SEPTEMBER 2020 Brought to you by
POLICY AND TECHNICAL Q&A In this issue we look at two key areas of focus for the regulator in recent months. The first covers the FCA’s rules and guidance changes in relation to pension transfers whereas the second focuses on the FCA’s concerns over equity release sales.
THE FUTURE OF CENTRALISED INVESTMENT PROPOSITIONS Intelliflo explain how a centralised investment proposition (CIP) can deliver consistency of advice, superior client outcomes and a more efficient business operating model.
ADVISING IN UNCERTAINTY Accord discuss how feeling in control of your finances is fundamental in a crisis and having a trusted adviser never more valuable.
HOW DIET CONFUSION CAN HIT HEALTHY EATING AIG Life research shows more than two out of three adults find it hard to eat healthily despite millions going on diets at least twice a year.
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Service Charter Here at Bankhall, we’re passionate about the service we deliver to you and believe the key to great service is doing the basics consistently well. We also believe that you should know exactly what kind of service you can expect from us and that you should feel confident that you will receive it every time, no matter which department you’re dealing with. That’s why we’ve created our Service Charter, built around three core principles and ensuring that you always know what to expect from us. We’ve listened to your feedback from the annual member and client survey, as well as the feedback you send through We Listen, and have identified the key commitments that matter to you.
Honesty – behaving with integrity •
We will find solutions and set expectations to your queries, keeping you updated every step of the way • We will be clear, concise and open with you - you can count on us to do the right thing • We will always aim to give you an answer within a realistic timeframe and will keep you updated until your query is resolved • If we make you a promise, we will keep it
Communication – keeping you informed every step of the way •
We will adopt a ‘resolve and respond’ approach to your requests, aiming to settle your query at the first point of contact
We will put people first and always try and communicate with you in a way that suits you
Ownership – taking responsibility •
We will aim to give you a single point of contact to resolve your query. If we do need to pass you onto another department or individual, we’ll ensure a seamless handover, as well as informing you of your new point of contact
We would love to hear from you with regards to our Service Charter, any suggestions that will help us make the service even better, or feedback on the service you have received from Bankhall that you would like to bring to our attention. Our We Listen feedback framework is here to ensure you are heard. You can contact us by emailing firstname.lastname@example.org or call 0345 300 5326.
We have identified the three key commitments that matter to you
TO THE LATEST EDITION OF LOOKING GLASS In this issue of Looking Glass, we delve into the key areas of focus for the FCA in recent months, covering the rules and guidance changes concerning pension transfers and the regulator’s concerns over equity release sales. Plus, we take a look at the FCA’s business plan, which focuses heavily on the regulator’s ongoing response to the COVID-19 pandemic. And, as our magazines transition back to our usual format, you can once again get all the latest insight and thoughtleadership from our provider and lender partners. We hope you enjoy the latest issue of Looking Glass. Best wishes, The Bankhall team
IN THIS ISSUE 04 Policy And Technical Q&A Bankhall
14 The Future Of Centralised Investment Propositions Intelliflo
24 Relationships: The Key To Keeping Mortgage Clients Coventry for Intermediaries
16 Pensions And The Ever Changing Landscape Architas
26 At Legal & General, We Believe In The Importance Of Support Legal & General
08 The Unstoppable Ascent Of Sustainable Investing Fidelity International
18 Defined Benefit Advice And PS20/06 - The Rise Of The FCA Scottish Widows
10 Times Are Changing For Retirement Income Advice Just
06 Plus Ça Change – The Unchanging FCA Business Plan In A Changing World Bankhall
12 Investing In A Healthier Society M&G Investments 13 Why Advisers Should Invest In An Online Client Portal Aviva
EDITORIAL / DESIGN TEAM
Lending In Later Life: The Adviser, The Market And The Lender The Tipton & Coseley Building Society
21 Advising In Uncertainty Acord Mortgages 22 Can The Mortgage Market Be Ethical? Platform
How Covid-19 Has Affected The Housing Market And What Paymentshield Are Doing To Help You Paymentshield
29 How Diet Confusion Can Hit Healthy Eating AIG 30
Covid Casts A Whole New Light On ‘Protecting Income’ - For Both Clients And Advisers LV=
Senior Marketing Executive
CAS-16848-P6F5H6 This publication is issued by Bankhall Support Services Limited, a company registered in England and Wales with company number 2785381, whose registered oﬃce is at Pixham End, Dorking, Surrey RH4 1QA. Bankhall is a trading style of Bankhall Support Services Limited and Bankhall® is a registered trademark of Sesame Bankhall Group Limited. This document is for use by ﬁnancial advisers only and is not approved for use with customers. The views expressed in this publication may be those of individual authors and do not necessarily reﬂect those of Sesame Bankhall Group Limited. Whilst every eﬀort is made to ensure that contents of this publication are correct, we cannot guarantee complete accuracy and do not accept responsibility for errors. No reproduction of any information within this publication is permitted without prior written consent from the Sesame Bankhall Group Limited.
