or does the fund manager use the ESG information to bias the fund towards positive ESG themes or credentials? (a sustainable investment fund)? Understanding the extent to which ESG drives investment decision making is key.
How Quilter Cheviot approaches ESG in its fund research processAt Quilter Cheviot we firmly believe that integrating ESG con-siderations into our investment process helps us protect and enhance long-term investment outcomes for our clients. Therefore a growing consideration within our fund research team’s investment process has been how third-party fund managers approach ESG risks and opportunities as part of their investment decision making. The fund research team are assessing their list of Buy and Monitored rated fund managers, as well as new managers, on the extent to which ESG factors are being incorporated in an explicit and systematic way. Our analysts also assess the extent to which the fund managers are engaging with company managements on ESG issues.
Where we see ESG going from hereGiven the massive implications for the global economy of issues like climate change, we think the growing demand for companies to have better sustainability practices or for companies to have products or services that offer solutions to environmental or societal problems, is only going to accelerate. Whether or not companies producing environmental solutions will always outperform benchmarks is a different question. But the increasingly evident need to include ESG factors alongside traditional financial criteria in order to make fully informed investment decisions is only going to bring ESG issues more and more in the spotlight. I see this as being a welcome area of development in the industry that is only set to continue.
For further information contact Allie McMahon –[email protected] or tel: +44 (0)1534 506 105.
By Francis Clayton, Executive Director (Jersey office), Quilter Cheviot.
Answering the ESG call
November 2020 The Trade Press 1514 The Trade Press November 2020 2020 The Trade Press 15
Inaugural FEIFA Autumn Conference Series launches!We recently unveiled the full programme for the 4 weeks of the
above and also details of how our members can register for all or as many of the unique online sessions as they wish. This series is exclusive to FEIFA members and should provide very relevant
content for you, as well as CPD certification (please see below).
Conference programme/schedulePlease see the programme here - note that all times are GMT. You will see that the programme for the whole 4 weeks is concisely detailed on pages 2 and 3. Following that there are full biographies of the speakers and synopses of their respective sessions.
There is a themed webinar on every Tuesday and Thursday in November. These will all commence at 10am GMT and run for between 60 and 70 minutes (depending on the content, as detailed in the programme). There is a varied mix of excellent Keynote speeches, presentations and TED Talks, as well as an expert panel session during one event.
CPD is available for every webinar, amounting to up to 8 hours of certification being potentially available (but with separate certificates for each webinar, in case you are unable or do not wish to attend every event).
All of these webinars will also be available as Video on Demand soon after the date on which they are live. We would, however, urge you to “consume” them live if at all possible, as this will be the most engaging way to benefit from the contents. There are no limits to the number of attendees at the live webinars – we have ensured that all FEIFA members will be able to login if they wish to.
In addition to these webinars, we are holding a series of less formal, online Drinks Receptions/Networking evenings. These all commence at 5pm GMT on each Wednesday during November. Every one of these events will create discussion and debate around a central theme – and you can see what these topics are in the programme referred to above.
Please note that, as these are interactive discussion sessions, attendee numbers are necessarily limited – and most are now full up or even over-subscribed; but don’t worry, these sessions are also being recorded and will be available to all of our members as Video on Demand very soon after they take place.
RegistrationWe developed our usual Eventbrite registration process to make things as easy and efficient as possible for our members. Therefore, you only need to register once and can then select any and all of the webinars that you wish to attend live.
If you haven’t yet registered, please go to the below link - you will see that you will be able to select as many of the webinars as you wish to attend. You can check the contents of each webinar against the programme to make a decision about which sessions are most appropriate for you. In many cases, this will undoubtedly be all of them.
The link for registration is: https://www.eventbrite.co.uk/e/feifa-autumn-conference-series-2020-registration-124894634213
We are also very pleased to announce that our online repository for the
FEIFA
FEIFA Autumn Conference Series is now available. The “Conference Hub” has a wealth of information, not all of it only relevant to the webinars and events in the series – some of the content will be valuable to you whether you attend the respective webinars or not.
Each sponsor of this Conference Series has their own mini-Hub within it, stocked with the information, doc-uments and/or videos that it feels are potentially relevant to you. If you haven’t yet taken a look at our Hub Guide
I would recommend that you do - it explains how to easily find this content, for your benefit.
If you have any questions about the above and/or need further information, please email: [email protected]
16 The Trade Press November 2020
