Investment Focus 24

Investment Focus 24

A Tenet Group Publication Issue 24 | Winter 2017

Investment F CUS

MIFFED with MiFID! Listed infrastructure: essential assets for the modern age What is a sustainable withdrawal rate?

FOR PROFESSIONAL ADVISERS ONLY

Diversified multi-asset funds delivering attractive income and growth

Premier Multi-Asset Distribution Fund

Premier Multi-Asset Monthly Income Fund

3.9 * p.a. %

4.5 * p.a. %

historic yield paid quarterly

historic yield paid monthly

0333 456 9033 www.premierfunds.co.uk/multiassetincome Find out more:

For professional advisers only. Not suitable for, or to be relied on by, private or retail clients. *Source: Premier Asset Management. The historic yield reflects distributions declared over the past twelve months as a percentage of the mid-market share price of the fund, class C income shares, as at 01.11.17. The yield is not guaranteed and will fluctuate. Past performance is not a guide to future returns. The Premier multi-asset range: income, growth, conservative growth and balanced solutions

FOR PROFESSIONAL ADVISERS ONLY

Diversified income and growth

Income

Total Returns

Premier Multi-Asset Distribution Fund

Performance (%) - dividends reinvested 31.10.2012 - 31.10.2017

3.9

1

st

% p.a.

quartile for income 1

paid quarterly historic yield*

80 70 60 50 40 30 20 10 0

Premier Multi-Asset Distribution Fund Premier Multi-Asset Monthly Income Fund

Income paid out in each quarter to the end of October, based on an investment of £10,000 and held throughout the whole 5 year period.

31 Oct 15 - 31 Oct 16

31 Oct 12 - 31 Oct 13

31 Oct 13 - 31 Oct 14

31 Oct 14 - 31 Oct 15

31 Oct 16 - 31 Oct 17

£510

£563

£517

£534

£317

IA Mixed Investment 20-60% shares sector

Premier Multi-Asset Monthly Income Fund

October 2012 October 2013 October 2014 October 2015 October 2016 October 2017

4.5

1

st

%

Source: FE Analytics, to 31.10.17. taken on a bid to bid, total return (income reinvested), UK sterling basis, class C income shares. Past performance is not a guide to future returns.

paid monthly historic yield*

quartile for income 1

p.a.

Top quartile returns over 2015, 2014, 2013 and 2012

Income paid out in each of the 12 month periods to the end of October, based on an investment of £10,000 and held throughout the whole 5 year period.

Reasons to invest

31 Oct 15 - 31 Oct 16

31 Oct 12 - 31 Oct 13

31 Oct 13 - 31 Oct 14

31 Oct 14 - 31 Oct 15

31 Oct 16 - 31 Oct 17

• Income from dividend distributions • Access to a broad range of income investment opportunities in one fund • Active management

£554

£584

£530

£560

£487

These funds pay a variable level of income which can go down as well as up. The tables above are for illustrative purposes only and are not indicative of future income payments. Source: FE Analytics. The annual income payments are based on the class C income shares. Income payments may vary depending on the share class invested in. The class C income shares were launched on 05.11.12, distributions before this date are based on class A income shares.

• Experienced investment team • Strong performance record

*Source: Premier Asset Management. The historic yield reflects distributions declared over the past twelve months as a percentage of the mid-market share price of the fund, class C income shares, as at 01.11.17. The yield is not guaranteed and will fluctuate. ¹Source: FE Analytics, quartile rank as at 02.11.17. The Funds are in the IA Mixed Investment 20-60% shares sector. Past performance is not a guide to future returns.

A Tenet Group Publication Issue 24 | Winter 2017

Investment F CUS

MIFFED with MiFID! Listed infrastructure: essential assets for the modern age What is a sustainable withdrawal rate?