Dan Owen Regulatory Development and Policy Consultant
POLICY AND TECHNICAL Q&A In this issue, we look at two key areas of focus for the Regulator in recent months. The first covers the FCA’s rules and guidance changes in relation to pension transfers whereas the second focuses on the FCA’s concerns over equity release sales.
There will be limited ‘carve-outs’ from the ban for customers who are either in serious ill-health or in serious financial difficulty. However, there are specific criteria that customers would need to meet to fall into either of these categories.
What are the most recent changes to the Pension Transfer rules?
Rules will also be in place to prevent firms from ‘gaming’ the system which will mean, for example, that firms cannot offset the costs of pension transfer advice against other work undertaken for the client (e.g. – investment advice), or fail to take sufficient steps to ensure payment of advice fees where customers are advised not to transfer.
The principle focus of the FCA’s latest policy statement (PS20/6) is on the removal of contingent charging for pension transfer advice. However, there are also other key changes that will have a significant impact on firms who advise in this market such as a requirement to consider a client’s Workplace Pension Scheme as the default option, in terms of a receiving scheme and enhanced disclosures in respect of costs and charges. The FCA is also proceeding with rules and guidance to enable firms to provide ‘abridged’ advice to enable customers to access initial advice on pension transfers at a more affordable cost. This advice can only result in a recommendation not to transfer or the customer being informed that is it not clear whether or not a transfer would be suitable based on the information collected. Customers who have received abridged advice can proceed to full advice if they wish.
How does the ban on contingent charging work? The FCA has taken forward the ban for only charging for advice, where a pension transfer or conversion proceeds. Essentially, firms will have to charge the same monetary amount for advice to transfer as for advice not to transfer.
When do the new pension transfer rules come into force? Apart from changes relating to estimated transfer values and triage services that came into effect in June 2020, the remainder of the changes take effect from the 1 October 2020.
Where can I find more information on the Pension Transfer changes? We have only touched upon some of the key changes here. There are many other changes we haven’t even mentioned. The permutations of the contingent charging ban are also considerable, so firms will need to be fully aware of these before reviewing their charging structures. Therefore, we would advise all firms active in the pension transfer market to read the two Bankhall Regulatory Analyses available on Bankhall Online covering the latest changes. One covers the FCA policy statement whilst the other covers proposed FCA guidance to assist firms in understanding the practicalities of the new regime.
What are the FCA’s concerns with equity release sales?
What sort of poor outcomes were identified?
In June 2020 the FCA released the findings of a thematic review of equity release sales in which significant suitability issues were identified. The FCA had already made plans to conduct a thematic review of equity release sales before the coronavirus pandemic, but recent concerns over the rise in sales of these products during the pandemic magnify the issues raised.
The FCA found examples of:•
Younger consumers not being told of their other borrowing options, such as traditional mortgages. These may be cheaper and more flexible, given the difficulty in predicting consumers’ future circumstances and needs for 30+ years.
The review found equity release to be working well for many customers but highlighted three significant areas of concern with firm’s sales processes:-
Short-term benefits, such as consolidating debts and freeing up cash, being wiped out by the long-term cost of equity release. In most cases interest rolls-up (rather than being paid monthly), meaning interest compounds over many years, so the debt can end up being several times the amount borrowed. This can be particularly damaging where consumers have surplus income that they could have used to repay the debts, rather than consolidating them.
