Investment Outlook - Issue 5

Issue 5 / autumn 2021

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

Headline Story

Special Feature

Other Features Why you shouldn’t discount technology for older clients J pages 8 & 9 What do you use your website for? J pages 10 & 11

Decoding Cryptoassets J pages 4 & 5

Remote and hybrid working J page 6 & 7

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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. We open this issue with an article from Tenet’s Research Hub - Cryptoassets and cryptocurrencies feature heavily in the media. There are regular reports of market speculation, price booms and bust and increasing investor interest. This article explores the risks associated with ‘investing’ in this area and the FCA’s position, together with our view on how you should approach this subject with clients dabbling in this area. One of the most prolific investment discussions of the past 18 months has been whether so-called value stocks will perform better than what are regarded as growth companies. On page 15 , Liontrust’s Jen Causton explains what we mean by value and growth and why this debate matters for investors. When is the right time to introduce the wider family to the financial planning conversation? Canada Life has sponsored AKG’s report on advancing intergenerational financial planning for advisers. Read more about the areas where clients require expert advice and the potential to harness the opportunities on page 17 . Just has suggested that lifetime Mortgage medical underwriting is a new opportunity to achieve better deals for clients and deliver personalised, tailored solutions. Read more on pages 18 & 19 . This has been a milestone year for abrdn. Not only has the organisation rebranded, it’s marking 15 years since its Wrap platform was launched. Steve Owen, Solution Delivery Director at abrdn explains more, on page 23 , about how abrdn is sharpening its focus on Wrap’s user experience and service to stand out from the crowd.

The highly unusual nature of the Covid-19 economic recovery and the resultant policy response has led to broad-based inflationary pressures. Against this backdrop, Fidelity’s Global Macro Team gives its take on one of the key questions of today - will the current price surge prove to be transitory or persistent and how will this shape the outlook for financial markets? Page 24 . On page 25 M&G’s M&G’s second SDG Reckoning report has assessed all 17 SDGs – from a general perspective and through an impact investing lens – using a scale of 1 to 10 to assess progress since last year’s inaugural rankings, determining whether the world has started to follow through on its pandemic-related sustainable recovery pledges. On page 29 Cathal Dowling, Fixed Interest Product Director at Invesco, explores the evidence supporting a more sustained period of US inflation and how this affects views on US dollar duration. On pages 30 & 31 , Lothar Mentel, CEO of Tatton, shares why he is committed to providing the highest quality portfolio management services at the most competitive price to clients. Is our current economic system fit for purpose? With ever-greater awareness of the flaws of our ‘take, make and waste’ economic model, there’s now a determined shift towards a more circular economy, says Sasha Thompson, Investment Analyst with Walter Scott’s BNY Mellon Long-Term Global Equity strategy. Full article page 35 . A business partner for today and tomorrow. Samantha Christopher gives an update on Fidelity FundsNetwork’s ongoing enhancement programme, describing some of the exciting developments that advisers can expect to see on the platform over the coming months. Find out more about how these innovations will help your business and benefit your clients. Page 37 . We hope you find these articles useful and informative as we all head into the New Year and new opportunities.

Best wishes Tenet

Investment Outlook is a Tenet Group Ltd publication c/o Marketing Team Tenet Group Ltd 5 Lister Hill Horsforth Leeds LS18 5AZ Tel: 0113 239 0011 Email: [email protected] Web: www.tenet.co.uk Investment Outlook magazine 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 expressed in this publication do not necessarily reflect those of the advertisers or the publishers.

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Decoding Cryptoassets Cryptoassets and cryptocurrencies feature heavily in the media. There are regular reports of market speculation, price booms and bust, and increasing investor interest in cryptocurrencies such as Bitcoin. In the last month alone, and leveraging on the success of the Netflix series Squid Games, we saw thousands lost on a ‘play-to earn’ cryptocurrency scam over night. On Tuesday 26th October, Squid was trading at 1 cent and had risen to over $2,856 in less than a week. The creators pulled the plug and made off with an estimated $3.38m.

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So what could your clients be getting up to and what should you do about it?

• Bitcoin

US$1,173 billion US$536 billion US$98.97 billion

or suitable for retail investors. The sale of investments that reference cryptoassets was prohibited for retail clients from January 2021, consumers with existing holdings can remain invested until such time as they choose to disinvest.