A focus on… Increasing the value of investments

ALSO IN THIS ISSUE: Dancing around the volcano Taking aim at Japanese equities Looking for secure income in uncertain times Discretionary Gift Trusts: the essential benefits for your clients

INVESTMENT FOCUS | 3

Foreword From the Editor

Welcome to the Winter edition of Investment Focus The last couple of years have been a rewarding time for passive investors. In general, most markets have had a good run and those who are in diversified multi-asset portfolios with static or market-cap weighted assets have benefited. With many markets looking richly valued, now is the time when active asset allocation can be of real benefit, says Aegon Investment Director Nick Dixon. As we approach the implementation date of MiFID II, Technical Services and Research draw your attention to one of the key areas that you will need to consider and what you need to do to comply with the new rules. Also in this issue: As the UK counts down the days until Brexit, Invesco Perpetual’s UK investment team provide their thoughts on progress so far. Twenty years after Bill Bengen’s seminal statistical research gave rise to what became known as the 4% rule, the Right Honourable MP for Tatton set in motion the most significant changes to the UK pension system in living memory. Now up until this point, it could be argued that everything Bengen and his peers had been doing across the water, as intellectually stimulating

as it is, was completely irrelevant for the UK financial planner. However, in a new world of drawdown without limits, advisers really do need to ‘Know your number’ and be able to evidence it. Quilter Cheviot have commissioned some research by Finalytiq, using Bengen’s methodology which examines the probability of a retirement fund lasting at differing withdrawal rates when it is invested in the UK market over differing periods of time. The results of that research are explored further in this quarter’s article from Quilter Cheviot; “What is a safe Withdrawal Rate?” Blackfinch IHT Portfolios provide a fast and simple IHT mitigation solution. Our approach keeps you in control of your money and targets a return on your investment, as well as the option to withdraw capital should you require it. City Asset Management discuss the various strategies that investment managers can use to manage the end of a Bull Market in equities in their article Dancing Around The Volcano. Nersen Pillay, Investment Director at Royal London Asset Management, looks at the powerful role diversification can play when saving for retirement. I hope you find this final edition for the year informative and supportive and enjoy reading the excellent and varied selection of articles. I’d like to take this opportunity to wish you a very merry Christmas and Happy New Year from the marketing team at Tenet.

Kind regards Cristina Provider Marketing Consultant

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.

4 | INVESTMENT FOCUS

MIFFED with MiFID! As we are approaching the implementation date of MiFID II (in case you didn’t already know it’s 3 rd January 2018), we wanted to take this opportunity to draw your attention to some of the key discussion topics we are seeing across the business. We also explain why we are having to endure the hardship of applying MiFID II into our processes.

Agent As Client Under the Agent as Client arrangement, the contractual arrangement is between the DIM, Platform and Advisers. The adviser has a relationship with the client and the platform, and the client has a relationship with the adviser and the platform. The diagram below illustrates this structure. This is a typical agent as client framework, although some platforms do have a tripartite agreement between the platform DIM and client.

The aim of MiFID II is to strengthen investor protection and improve the functionality of financial markets to make them more efficient, resilient and transparent. This includes introducing new requirements on product governance, independent investment advice as well as information and reporting to clients. Ultimately, this is for the benefit of your clients which can only be a good thing. However, we are finding that the implementation of these European rules is proving quite taxing and we have witnessed different interpretations and approaches across the industry. Our immediate concern, and therefore yours, is the approach to reporting a 10% depreciation of discretionary portfolios and leveraged instruments. Leaving leveraged instruments to one side at the moment, let’s focus on discretionary management. Discretionary Investment Managers (DIMs) will have to provide reports to clients on a quarterly basis from January 2018 as opposed to half yearly, and calculate on a daily basis the growth/loss on the portfolio using the quarterly valuation as a starting point. If the portfolio value drops by 10% or more, the discretionary manager must inform each client affected of the 10% drop within 24 hours! If the portfolio drops a further 10% the next day then this will also need to be reported, and so on. As you can imagine there are a number of issues with this. First, not all funds are priced at the same point in time so when does the 24 hour clock start ticking? The DIMs we are engaged with will price their portfolios each morning which will indicate whether a report is required. If so, they have 24 hours to report from that point onwards. Sounds simple! But what if the DIM has no idea who the client is? When engaging with the DIMs on a bespoke basis, then the client will always have a direct contractual arrangement with the DIM and therefore the DIM should be able to report to the client easily. When recommending a managed portfolio service, complications start to arise. If the managed portfolio service is direct with the DIM (i.e. not via a third party platform) then again, the DIM will have a direct relationship with those clients. However, when recommending a managed portfolio service via a platform, the DIM (in most cases) has no direct relationship with the client. Instead the agreement is with the adviser in what is known as an ‘agent as client’ basis.