Customers paying substantial early repayment charges of tens of thousands of pounds only a few years after taking their loan, because their circumstances have changed.
Consumers limiting their ability to release further cash or downsize in the future without repaying their equity release in full.
The advice given by firms did not always sufficiently take into account consumers’ personal circumstances;
Firms weren’t always able to evidence that their advice was suitable; and
Consumers reasons for looking at equity release were not always challenged by firms.
On this third point, the FCA have significant concerns as they see the role of the adviser as vital in highlighting the potential drawbacks of equity release such as the impact of consolidating short term debts into a long-term loan.
We strongly recommend any firms active in this market to consider the FCA review findings as they have promised to conduct further reviews in future. The report can be found on the FCA website and is entitled ‘The equity release sales and advice process: key findings’.
Paul Fothergill Compliance Policy & Regulatory Development Manager
PLUS ÇA CHANGE – THE UNCHANGING FCA BUSINESS PLAN IN A CHANGING WORLD The publishing of the FCA’s business plan is always an exciting moment in the exhilarating world of compliance. What clues can we get about how the FCA will focus their attention over the course of the next year? Are there any surprises we weren’t expecting? Has it been knocked for six by the current pandemic? Unsurprisingly the latest edition of the business plan focusses heavily on the FCA’s ongoing response to the Covid-19 pandemic. The regulator has been scrambling to ensure that markets continue to function well and that consumers are being treated fairly by firms. If this sounds familiar to you, it’s because you’ve heard it before. The FCA is nothing if not consistent with the business plan, given that the plan looks to help the FCA to meet its strategic objectives of protecting consumers, protecting financial markets, and promoting competition. The Covid-19 pandemic has caused a great deal of upheaval in society and consequently in financial services, but the core tenets of the FCA will not change because of this. We are seeing a rise in the number of consumers whose finances are in difficulty, whilst firms adapt to cope with the loss of business. Although the pandemic may be unlike anything we have experienced before, the economic effect on individuals and businesses is not. In many ways, the work undertaken in previous years to focus on vulnerable customers, firm resilience, and fair treatment for all has helped to make financial services more resilient. Despite the similarities every year, within the broad context of their strategic objectives, the FCA focusses in and out on different areas of financial services, peeking under rocks and looking for the creepy crawlies. The priorities that the regulator has promised to look at over the next few years include the intriguing “transformation of the FCA”. The goal of this priority is to improve the way that the FCA operates internally. The regulator has stated that it wants to make faster and more effective decisions and to operate in a more integrated way across the organisation. Achieving these goals
would be a good achievement in making the FCA a more effective regulator. The slow nature of the FCA’s response to issues and bad apples within financial services can sometimes be frustrating, particularly for firms who follow the spirit of the regulations and look to do the best for their customers. Better integration at the FCA should also help to improve direct interactions with firms and mean that responses are quicker and deal promptly with the issues raised by firms. A final point of interest from the business plan is a further mention of fair value. Again, this is nothing new, with mentions of fair value in financial services in many of the FCA’s recent publications. The specific focus of fair value in this year’s business plan is related to digital offerings. The concern of the FCA is the rise in digital offerings is meaning that some consumers are not being treated fairly in the pricing and other terms they receive. The plan states that consumers should be able to benefit from digital innovation and competition and to have confidence that they are getting fair access, fair price, and good quality. This appears to feed into similar work undertaken in the insurance market, where the FCA has looked at value in the distribution chain. It would seem that this will be extended to look at digital offerings to establish how much of the consumer’s payment goes to providing the product and how much goes to providing services along the way. As ever, the latest version of the business plan is not rocket science. Any financial services firm worth their salt knows that putting the customer at the centre of your business is the right thing to do for both the customer and for your business. The efforts of the FCA will continue to focus on customer outcomes. With a new Chief Executive, Nikhil Rathi, appointed in June we can be sure that he will be keen to build a legacy. The hope is that if this can result in faster and more effective responses from the FCA, then the benefits will be felt by all the firms doing the right thing.
As part of our COVID-19 Support Hub, the central location where you can find the latest key updates, tools and resources from across the industry and beyond, donâ€™t miss our all-new series, The Adviser Podcast. This podcast is designed to help you navigate through uncertain times.
