Investment Outlook - Issue 4

Investment Outlook - Issue 4

Issue 4 / autumn 2021

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

Headline Story

Special Feature

Other Features

Clients still need defined benefit pension advice J pages 4 & 5

Property funds still facing an uncertain future J page 6 & 7

Future proofing your technology J page 10 Flexibility is key to hiring top talent J page 11

When it comes to investing, consistency is beautiful.

Success is more closely connected to consistency than ever. Our global investment team is built on a genuine culture of collaboration, where experts challenge and debate their best ideas to make better decisions, leading to better outcomes for you. Find out how partnering with us can help deliver the consistent success you demand.

columbiathreadneedle.co.uk

Past performance is not a guide to future performance. Your capital is at risk. The value of investments and any income is not guaranteed, can go down as well as up and may be af fected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. 08.21 | J31824

About us

Millions of people around the world rely on Columbia Threadneedle Investments to manage their money. We look after investments for individual investors, financial advisers and wealth managers, as well as insurance firms, pension funds and other institutions. Together, they entrust us with over £400 billion. 1

1 As at 30 June 2021

columbiathreadneedle.co.uk

Past performance is not a guide to future performance. Your capital is at risk. The value of investments and any income is not guaranteed, can go down as well as up and may be af fected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. 08.21 | J31824

Issue 4 / autumn 2021

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

Headline Story

Special Feature

Other Features

Clients still need defined benefit pension advice J pages 4 & 5

Property funds still facing an uncertain future J page 6 & 7

Future proofing your technology J page 10 Flexibility is key to hiring top talent J page 11

Investment Outlook - Issue 4 | 3

Editor’s Forew0rd

Hello and welcome to our autumn edition of Investment Outlook magazine. Aimed at all areas of the marketplace with contributions from internal departments keeping you abreast of activities within Tenet and showcasing our provider partners who deliver thought leadership, support, ideas and opportunities. We open this issue with an article from Chris McGreavey, Policy Manager at Tenet. There remains a need for high quality defined benefit transfer advice. There have been significant rule changes and Tenet can help you apply them effectively in your business. Pages 4 & 5 . In anticipation of a final policy decision from the FCA on open-ended property funds, Tenet Research Hub reviews the outlook for these investments as they continue to balance generating returns with maintaining sufficient liquidity to meet redemption requests. Pages 6 & 7 . On page 13 please find BNY Mellon’s article. Inflation may be peaking, volatility rising and global economic growth slowing, according to Newton’s Real Return team. Is a recession around the corner and what does this mean for asset allocation opportunities? Alastair Black, Head of Industry Change at abrdn, discusses how client propositions are slowly being reshaped to meet sustainability preferences, reflecting the times we’re living in. Full article page 17 .

Fidelity International recently analysed the relationship between sustainability and dividend payments to shareholders and found that ESG leaders are more likely to deliver sustainable dividend growth. Page 19 . On page 20 , Invesco present the findings of their recent survey on the perceptions of ESG investing: What investors want. We know that interest in sustainable investing is growing, but are we doing enough to support its adoption? The need for a modern pension plan that can help you take advantage of pension freedoms on your clients’ behalf is a must, as Canada Life retirement solutions director, Nick Flynn explains. Read more about the adviser challenge of providing advice in the full article on page 25 . After 2 years of working with Tenet firms, Tatton provides an update. Pages 26 & 27 . Recent inflation readings in the US and UK have been above central banks’ targets. On page 28 Liontrust’s John Husselbee examines whether we’re likely to see persistent higher prices and, if so, how investors should react. Why Schroders Nick Kirrage believes that if you don’t know all the answers when it comes to investing, pick value. Full article on page 29 . Cat McInally from Prudential looks at Sir Isaac Newton’s first law of motion and ESG. The power of ESG considerations in investing is very much driven by investors feeling compelled to change the state of the planet, and not only is it already in motion, its momentum is increasing exponentially. So what should advisers look at to ensure they can embed ESG into their businesses? Full article pages 32 & 33 . On pages 34 & 35 Just explodes retirement income myths: ‘Annuities are really bad value for money right now!’ I’d like to take this opportunity to thank Tenet’s key contributors and provider partners for their varied and excellent content which I’m sure you’ll find an informative and enjoyable read.

