Investment and Retirement Focus Issue 9

Investment and Retirement Focus Issue 9

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 9 | Spring 2020

A focus on… Investing in a rapidly changing world Premier Miton INVESTORS

FOR INVESTMENT PROFESSIONALS ONLY

POWERFUL MULTI -ASSET INCOME FUNDS Enticing yields from proven multi-asset funds.

Helping vulnerable clients de-risk their retirement Megatrends - the forces

shaping our future The value of advice goes beyond money

ALSO IN THIS ISSUE: Are we heading towards economic recovery this year? Is diversification dead? 4.9 % Income paid monthly historic yield

4.3 %

Premier Multi-Asset Distribution Fund

Premier Multi-Asset Monthly Income Fund

Income paid quarterly historic yield

PROD-proofing your business

0333 456 9033 premiermiton.com/multiassetincome Find out more:

For investment professionals only. Not suitable for, or to be relied on by, private or retail clients. Source: Premier Miton. The historic yield reflects distributions declared over the past twelve months as a percentage of the share price of the fund, class C income shares, as at 03.02.2020. Past performance is not a guide to future returns and there is a risk of loss to capital. The yield is not guaranteed and will fluctuate.

FOR INVESTMENT PROFESSIONALS ONLY

Premier Miton INVESTORS

Income focussed

Key points

• Income strategies – with key focus on producing an attractive and sustainable income for your clients • A multi-manager investment approach with a substantial income bias focusing on carefully researched, quality, active fund managers • A multi-asset approach covering equities, bonds, commercial property and alternative investments

• Premier Multi-Asset Distribution Fund: 51 underlying funds representing up to c. 5% in position size • Premier Multi-Asset Monthly Income Fund: 55 underlying funds representing up to c. 5% in position size • Highly experienced, highly regarded and award winning investment team - led by Director of Multi-Asset Funds, David Hambidge, and includes a team of 5 fund managers

4.3 %

4.9 %

Premier Multi-Asset Monthly Income Fund

Premier Multi-Asset Distribution Fund

Income paid quarterly historic yield

Income paid monthly historic yield

120

180 160 140 120 100 80 60 40 20 0 -20

Premier Multi-Asset Monthly Income Fund Since launch, 05.01.2009 - 31.01.2020

Premier Multi-Asset Distribution Fund 24.06.2008* - 31.01.2020

100

80

60

40

20

0

IA Mixed Investment 20-60% Shares sector

-20

IA Mixed Investment 20-60% Shares sector

-40

Jan 09

Jan 11

Jan 13

Jan 16

Jan 18

Jan 20

Performance source: FE Analytics to 31.01.2020, based on a total return, UK sterling basis, class C income shares. On 20.01.2020, the funds moved from a single pricing basis (mid) to a swing pricing basis. Performance could be shown on a combination of bid, mid or o€er prices, depending on the period of reporting, and is shown net of fees with income reinvested. *Date of change to multi-asset. Past performance is not a guide to future returns and there is a risk of loss to capital.

Premier Multi-Asset Distribution Fund - distribution history Premier Multi-Asset Monthly Income Fund - distribution history Jun 08 Jun 10 Jun 12 Jun 14 Jun 16 Jun 18 Jun 19 Jan 20

8 7 6 5 4 3 2 1 0

7.2p

7.1p

7.1p

7.1p

7.1p

6.6p

7 6 5 4 3 2 1 0

6.5p

6.2p

6.1p

6.0p 5.8p

5.5p 5.5p 5.6p

5.3p

5.0p

4.9p 5.1p

Financial year ending 28 February

Financial year ending 30 April

¹Based on class A income shares.

F CUS

INVESTMENT & RETIREMENT

A Tenet Group Publication Issue 9 | Spring 2020

A focus on… Investing in a rapidly changing world

Helping vulnerable clients de-risk their retirement Megatrends - the forces

shaping our future The value of advice goes beyond money

ALSO IN THIS ISSUE: Taking on the twists and turns of volatility Is diversification dead?

PROD-proofing your business

Fidelity’s Multi Asset solutions Because no two clients are the same, you need solutions that can help meet a variety of needs. Fidelity’s Multi Asset Allocator, Open and Income ranges offer something that could suit everyone. The value of investments and the income from them can go down as well as up and clients may get back less than they invest. The funds can invest in overseas markets and so the value can be affected by changes in currency exchange rates. They may also use derivatives for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger-than-average price fluctuations. Whether your clients are looking for income, total return or simply low-cost access to global markets, we can help you put the person into personal portfolios .

For investment professionals only

No such thing as average.