Investments & Pensions Ned Salter Head of Equities Global Research & Asia Ex-Japan
THE UNSTOPPABLE ASCENT OF SUSTAINABLE INVESTING The assumption that shareholder returns should be maximised at any cost has been challenged by Covid-19, further embedding sustainable investing as a future destination for asset flows.
demonstrating good corporate citizenship and support for the communities in which they operate is now an essential part of building and sustaining brand equity post-crisis.
The bottom line isnâ€™t the top priority that once was. In decades past, corporate earnings calls focused on quarterly earnings per share, performance relative to past quarters and future expectations. These numbers express the priorities of shareholder capitalism and its measures of corporate success.
Corporate action and sustainable capitalism
While valuation metrics are unlikely to change, weâ€™ve heard CEOs and CFOs demonstrate a very different focus on their earnings calls since March. They are striving to communicate different numbers, which represent their efforts to protect and support employees, customers, suppliers and communities. The Covid-19 crisis has accelerated the adoption of sustainable capitalism, in particular on matters related to the social good which may ultimately prove to be ground-breaking.
Mapping the transformation on-the-ground We have been able to map this transformation of corporate purpose via our monthly survey of more than 140 of our analysts worldwide. For example, over half of the responses to the May Fidelity Analyst Survey indicated an increase in company plans to step up focus on workers, consumers and the wider community as a result of the pandemic. Across sectors and regions, our analysts said that the health of staff has been at the forefront of managementsâ€™ minds, and companies will devote more attention to employees safety and wellbeing in the future. The survey also found that for some companies,
Listening to what companies are saying is useful, but tracking what they actually do is better. Many listed companies are changing the way they allocate funds. They are reducing share buybacks, slashing dividends and cutting executive bonuses, and instead are guaranteeing jobs and providing extended paid sick leave, enhanced health coverage and child care. This focus on employee safety and improving employee satisfaction is a recognition that the increased productivity and goodwill earned from these measures will help companies survive and thrive in the long run, as illustrated by an example picked out by our analysts below:
Mengniu throws lifelines to its supplier chain Chinese dairy producer China Mengniu has kept its commitment to buy milk from dairy farms and honoured its procurement obligations through the crisis, despite lower expected enddemand. Mengniu also provided zero-interest funding to support farms with temporary financial liquidity problems. Not only will this help farmers survive, but it also stops a lot of raw milk from going to waste. Mengniu plans to convert this raw milk to milk powder to store as inventory for future use. This will hurt margins in the nearterm, but crucially it protects its supply chain and the sustainability of the business over the long-term.
Investments & Pensions
Implications for the future These developments will have both intended and unintended implications for assets. On one hand, some companies could face lower profit margins due to higher labour costs, costs for compliance with environmental regulations and cost inflation stemming from localised supply chains. More sustainable private consumption patterns and adherence to circular economy principles could also constrain top line revenue growth. Taken together, this could result in more gains in the real economy at the expense of financial assets. On the other hand, as a greater number of companies focus on the long-term sustainability of their business models, picking the right investments should still lead to consistent and high returns. Itâ€™s important to remember that compounding returns from cash generating, long-duration investments with high survival rates are the bedrock of long-term investing. In the near-term, investments in sustainable companies should benefit from improving valuations for high ESG scores, augmented by outsized fund inflows. These companies will also have better access to lower cost and longer-term funding, an advantage that serve them especially well, if and when rates begin to rise. It is likely that the extreme and tragic experience of the Covid-19 pandemic has resulted in a permanent change to the mindset and attitudes toward sustainable capitalism
This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of investments in overseas markets. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Reference in this document to specific securities should not be interpreted as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and current and semi-annual reports, free of charge on request, by calling 0800 368 1732. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0820/32045/ SSO/NA
Investments & Pensions Stuart Slegg Product Manager
TIMES ARE CHANGING FOR RETIREMENT INCOME ADVICE The Retirement Income landscape is very much on the FCA’s radar. Earlier in the year the FCA issued a ‘Dear CEO’ letter announcing amongst other things, Assessing Suitability Review 2. The review will focus on how Retirement Income advice has and is being delivered to the consumer and is set against a backdrop of both PROD and SMCR. This article discusses six key themes highlighted in a recent Assessing Suitability II webinar, featuring Rory Percival, held on 27 April 2020 by Novia and Just Group
Let’s start with meeting PROD requirements How do you organise Retirement Income advice for your clients? The Product Governance Sourcebook or PROD was introduced to ensure that a firm structures their advice proposition in a client centric way that delivers good customer outcomes. It requires an advice firm to: •
Understand the financial products and services distributed to clients.