Best wishes Cristina Giovanelli Marketing Consultant

4 | Investment Outlook - Issue 4

Clients still need defined benefit pension advice

Investment Outlook - Issue 4 | 5

Issues and controversies around defined benefit pension transfers have rarely been out of the headlines in recent years. The greater flexibility introduced with pension freedoms, together with rising transfer values, led to an increase in demand for transfer advice. Unfortunately, some of that advice was not very good. The drivers of poor advice are numerous: a lack of detail regarding client circumstances can lead to ‘material information gaps’; there can be a lack of challenge to unrealistic client objectives; explanations of the value of scheme benefits can be insufficient to enable genuine client understanding. These poor practices have resulted in a significant amount of retrospective regulatory action. The FCA is encouraging clients to complain if they feel they have lost out as a result of transfer advice. 36 firms have been required to undertake past business reviews relating to British Steel transfers. Hundreds of advice firms have relinquished their transfer permissions following intervention from the FCA. New rules Significant rule changes were introduced in October 2020. Firms who remain in the market need to ensure they have reviewed their approach in light of these changes, and the associated guidance provided in FG21/3 ‘Advising on pension transfers’. The starting position for pension transfers remains the same: you should assume that a transfer will not be suitable. While this outcome will be appropriate for the majority of consumers, there are circumstances

where a transfer may be beneficial. Scheme members retain the statutory right to request a transfer value and, where this is in excess of £30,000, they must receive advice before a transfer can proceed. Demographics mean there are increasing numbers of consumers approaching retirement age. The need for good quality pension advice has arguably never been greater. Although it can seem that the regulator is focused on past mistakes, we can expect it will be closely monitoring how firms have implemented the new rules. The extent of these changes is significant, but let’s briefly consider two areas: charging for advice and workplace pension schemes. Charging You must disclose your charging structure before providing advice. The ban on contingent charging (except where a carve-out applies) means you cannot vary the cost of full advice depending on whether a transfer proceeds or not. The cost of transfer advice should not be less than for equivalent value funds that do not originate from a DB scheme. The client needs to be provided with a personalised charges disclosure, in cash terms, based on the actual transfer value. The initial charge, and any ongoing charge in the first year, need to be confirmed. It needs to be clear that the initial charge is payable whether a transfer proceeds or not. We can expect the FCA to be particularly concerned with ensuring firms are not seeking to circumvent the ban on contingent charging. This could be the case where a firm advises all clients who only take abridged advice not to transfer - and advises all clients who proceed to full advice to transfer. You should carefully monitor conversion rates following full advice for this reason. Workplace pension schemes Where a workplace pension scheme (WPS) is available you need to demonstrate why an alternative scheme would be a more suitable destination for transferred funds.

This requirement applies to independent and restricted advisers. You cannot exclude consideration of a WPS on the basis of it not being within your usual research parameters, or an inability to facilitate adviser charging. Assessment of a WPS must be completed as part of the Appropriate Pension Transfer Analysis (APTA). This is required even if there may be reasons for not using the WPS (for example, where the client wishes to access funds within 12 months and the WPS does not offer a decumulation option). Considerations will include the need, or otherwise, for a broad range of funds, the impact of charges and whether ongoing advice is necessary.

Summary

There may be a view that the rule changes make it harder to justify a transfer, and this does seem to be the FCA’s intention. However, good advice should always have been agnostic as to whether a transfer proceeds or not, while taking account of the starting assumption. Perhaps some of the problems stem from terminology; rather than referring to a ‘Pension Transfer Specialist’ maybe we should use ‘Pension Assessment Specialist’. Tenet Compliance Services has extensive experience in supporting clients to provide high quality DB advice. With a dedicated file review service, we deliver quality assurance that understands the needs of directly authorised firms.

Chris McGreavey Policy Manager

6 | Investment Outlook - Issue 4

Property funds still facing an uncertain future

It is now more than a year since the FCA published consultation paper CP20/15 “Liquidity mismatch in authorised open-ended property funds”. The paper was in response to the wave of property fund suspensions resulting from the Covid pandemic and proposed the implementation of redemption notice periods for investors wishing to exit open-ended property funds.These redemption notice periods will give property fund managers greater ability to manage liquidity within their funds. In periods when redemption requests are high, this will also give them sufficient time to sell properties in an orderly fashion to protect the interests of all investors in the fund.