Visit professionals.fidelity.co.uk

Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and annual and semi-annual reports, free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited. UKM0220/26687/SSO/0720

INVESTMENT & RETIREMENT FOCUS | 3

Foreword From the Editor

CONTENTS

4

Welcome to the spring edition of Investment & Retirement Focus. Technical Services & Research department’s article, ‘Agent as Client’ explains what you should know when investing with a Discretionary Investment Manager (DIM), focussing on the importance of advisers understanding the Agent as Client and Reliance on Others arrangements and their differences. Also featured in this issue: TOMD’s article asks, has the global economy now reached its nadir or does the outlook remain bleak? The latest batch of economic statistics indicate that the global economy faltered during Q4 2019. This gloom was reflected in downgrades to the latest global growth forecasts released by the IMF in mid-January. However, the projections do still imply a pickup in growth across 2020. The international soothsayer also said the downside risks to growth have eased somewhat in recent months, read more on pages 6 and 7. Andrew Tully Technical Director at Canada Life discusses the rise of vulnerable clients at retirement and how financial advisers can help while adhering to FCA guidance on the issue. Architas’ article, Megatrends – the forces shaping our future. What is a megatrend? In this article Architas finds out what they are and what they mean for investors, before examining five megatrends identified in a recent piece of research by a global asset manager. Simon Evan-Cook, Senior Investment Manager for Premier Miton Investors, considers the significance of diversification even when the market favours some asset classes over others. To help advisers with their PROD compliance journey, Schroders have teamed up with financial services consultancy the Lang Cat to produce a guide titled ‘How to prod proof your business’. The guide is available to download from their website. It covers some of the highlights of PROD and their article busts five myths that surround it. I hope you find this edition informative and supportive with the excellent and varied selection of articles supplied by Tenet’s provider partners. Kind Regards Cristina Marketing Consultant

4-5

Technical Services & Research - Agent as Client

6-7

TOMD - Has the global economy bottomed out?

6

10-11 Prudential - Build a balanced retirement journey

14

Vanguard - The value of advice goes beyond money

17

Fidelity - Taking on the twists and turns of volatility

17

21

Schroders - PROD-proofing your business

21

EDITOR Cristina Giovanelli

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

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

Many advisers are turning to Discretionary Investment Managers (DIM) to run portfolios for their clients, whether this is because of increased regulatory pressures since the implementation of MiFID II or simply because they no longer have the time to constantly review, update and rebalance advisory Model Portfolios. Agent as Client 4 | INVESTMENT & RETIREMENT FOCUS

Kate Quarmby Technical Services and Research Consultant

How do I form an Agent as Client relationship? If you assume that because you are a regulated adviser with the FCA, that this is sufficient to act as an agent of your client, you are not alone. In fact, this is a common misconception and that alone does not give you permissions to set up on this basis with the DIM. So what is needed? Simply an agreement needs to be put in place where an informed client gives you specific consent to act as their agent. The agreement should include: n  An explanation on the relationship they are forming i.e. agent as client n  A detailed description on what this means i.e. the adviser is treated as the client of the DIM, not the investor. Tenet updated the client agreement in 2018 to reflect that advisers can act as the client’s agent when recommending a DIM. Investor Protection As mentioned earlier, the investor may potentially lose some regulatory protections. This is because the investor has no contractual arrangement with the DIM, in most cases the DIM has no information on the underlying investor at all. In the event of the DIM failing to fulfil their obligations, the adviser would likely be the one to take action under the DIM- Adviser agreement. Advisers Responsibilities n  The adviser is responsible for ensuring the DIM proposition is suitable for the client. Research should be undertaken at the start and then reviewed on an ongoing basis to ensure the investment strategy remains appropriate for the client. This should include a review of the DFM’s strategy and the fund types they are using, especially if the adviser is treated as a ‘per se professional’. n  As part of ongoing servicing, advisers should monitor the performance and ensure the DIM is investing within the mandate agreed up front, i.e. if in the mandate, the DIM agreed to only invest in instruments suitable for retail investors, advisers should check this is the case. n  Advisers should ensure they understand the reporting responsibilities, including notification of a 10% drop in value (this is explained in more detail below). n  The client should be informed that in the event of any complaint against the DIM, this will need to be directed through the adviser, as there is no contractual relationship between the end investor and DIM. The adviser can then complain on behalf of the investor. Discretionary Investment Manager Responsibilities n  DIM’s should explain the investment proposition and mandate clearly to allow advisers to commence their research. n  Once the adviser has reviewed and agreed the proposition, the DIM then has the responsibility of running the portfolios in order with this agreement. n  Implications to the regulatory protections

When it comes to investing with a DIM, what you may not know is there are different ways the relationship with the client might be arranged, Agent as Client and Agent of the Client (otherwise known as Reliance on Others). There’s important differences between the two arrangements that you and the end client need to be aware of prior to setting up an investment mandate with the Investment Manager. Depending whether the DIM is bespoke or managed, held on or off platform, determines the structure of the relationship, please see a typical example below:

Service

Who is the advisors client?

Who is the DIMs client?