PLATFORM

CLIENT

DIM

ADVISER

Figure 1: Agent as Client Contractual Arrangement This framework causes an issue when reporting to the client in respect of the 10% drop – who is the client? In this arrangement, the adviser is treated as the client and therefore the DIM’s responsibility is only to report this to the adviser. The adviser has to therefore pass on this report to the end client – all within 24 hours! Just to caveat this – Tenet is seeking confirmation from the FCA over our timescales for this as there seems to be some general confusion in the marketplace around our responsibilities. Some reports state that the 24 hour time frame is to report to the adviser in this instance, and the adviser has therefore no ongoing responsibility to share this with the end client. However, Tenet believes that this is not in the spirit of MiFID II, and best practice should always be to inform the client of the 10% drop.

INVESTMENT FOCUS | 5

Plan of Action Now we know what we should be doing how are you going to go about it? Tenet has proposed a general plan of action as follows: 1 Start identifying all clients currently in discretionary managed portfolios on platform – this should be across all platforms. 2 Keep a central register of clients in models and on each platform. 3 Make sure these platforms have up to date email addresses for you so you can be made aware promptly. 4 Ensure you have up to date email addresses for all of those clients. 5 If clients have elected not to be contacted via email, then please ensure you have an up to date address to send a letter. 6 Draft a template letter to accompany the communication from the platform or DIM. 7 Have an action in place to send communication to clients – allocate resource for that day to undertake mail merge activity for example! 8 Should a drop occur, mail the client bank and record on the register when the mailing was sent. TS&R Support In order to support advisers, TS&R are currently working with platforms and DIMs to understand their particular approach to this issue. We will then share our findings with advisers, providing guidance on how to deal with each DIM and platform. TS&R have also produced a template letter to send with any communication from the platform or DIM. Additional wording may be provided where a general market correction has occurred rather than any specific comment on individual DIM underperformance. Tenet will watch developments in this area closely and notify you of any updates accordingly.

TS&R research to date shows that a number of platforms have confirmed that they will monitor portfolio values on behalf of DIMs and make this information available for DIMs to communicate to advisers. Other platforms say they will monitor and report to advisers as well as clients (where they have up to date email addresses). One platform that we are aware of states that it is the DIM’s responsibility to report the drop and therefore will not monitor performance on behalf of DIMs at all. This means if the DIM does not have the functionality to report performance itself, then they may have to remove their service from that platform. This is something that we are investigating further and will report our findings once concluded. A word of warning! Some DIMs may change their terms and conditions with advisers to discharge their responsibilities at this point i.e. that the DIM has informed the adviser acting as agent as client and that is where their reporting requirement ends. Client Reaction In reporting this drop to clients, what level of support are clients expecting from you as their adviser? A 10% drop in portfolio value may be for any number of reasons, such as a general market correction or poor fund selection from the DIM. Either way, the client may be concerned with such a loss in value or not have expected it from their investment strategy. If the client’s risk profile was appropriately agreed then such a drop should be within the client’s tolerance for risk and their capacity for loss. So whilst it will be unpleasant such a drop should not come as any surprise (obviously this will depend on the client’s risk profile). Advisers should be able to support clients with individual queries on the performance of their portfolios.

Jo Rigby FPFS Chartered Financial Planner Head of Technical Services and Research

WEBINARS This year’s CPD Webinars available to watch again! On the morning of the last Friday of every month, Tenet have hosted live webinars with a single Provider, Fund Manager or Tenet department which you could view from the comfort of your home or office...These webinar events offer CPD for 30 minutes. And, if you missed the event you can still download the webinar to view at your convenience. Previous Webinars available to view again. 6 | INVESTMENT FOCUS Supporting your development... Tenet Events