• Ethereum

• Binance Coin

• Solana • Tether

US$73.38

FCA research has found there are increasing numbers of often younger investors who are attracted to high-risk investments, and cryptocurrencies in particular. It identifies the risk of harm that can occur when consumers may not understand the risks of investing and where the investments may not be suitable for them. It is understood that where clients do hold cryptoassets they typically do so as self-directed investors and outside of any advisory relationship Cryptocurrencies are a decentralised form of digital currency, unattached to any central or private bank. Individual ownership records, and transactions are stored using Distributed Ledger Technology (DLT), known as blockchain. Bitcoin was the first decentralised cryptocurrency, created in 2009. Other currencies include Ethereum, Tether, Cardano and Dogecoin. To buy cryptocurrencies, individuals need a ‘wallet’, which is an online app that can hold the currency. They are primarily used outside existing banking and governmental institutions and are exchanged over the internet. Cryptocurrencies can be used as a means of exchange - for buying and selling goods and services without traditional intermediaries. They are also held purely for speculative investment purposes. Cryptoasset businesses must register with the FCA and comply with the Money Laundering Regulations. However, the FCA does not regulate the conduct of cryptoasset asset businesses. How is the market growing? The market capitalisation cryptocurrency is growing significantly. As of November 2021, the market cap of the 5 largest cryptoassets stood at: they may have. What is it?

US$71.83 billion So despite the risks associated this is still a growing market. The FCA’s position The FCA highlight the following warnings for consumers investing in cryptoassets: • They are very high risk, speculative investments. • Consumers are unlikely to have access to the FOS or FSCS. • Investors should be prepared to lose all their money. Where consumers use cryptoassets to make payments, the FCA state they should be aware that the assets or service they are using may not be regulated, and there will be no recourse tothe FOS or FSCS if anything goes wrong. In the FCA’s PS20/10: Prohibiting the sale to retail clients of investment products that reference cryptoassets, it details particular risks in comparison to other asset classes. It states that:- • The assets have no intrinsic value; the price of cryptoassets is determined by sentiment and speculative behaviour. • Retail consumers cannot value cryptoassets reliably, leading to the high risk of unexpected losses. • There is an increased risk from financial crime, market abuse and operational issues. • Crypto-derivatives do not serve a legitimate investment need. It is clear that the FCA does not consider cryptoassets - whether held directly or through a derivatives based product - as a mainstream investment vehicle that is likely to be necessary

Risks associated with cryptoassets

The following risks are relevant to cryptoassets: • Product risk: Cryptoassets are very high risk, speculative investments. • Risk to capital: Capital losses can be large, and investors may lose all their money. • Volatility: The price of cryptoassets can be subject to significant increases and reductions. Price changes are driven by market speculation rather than being reflective of underlying value. • Financial crime: There is a high fraud risk. Cryptoassets are a target for fraud and scams. • Liquidity: There is no guarantee that cryptoassets can be easily converted back into cash. Converting a cryptoasset back to cash depends on the demand and supply in the market. • Information: It may be difficult for consumers to accurately assess the suitability and value of a cryptocurrency, or validate the veracity of information that is made available. • Knowledge and experience: Retail clients are unlikely to have an adequate understanding of cryptoasset investments.

• Suitability: There is unlikely to be a clear investment need for cryptoassets for most consumers

Jo Rigby Technical Director

Tenet’s View Our view is that putting money into cryptocurrencies should not be considered an investment, it is a bet. It is speculation that can potentially be rewarding, fun and exciting, or could lead to significant losses. This is a very different activity to what we all know as financial planning. The reality is that most clients seek advice on the maintenance and preservation of capital, rather than speculative accumulation. It is difficult to present a convincing case as to why a financial adviser should, or could, include cryptoassets within their considerations. Cryptoassets are therefore outside of our remit. Given the high levels of media coverage, and potentially increasing levels of client enquiry, it would be recommended that this position is made clear to clients who enquire about Cryptoassets. You could refer a client to the MoneyHelper or the FCA’s high-risk investment pages for further information.

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Remote and hybrid working

Many organisations have moved to working on some form of remote basis. This can bring benefits and challenges for individuals and firms. Where remote working will be on a more permanent basis it’s important to manage the associated risks.

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Governance and culture In smaller firms, when senior managers are asked about governance arrangements there can often be some reference to the closeness of the team. ‘Floor walking’ may be given as an example of how contact is maintained and supports their understanding of what is going on. These are valid responses, but effectiveness can be diminished when there is reduced physical interaction. Remote working can affect the culture of your firm, and have an impact on staff welfare and training. Diversity and inclusion is a current regulatory focus and remote working poses a challenge – how do you ensure that colleagues remain included when they are based remotely? If some staff are more commonly office based and others are at home, there is risk of decision making becoming concentrated in the group present in the office to the exclusion of others. You can consider strategies to mitigate these challenges. For example, by establishing a more structured approach to employee contact and setting specific days and times for interaction. You can set expectations for how the team should communicate – protocols for when email, phone or Teams calls are likely to be most effective. Additional efforts might be needed to create spaces so people don’t get left out; this could be virtual social events or more team away days, for example. Managers might need to make extra efforts so that staff know they are

accessible and available for support; it can be harder for some people to knock on a ‘virtual door’ for a quick chat. Operational considerations Think about your systems, controls, and IT infrastructure – will they support you in being able to continue to meet your obligations? Will staff have the same access to client records, company policies and procedures as they would do in a physical location? This will enable day to day activities to continue as well as allowing important monitoring work, such as file reviews, to be unaffected. Additional consideration may need to be given to >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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