Access the compatibility of the products and services with the needs of the client, taking into account the identified target market.
Ensure products and services are only distributed when in the best interest of the client.
A key requirement of PROD is for firms to identify a target market for each of the products recommended to their clients and that the target market identified should be at a sufficiently granular level. In order to achieve this it becomes paramount to consider segmenting your client bank by breaking broad cohorts of clients
into smaller subsets based on their underlying needs, objectives and charateristics. For example, clients taking a retirement income could be broken into smaller subsets based on their capacity for loss and or views on security vs flexibility. Clients with a lower capacity for loss are likely to require a greater degree of certainty from their retirement income solution. Firms then need to ensure that the specific needs and objectives of each sub-segment is taken into account when designing and developing the retirement income proposition and service they offer.
Is this all documented and consistent? A firm’s approach to PROD must be documented. Firms are required to regularly review the products and services they recommend. The firm’s management has full accountability for the governance process and its documentation. The compliance oversight function must also monitor both the development and periodic review of the process.
Do you have a Centralised Retirement Proposition (CRP)? CRPs recognise that there are key differences between accumulating money for retirement and applying that money during retirement to provide an income. It’s intended to provide a framework to ensure that clients with similar needs, aims and risk profiles end up with similar recommendations. As a client transitions into decumulation the key drivers underpinning the decision-making process should change. CRPs enable a shift in focus from a subjective assessment of attitude to
Investments & Pensions
risk provided by the client to an objective assessment of capacity for loss calculated for the client and based on their ability to absorb falls in the value of their investment. This shift in emphasis is much broader than just implementing a differentiated investment proposition and should also consider process. For example, a CRP will need to consider how to deal with some of the challenges clients face in later life such as changes in health.
Can a CRP be influenced by behavioural bias?
emphasises that this is an assessment of your client’s behavioural and emotional response to the risks and benefits of giving up guaranteed benefits and suggests firms consider implementing a range of balanced, open questions, using language that’s free from bias when exploring this with clients. In addition, COBS 19.1.6G (4) (b) provides a range of factors a firm should take into account before recommending a transfer. In our view the key questions in this area from a retirement income perspective are:
We’re all prone to unconscious emotional and cognitive bias. One of the best ways to manage biases is to be conscious that they exist. From a retirement income perspective biases can surface at a firm level in the way propositions are designed and developed and in the way advice is provided to clients.
What’s the client’s attitude to certainty of income in retirement?
The client’s thoughts on the risks and benefits of flexibility
Is the client likely to access funds in an unplanned way?
It’s important to ensure there’s a framework in place for managing these biases at firm level to ensure that products recommended to clients are aligned to their needs and objectives. The ‘Dear CEO’ letter referenced that conflict of interests must be identified and where they cannot be prevented, disclosed and managed.
The likely impact of the above on the sustainability of the funds over time
The client’s attitude to and experience of managing investments or paying for advice on investments so long as the funds last.
Considering the impact of unconscious bias at client level is also important. A 2014 FCA study talks about how the impact of framing retirement decision-making through an investment, rather than a consumption lens, impacts outcomes. Clients spend their entire working lives accumulating pension wealth and the risk of losing those savings looms large as they transition into retirement income. When viewed through an investment frame, mental accounting and loss aversion can explain the unpopularity of annuities in retirement income planning. This is because annuities can often be seen as risky gambles where potential losses loom larger than potential gains. However, these views often change when the solution is viewed through a consumption lens. It’s therefore important to have a retirement income framework in place which manages both bias at a firm level and client bias too. It will also cut through any adviser bias to ensure they don’t cloud conversations about a client’s true needs and objectives.