TENET EVENTS 2018 Dates for your diary…

With the last round of our Cycle 3 Professional Development meetings having just taken place and the New Year fast approaching, it’s an ideal time to get the next round of events in your diary. Professional Development Meetings Cycle One Starting in February, our first round of Professional Development meetings will be visiting 16 locations around the UK, including 4 news venues, Ramside Hall, Durham, Village Leeds South & Stonehouse Court Gloucester and London - Millennium Hotel London Knightsbridge. Our PDMs offer a variety of important information from both our provider partners and Tenet’s senior management. They also provide an opportunity for advisers to network and meet key staff from Tenet and our partner providers. All of our events are open to, TenetLime, TenetConnect and TenetSelect brands and can be attended by advisers, staff, paraplanners and directors/ principals, free of charge. Stonehouse Court 08/02/2018 Southampton Hilton at the Ageas Bowl 20/02/2018 Maidstone Hilton Maidstone 21/02/2018 London Millennium Hotel London Knightsbridge 22/02/2018 Bishops Stortford Down Hall Country House Hotel 27/02/2018 Exeter Sandy Park Conference Centre 28/02/2018 Glamorgan The Vale Hotel 01/03/2018 Birmingham Village Solihull 06/03/2018 Cumbernauld The Westerwood 07/03/2018 Durham Ramside Hall 08/03/2018 Leeds Village Leeds South 13/03/2018 Reading Hilton Reading 14/03/2018 Nottingham Nottingham Belfry 15/03/2018 Sheffield Tankersley Manor 20/03/2018 Belfast Stormont Hotel BOOK YOUR PLACES TODAY FOR THE WHOLE OF 2018! You can book our events online – simply visit: https://events.tenetgroup.co.uk/ADP2018 If you have any queries, please call the events team on 0113 239 5334 or email [email protected]. Date Location Venues 06/02/2018 Manchester (Merseyside) 07/02/2018 Gloucester Haydock Park Racecourse

‘Your Essential Guide to Platform Suitability’ Joe Molloy, Marketing Assistant http://webinars.tenetgroup.co.uk/webinar-11/ register ‘Building Multi-Asset Solutions – Standing the Test of Time’ Presented by Paul Parascandalo, Lead Multi-Asset Fund Manager at Aviva Investors Simon Young, Business Development Director http://webinars.tenetgroup.co.uk/webinar-10/ register ‘The Real Benefits of Working with a DFM’ Presented by Jason Williams, Business Development Manager http://webinars.tenetgroup.co.uk/webinar-9/ register

Between January and November, we will have hosted 12 webinars totalling over 5 hours of structured CPD and over 1.5 hours unstructured CPD (A WHOLE EVENTS WORTH!). Webinars are a great opportunity to top-up on your CPD.

Don’t just take our word for it... “Webinars are an excellent method of learning about products and/or services - and so convenient. From the comfort of your own home or office you can log in to the lecture/discussion/seminar of your choice and using the interactive facility, you can participate in the presentation. Absolutely brilliant method of learning!” - Stephen Colman, Independent Financial Solutions. “Apart from helping me to utilise my time more efficiently by not having to travel, I can still fully participate in the session by asking questions if required. One of the best things about this initiative is that I can catch up with the webinar in my own time and still have the catch-up session recorded as part of my CPD. Also, of course, being able to access the library of the webinars means they also provide a source of information for the future when I have identified a specific client need and I want to be reminded of the solutions discussed.” Sally Moloney, Chartwell Independent.

Tenet webinars in partnership with…

To watch or for more information, visit: https://events.tenetgroup.co.uk/tenetcpdwebinars2017

8 | INVESTMENT FOCUS

INVESTMENT FOCUS | 9

BREXIT BULLETIN

Insight from the Invesco Perpetual UK investment team

With government assurances that talks are making “real, tangible progress”, and the added pressure from UK business leaders calling for a swift transition deal, there is as much speculation in the discourse as there is hope and progress as the UK counts down the days until Brexit. Here our UK investment team provide their thoughts on progress so far. The UK’s decision to leave the EU thrust the nation into a sustained period of uncertainty – always a negative for markets. Since the EU Referendum, British political upheaval, global geo-politics and scrutiny of the UK economic outlook have variously occupied market sentiment, with little to no firm indication of Brexit’s long-term implications. The UK Government is now well- entrenched within a two-year period of exit negotiations, which should determine future trading agreements and ultimately, a roadmap for the nation’s exit from Europe. Developments in this area continue to make colourful headlines, but seemingly limited progress; through the