CP20/15 indicated that any new rules arising from the consultation would be implemented in early 2021. However, the subsequent feedback to the consultation which was published within FS21/8 in May 2021, confirmed that the FCA will not be taking a final policy position until Q3 2021 at the earliest. The delay is in consideration of feedback on the operational work necessary for fund managers to support a notice period. FS21/8 also confirmed that a suitable implementation period would be applied before the new rules came into force and indicated that the implementation period could be as long as 18 months to 2 years. It seems unlikely therefore that investors in affected property funds will be subject to redemption notice periods anytime soon. However, recent events have clearly shown that managing illiquid assets in an open- ended structure that allows daily dealing is too problematic and the investment industry

does need to work towards a better solution. Although there was general resistance to lengthy notice periods in response to the consultation, just over half of the respondents supported the concept of notice periods in principle, subject to certain conditions, including continued ISA eligibility. There was also a greater level of support among respondents towards shorter notice periods of between 60 and 90 days. It seems probable therefore that whilst they may take a while yet to implement, the general direction of travel is towards mandated redemption notice periods for open-ended property funds. Investors in these vehicles are more than likely to be subject to such measures in the medium term. Until such time as any new rules have been finalised, managers of open-ended property funds will need to continue to ensure that they maintain sufficient liquidity to meet expected redemption requests. Most of the funds suspended in early 2020 have now

Investment Outlook - Issue 4 | 7

re-opened, but there is always the prospect of further suspensions. Albeit fund managers are now holding sizable cash balances to reduce the likelihood of this. For example, the M&G Property Portfolio had just over 15% allocated to cash at the end of July. Holding such large cash allocations will naturally create a negative drag on performance and further call into question the continued viability of these investment vehicles. This was essentially the conclusion reached by Aviva when they announced the closure and wind up of the Aviva UK Property fund in May 2021. The Aviva value assessment concluded that it was too challenging to maintain sufficient liquidity to reopen the fund whilst generating positive returns. The Aviva announcement was followed only a month later with the news that the AEGON Property fund has failed to raise sufficient liquidity to reopen and would also be closing. Overall, the future is looking a little uncertain for open-ended property funds. The need to maintain sufficient liquidity though cash balances will no doubt impact performance in a market where returns are already subdued in some sectors. More fund operators may well eventually reach the same conclusions as Aviva that their funds no longer offer value for money. The average UK property fund has achieved a total return of only 2.6% over 12 months to 31st July 2021, compared with an almost 13% total return for the IA Mixed Investment 20% to 60% Shares sector average over the same period (source: FE Analytics). The eventual implementation of a redemption notice period may well help fund operators to manage better their liquidity positions. However, arguably such a measure may also make the funds less suitable for some retail investors, in particular lower risk, less sophisticated investors, or those looking to take regular withdrawals from their portfolios. It would also be problematic towards the ongoing management and rebalancing of model portfolios to include open-ended property funds with a redemption notice period as a holding. These considerations are quite likely to result in further redemption requests during the implementation period that will follow the FCA’s final policy announcement. The FCA is separately proposing a new fund structure known as the Long-Term Asset Fund (LTAF). This will be an Alternative Investment Fund able to invest in a range of specialist assets, including real estate. These funds will only be available to institutional investors and certified sophisticated investors. The final FCA rules on the LTAF are still awaited, but it is possible that over time some existing open-ended property funds may well end up converting to or being merged into these new structures. Advisers with clients still invested in open- ended property funds will need to give

invests in a portfolio of closed-ended vehicles. This could potentially be more diversified than investing in a single REIT, but care would still need to be taken as such funds are still likely to show a significantly higher level of volatility than a traditional open-ended bricks and mortar fund. Many leading asset allocation tool providers do still stipulate some exposure to property within their strategic asset allocation models. For the time being, Tenet Research Hub will still include open- ended property funds on panel for use where they can suitably align to such models. This position will be reviewed following any future policy announcements from the FCA. Suitable alternative solutions for this asset class, including REITs and managed portfolios of REITs, will be considered at future fund panel reviews and the panel will updated,

some thought as to whether to continue to recommend holding these vehicles. It won’t necessarily be possible in many cases to decide until the FCA’s policy decision on the length of a redemption notice period is known and this can be assessed against the client’s long-term investment objectives. Where property funds are replaced in portfolios, then advisers will need to ensure that the overall portfolio continues to align to the client’s agreed risk profile. Some advisers may consider turning to closed- ended Real Estate Investment Trusts (REITS) to maintain exposure to this asset class and continue to align portfolios to an asset allocation model. Closed-ended structures are listed vehicles and don’t suffer the same liquidity problems as open-ended property funds. The shares in the REIT are traded on a stock exchange without the need to sell underling properties in the portfolio. However, care needs to be taken, some REITs invest in quite specialist property types, the daily price movements can be significant with many trading at large discount to net asset value during the early stages of the Covid pandemic. Furthermore, there may be fixed dealing costs which would make them relatively expensive to buy as only a proportion of a smaller portfolio. The other alternative which could be considered for maintaining exposure to the sector would be utilising a managed fund that

as appropriate, to provide solutions for meeting current guidance and asset allocation requirements.