Dealing with potentially conflicting needs of flexibility and security The FCA recently published GC20/1 which provides guidance on the FCA’s expectations when advising on pension transfers and conversions. There’s clearly some areas within this consultation that can be applied to retirement income advice more broadly. For instance the guidance recommends that firms should consider splitting income needs into essential, lifestyle and discretionary. That understanding a client’s essential income needs as well as their desired lifestyle and discretionary expenditure is key to establishing a client’s capacity for loss as well as balancing their specific needs and objectives. PS18/6 Advising on Pension Transfers introduced the concept of attitude to transfer risk when recommending a DB transfer. GC20/1
We also believe that a key area to consider is your clients health and lifestyle. Both these factors can enhance the retirement income options avalaible to your client and align to some of the more generic best practice outlined in GC20/1 as well as COBS 9.3.3.
There’s a clear indication to how the FCA are likely to view the type of factors that should be considered when trying to balance a client’s objectives between security and flexibility in broader retirement income advice. Time to review your Retirement Income advice framework? As we head towards the FCA Assessing Suitability Review 2 in early 2021, now seems like a good time for a review of your Retirement Income advice framework.
For more information Call: 0345 302 2287 Lines are open Monday to Friday, 8.30am to 5.30pm Email: email@example.com Or visit our website for further information: justadviser.com
Investments & Pensions Ben Constable-Maxwell Head of Sustainable and Impact Investing
INVESTING IN A HEALTHIER SOCIETY How companies can target sustainable returns from addressing the world’s healthcare challenges That many of us today can expect to live longer and healthier lives is largely thanks to medical advances. Some of these innovations have been the product of revolutionary science, while other improvements have been incremental. All of these advances, however, are the product of investment. It often costs companies millions of pounds to develop laboratory research and to manufacture new devices. It also tends to take years to undertake trials and receive approvals – with no guarantees of success, of course. Where companies can successfully combat the world’s major health challenges, I believe long-term investors can be rewarded for their patience, with lasting benefits for society.
Living longer, living better The importance of addressing these challenges is reflected in the UN Sustainable Development Goals, which articulate the world’s most pressing sustainability issues. Specifically, Goal 3 is to ensure healthy lives and promote well-being for all at all ages.
quality, or better value, should not only enjoy commercial success, but also help extend good health to more people around the world.
Measuring the health benefits For investors attracted by the sector’s ability to deliver societal benefits, I believe it is important to gauge the positive impact that a company is having through its activities. This is not always easy. After all, ‘not everything that can be counted counts, and not everything that counts can be counted’, to borrow a well-known phrase. Nonetheless, measurability is one of the central tenets of impact investing. Looking at how a company intends to address a specific healthcare challenge and reach those who are in the greatest need, as well as the tangible steps it is taking to achieve this goal, is a sound place to start. It is also important to consider how replicable its products or services are, and whether they would be provided if it did not exist or was not funded. Crucially, as impact investors, we must also consider the materiality of those products or services – for instance, how does a new drug save lives? Improving lives can have an equally significant impact. ALKAbelló, for example, is a pharmaceutical company that specialises in developing products for the more than 500 million people worldwide who suffer from allergies. Among its innovations have been immunotherapy tablets against some of the most common respiratory allergies – including grass pollen and house dust mites – that allow allergy patients to selfadminister from the comfort of their own home. Innovations like this can positively transform lives, helping realise Goal 3 of the SDGs.
The importance societies attach to good health is reflected in the amount spent on it. It is typical for better-off countries to spend roughly one-tenth of national income, as measured by gross domestic product (GDP), on healthcare goods and services.
Pursuing healthy returns
Moreover, the trend is upward. The share of the UK’s GDP spent on healthcare rose from 7.4% to 9.6% between 2007 and 2017, according to the OECD. In the United States, the world’s largest healthcare market, it rose from 14.9% to 17.2% of GDP during this period.
By providing capital to companies that have a demonstrably positive impact on people’s health, long-term shareholders can help them develop their businesses, and therefore contribute to longer and healthier lives.
With societies ageing, putting upward pressure on healthcare costs, companies that can deliver healthcare goods and services at better
Through the investments we make, I therefore believe we can aim to have a positive societal impact over the long-term, alongside sustainable financial returns.
When investing for impact, it is important to analyse companies on their own merits. In every sector there will be leaders and laggards.