remainder of this period we expect UK companies’ ability to trade with European trading partners to continue relatively unchanged. Brexit has been a major focus of our discussions with companies for some time, allowing us to build a fairly granular picture of its impact to date. Realities recounted to us by company management have not necessarily borne out in market performance, however, and there continue to be a number of stocks where, despite no deterioration in trading prospects, share prices remain weak on fears of a deterioration in the UK economy. These have included specialist real estate companies such as Derwent, Shaftesbury, where share prices have been at significant discounts to asset values, as well as Legal & General, Centrica, EasyJet and Next. Our central scenario is for the UK to trade effectively with Europe post Brexit, supported by specific protocols covering key industries. The current competitive level of sterling and the realisation in the business community that new export markets need to be addressed, could be sufficient to compensate for any hiatus in inward investment in the intervening period. Sterling is particularly important for the UK equity market as multinationals make up such a large proportion of the earnings base. In the event of a relatively constructive Brexit outcome, some equity investors may experience a headwind (i.e. conditions will make growth harder to

achieve) should the pound strengthen from current levels. In light of this, the team have been seeking new investments and, in a number of cases, adding to existing positions where valuations are not dependent on sterling remaining weak. Ahead of last year’s Referendum we observed UK corporations delaying both investment decisions and allocating capital, but did not see this feed through too much into consumer behaviour. Since the Referendum and now, in the midst of the Brexit negotiating process, we have seen varied reports on UK consumer confidence, which, as a bellwether of the UK’s economic health, continues to dominate UK business and media interest. The deferral of big ticket and other discretionary spending by consumers – which has bolstered the UK economy over the past year - could result in further downward revisions of UK economic growth and weakened demand, with any prospect of an interest rate rise firmly off the agenda. While weakened sterling has been a positive for British exporters since the Referendum, importers have been hit by a corresponding rise in costs, squeezing margins for some businesses and ultimately consumers against a backdrop of rising inflation and muted real wage growth. Ultimately, regulatory and political upheaval of this scale remains relatively unprecedented, and such an environment will inevitably

create winners and losers. Going forward, we will be continuing to focus on quality businesses with strong balance sheets, which are capable of self-help rather than being overly reliant on the wider economy to stimulate growth. Despite the uncertainty, we continue to find interesting buying opportunities for those willing and able to take a long- term view. Important information This document is for Professional Clients only and is not for consumer use. 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. Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This document 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. Invesco Perpetual is a business name of Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.

12 | INVESTMENT FOCUS

What is a sustainable WITHDRAWAL RATE?

Probability that portfolio will last at different withdrawal rates LOWER RISK PORTFOLIO

With a reported 80,000 people transferring from Defined Benefit to Defined Contribution in the last year, and the collapse in annuity sales since the Pension Schemes Act 2015, it seems that an ever increasing number of retirement roads lead to flexible access drawdown (FAD). It follows therefore that there should also be an increased reliance on a portfolio of asset-backed investments to deliver a reliable income over a lengthy period. Starting with the end in mind, the clear and overarching objective for the majority of those investing for their retirement, has to be to make their portfolio last at least as long as they do, and ideally longer if they’d like to leave bequests. Sounds like a simple and straightforward objective doesn’t it, but with the three key moving parts of retirement [Longevity / Inflation / Asset returns] unknown and unknowable in advance, knowing your number in terms of the amount that can be withdrawn from the portfolio without exhausting it before the finishing line, is where an adviser really earns their corn and adds the most client value.

Rates of return are not guaranteed. Past performance is no guarantee of future results.

HIGHER RISK PORTFOLIO

Back in the early 1990’s, a financial planner in the US, by the name of William Bengen, was wrestling with this challenge and found there was precious little research he could call upon to help him, so coming from an engineering background, he decided to take a scientific approach and started amassing loads of historic US market and inflation >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 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 37 Page 38 Page 39 Page 40

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