Agent as Client or Reliance on Others? Reliance on Others Reliance on Others

Bespoke DIM Investor

Investor

Direct Managed Portfolio Platform Managed Portfolio

Investor

Investor

Investor

Financial Adviser

Agent as Client

As you can see from the above table, where a Bespoke DIM or a Managed Portfolio held directly with the provider (not via a platform), this is typically set up on a ‘Reliance on Others’ Basis. Things start to get more complicated when holding the Discretionary Investment on a Platform, this is where ‘Agent as Client’ rule comes into play. Agent as Client Many Discretionary Managers offer the ‘Agent as Client’ rule as a standard, this in short means the adviser is treated as the client , not the end investor. When an adviser acts as an agent, they may act on behalf of the client within the scope of the authority given by the client. In most cases, the DIM will classify the adviser as a ‘per se professional client’, rather than a retail investor. This can cause significant implications to the regulatory protections designed for retail clients that you need to be aware of: n  The DIM may invest in assets/products which are only suitable for professional clients (in most cases, the DIM design their portfolios to be suitable for retail clients but it is important that you check with the provider);

n  There is likely to be a loss of access to the FOS

n  There are no cancellation rights

To mitigate the risk of unsuitable advice been given, advisers should set out a clear agreement, both with the DIM and the end Investor and ensure everyone is in an informed position regarding the investment mandate.

INVESTMENT & RETIREMENT FOCUS | 5

Agent of the Client Agent of the client, otherwise known as the ‘reliance on others’, is an alternative arrangement as opposed to the Agent as Client. Some DIM’s may offer this as standard or offer this as an alternative option. On the surface both processes are similar, the main difference being that both the DIM and Adviser have contractual responsibilities to the underlying investor. A tripartite agreement is usually formed between the three parties. Both DIMs and Advisers should set out their own individual arrangements with the Investor and detail their respective responsibilities in the client agreement. The Discretionary Manager relies on the adviser to provide comprehensive and accurate information which the adviser obtains as part of Know your Client (KYC). The DIM can then ensure that the investment mandate and each trade is suitable for said client. The main differences between the two arrangements are shown in the figure 1 table below. 10% Drop Notification Following the implementation of MiFID II, a rule was introduced where the client must be notified of a 10% drop in the value of their investments. This seems fairly straightforward on the face of it, however, who is the client, and who is responsible? There is no one answer to this question I’m afraid and it depends on the provider, the agreement and whether the investment is held on a platform. 1. In most Agent as Client relationships, the DIM won’t have any knowledge of the end investors and would likely therefore inform the adviser, the obligation would then fall on to the adviser to notify the client of a 10% drop. 2. In the reliance on others scenario, both adviser and DIM have a relationship with the Investor and either one could be deemed responsible for the reporting requirements. In this case, the responsibilities should be documented in the agreement. 3. In some instances where the portfolio is held on a Platform, the Platform provider may be able to notify the client direct.

In each one of the scenarios, there is no clear cut reporting line and it is therefore imperative that the responsibilities are clearly and undeniably construed in the agreements between each party, including Platforms.

Existing DIM Arrangements If you’ve now realised you have been operating under the Agent as Client structure for previous clients and you are concerned it is incorrectly set up, don’t panic, there are a number of options to consider: n  In most cases, agreements should be correct as Tenet updated the Client Agreements in 2018 to reflect the Agent as Client situation. If, in the event the Agreements did not include any wording you should now establish the correct paperwork and process and continue on the agent as client arrangement. n  Contact the relevant DIMs, and if possible to change this to the ‘Reliance on Others’ arrangement. Consideration should be given to the implications on the client, whether this would mean coming off platform etc. n  If you do not want to act as an Agent, consideration may be given to moving to a provider who already offers the ‘Reliance on Others’ arrangement as standard. However, thought must be given to any potential Capital Gains Tax implications, whether performance has been satisfactory, and whether the investment solution is still suitable for the client. A Reliance on Others agreement may involve an off-platform solution direct with the DIM and this may not be ideal where the assets are already being managed on a platform. Whatever option you chose, the client needs to be contacted and all agreements and paperwork, written or re-written to include all relevant information. Summary There are pros and cons to both Agent as Client and Reliance on Others scenarios and no right or wrong way to set up the structure. However you choose, the important part is the paperwork! Setting up agreements with clients, investment managers and platforms detailing who does what in terms of responsibilities will result in suitable and compliant investments for the end investors.

Issues

Agent as Client

Reliance on Others

Are you operating on an advisory basis? No

Yes

Adviser – Suitability of the mandate Adviser - Investment management to the mandate Yes – to ensure funds are suitable for a retail client Sufficient to meet the terms of the agreement I have with my client and the DIM

Adviser – Suitability of the mandate DIM – Investment management to the mandate

Who is ‘on the hook’ in case of a complaint?

Do I need to monitor the DIM’s investment decision?

No

What controls and oversight should I have in place? Can the client bring a case with FOS to the DIM? Do my T&Cs with a client need to address a number of issues to allow me to operate under this framework? Does the end client need to sign the DIM’s mandate to give them discretion? No

Enough to ensure the DIM remains fit for purpose

No

Yes

Yes

No

Yes

Figure 1 : Source - Personal Finance Society

6 | INVESTMENT & RETIREMENT FOCUS

A weak European finale to 2019 Fourth quarter gross domestic product (GDP) statistics painted a bleak picture of the global economy at the end of last year. In the UK, for instance, the economy stagnated, with no growth at all recorded across the final three months of 2019, as political uncertainty gripped the country. >Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28

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