Expert: Paul Speight from Canada Life & Henny Dovland from Time Investments Facilitator: Rupert Neville, Consultant
Headlines:
- Advisers use alternatives to de-risk; however, there remains concerns from some about the costs and performances of funds, along with the large discounts Investment Trusts are trading at
- Currently there are disincentives, certainly with small firms, to take on the additional risks associated with alternatives, given the regulator’s perception and cost of PI
- Equity Release is becoming more important, as long as it is financial planning led
- With model portfolios looking less attractive, clients should consider alternatives as part of their investment strategy, as there are likely to be more consistent returns. (i.e., long-term infrastructure projects)
Discussion points:
The continued need to educate clients about attitude to risk and use of alternatives, especially given that certain clients can take more or less risk, depending on their circumstances.
It was agreed that when looking at alternatives it was important to look at secured income streams, especially given the importance of achieving consistent returns for those clients in decumulation.
The importance of greater collaboration and training across the industry, especially for advisers, as they need better stories around the use of alternatives.
It was agreed that the current generation entering retirement would continue spending, and it would not tail off as the traditional modelling indicated. Therefore, the use of alternatives for diversification was important, given that model portfolios are looking less attractive.
There is a need for a change in the approach to investing once retirement starts, be it from compliance, risk rating questionnaires or ‘life styling’. Most pension fund solutions, offered to employees at retirement, are unlikely to meet the long-term needs of clients, over the various ‘retirement stages’ in their lives. Those in retirement are living longer and are healthier, which means their spending habits are different to the historic assumptions.
Concern that the regulator and the cost of PI disincentivise advisers to use alternatives. The unintended consequence has resulted in clients staying in more volatile portfolios. Adding alternatives, such as infrastructure, would have provided better returns with less volatility. The example discussed, was how low risk portfolios, invested in gilts, had fared over the last 12 months with rising interest rates etc.
Consensus was equity release is going to become more important, given the argument that it is more IHT friendly, than drawing on a pension. It was agreed that equity release had to be led by authorised financial planners, with mortgage advisers doing the implementation.
Key takeaways:
- Introducing a mechanism preventing investment trusts, especial those invested in alternatives, trading at large discounts would make these types of investments more attractive to investors
- The last 12 months has seen investment trusts trade at even larger discounts, than normal, which has impacted clients’ confidence in alternatives