Mike Dowsett Senior Research Consultant

8 | Investment Outlook - Issue 4

Tenet Invest Events 2021 Supporting your development

Returning to Face-to-Face Events In September 2021 we returned to face-to-face events, visiting locations across the UK to host three rounds of events; Invest Two, Lend Two and Protect Two. We recognise the need to continue producing online content once we are able to host face-to-face events, and therefore will move to a hybrid event programme, planned for September onwards. This means, all our events that are hosted at venues around the country will also be made available to watch online on-demand, once the face-to-face events have taken place. Enabling our members who would prefer not to travel, to still benefit fully from our programme. Plan your calendar for the autumn and secure your CPD requirements. Our upcoming Investment Events These events will focus on investments and pensions. The events are designed to meet advisers’ development needs and provide a valuable insight into the current markets. They will offer a variety of important information from a wide range of provider partners, Tenet’s Senior Management and Tenet Adviser Training. Invest 2 – Face to face and online Supporting Invest Two 2021: Liontrust, Schroders, Fidelity International, Standard Life, Prudential, Vitality, Canada Life, Tatton Investment Management and Selectapension.

Invest Workshops Online – online only Supporting Invest Two 2021 Blackfinch Investments, Aviva Investors, Bordier UK, Deepbridge Capital, Fidelity Funds Network, Octopus Investments, Tatton Investment Management Ltd, Tripe Point, FE Invest, FE Analytics and AXA. These events will cover a range of subjects including intergenerational wealth transfer opportunities, business relief, centralised investment and retirement propositions, IHT planning and succession planning. Date & Time Invest Workshops Online – Part One 01/11/2021 - 1.00pm-2.30pm Invest Workshops Online – Part Two 05/11/2021 - 1.00pm-2.30pm Invest Workshops Online – Part Three 08/11/2021 - 1.00pm-2.30pm Invest Workshops Online – Part Four 12/11/2021 - 1.00pm-2.30pm Event Click here to register for Investment Workshops: https://webinars.tenet.co.uk/invest-workshop-online-2021/ On-Demand 2021 Invest Events If you weren’t able to join our online or in-person events live, you can view these on-demand at a time to suit you : events.tenetgroup.co.uk For more information, contact the events team on 0113 239 0011 or email [email protected] Adviser Forum 2021 We’re delighted to announce that this year’s Adviser Forum and Roaring 20s Gala Dinner is being held on Thursday 2nd December at Kimpton Clocktower Hotel, Manchester. The event is open to all Tenet advisers, paraplanners and support staff and is free of charge to attend, including the gala dinner. Partners are also welcome to attend the gala dinner. The event will include optional pick-your-own topic specific breakout sessions, trade fair, Tenet senior management and external key note speakers, also individual and firm awards. Click here to register for the Adviser Forum 2021: [email protected]

Invest Two Event Location

Date & Time

Stormont Hotel, Belfast

28/09/21 - 9.30am-4.00pm

Hilton Glasgow Westerwood Hotel, Cumbernauld

5/10/21 - 9.30am-4.00pm

Ramside Hall, Durham Crowne Plaza, Leeds

6/10/21 - 9.30am-4.00pm 7/10/21 - 9.30am-4.00pm

Haydock Park Racecourse, Merseyside Stonehouse Court, Gloucester Birmingham, Village Solihull

12/10/21 - 9.30am-4.00pm

13/10/21 - 9.30am-4.00pm 14/10/21 - 9.30am-4.00pm

Click here to register for Invest Two: events.tenetgroup.co.uk

Investment Outlook - Issue 4 | 9

10 | Investment Outlook - Issue 4

Future-proofing your technology

Advances in modern technology have cut development costs and limited the need to create physical infrastructure, rapidly reducing the time between technology breakthrough and mass-market adoption and at the same time significantly increasing the pace of change.

Alexander Graham Bell submitted his patent in 1876, but it took until 1975 for landline telephones to be used in half of UK households1. The tablet achieved the same level of ownership within a decade of launch2 and smart speakers have already reached 22% penetration, less than five years after the UK release of the Amazon Echo. The speed of change means that advice firms need to think about ‘future-proofing’ their technology to meet the evolving demands of the business, clients and the Regulator and avoid being left behind by the competition. Ensuring your technology has the flexibility to integrate your core systems with additional software and tools is one way of adapting your offering in line with the market’s changing needs. As technology has evolved, the way integrations happen has also changed. For instance, when we first started integrating our systems with platforms and other software providers, both parties would initiate a project to define the >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

www.tenet.co.uk

Made with FlippingBook - professional solution for displaying marketing and sales documents online