Investments & Pensions
Ian McKenna Managing Director of FTRC
What to look for Probably the most important function of a good client portal is enabling a client to see all their savings and investments in one place and have these updated automatically via the online valuation services from platform and life companies. Certain things should be hygiene factors and if they are not included within a portal, I would say it’s not fit for purpose. These include secure communications, i.e. the ability to send messages, reports and other documents securely between the adviser and the client, so there is no need to use email and all such communications are kept together in one place. A general document store is also essential. This will include everything shared between an adviser and client together with policy documents, transaction notes, etc. This should also enable clients to securely keep copies of all key personal information, e.g. copies of passports, wills, medical information they may need when travelling, home and car insurance policies, and breakdown and maintenance contracts. Clients should also be able to decide which documents the adviser can see and which remain private.
WHY ADVISERS SHOULD INVEST IN AN ONLINE CLIENT PORTAL Fifteen years ago, if you suggested to anyone that it would become commonplace for people to constantly take pictures on their phones and share them with the world online people would have laughed. Then Mark Zuckerberg invented Facebook and Steve Jobs created the iPhone. Being connected is part of everyday life for the overwhelming majority of consumers. Facebook, Twitter, Instagram and WhatsApp are all tools that people use regularly to communicate with friends and family. When people want information they go to online services and predominantly via their mobile phones. If a business doesn’t have a presence where their clients and prospective clients are looking for information they are going to be far less visible. This makes it essential for a modern advice firm to have a highly functional client portal, which fully represents the services the firm offers, and can be available when your advisers are not. Just as different types of social media apps are used for different things, an adviser’s client portal needs a wide range of different features within it. Some of these are must-haves for a viable portal service whilst others are highly desirable additions.
The best client portals will now include a virtual meeting capability to communicate with clients and also Open Banking aggregation. This will allow consumers to see their short-term financial information side-by-side with their medium and long-term investments to deliver a truly holistic picture of their financial lives. The most advanced systems will now help clients identify the ways they can achieve economies in their financial affairs and other ways in which they might make better financial decisions. These can be powerful tools to identify further advice opportunities.
Always there for your clients An adviser’s client portal is a way for the firm to be available to clients whenever the customer wants their information. Frequently these services are most used at times when advisers are not normally working. Before COVID-19, this was predominantly in the morning before work or early evening on weekdays, i.e. when many clients were commuting. It remains to be seen how this pattern will alter as a result of recent events. FTRC are currently conducting research into this. Client portals are also very popular over the weekend so, unless advisers wish to spend more time working weekends, an adviser’s portal should be the first place their clients turn outside office hours. But, if the adviser doesn’t have one, clients will look for other information services online. This inevitably means they will come across other organisations who are offering client portals.
Increase your firm’s value I am aware there are some firms who don’t believe their clients use technology and therefore argue they don’t need to invest in a client portal. The challenge here is how do you attract new customers? If an adviser is looking to sell their business, potential buyers are taking an increasing interest in the demographics of the customer base and this can significantly impact prices paid. It is really valuable for advisers to provide a demonstration of the client portal capability in the public domain area of the website. The vast majority of consumers will check out the firm’s website before approaching them as prospective client, so a demo of the features they can access from your client portal should also be a must-have for your website.
Investments & Pensions Bradley Booth iMPS Business Consultant
THE FUTURE OF CENTRALISED INVESTMENT PROPOSITIONS When implemented well, a centralised investment proposition (CIP) can deliver consistency of advice, a more efficient business operating model and, most importantly, superior client outcomes. To better understand how advisers currently engage with their CIPs and what needs to change for the better, we asked the lang cat to carry out some research among advisers on our behalf. That research took place in May 2020 with 110 financial advice professionals, all of whom use a CIP and forms the basis of the paper, ‘Better. Stronger. Faster: how do we rebuild centralised investment propositions from here?’ which you can download at www.intelliflo.com/centralised-investment-propositions
Separation, not integration A CIP is not a single entity; it’s much more than just a set of funds. It brings together different systems, providers and tools across the whole financial planning process. But to what extent does it really bring those systems, providers and tools together? Our experience in the market tells us that the relationships are much more tenuous – orbiting satellites rather than effective integration. And that view is supported by our research, with 74% of advice professionals planning to seek deeper integration with their back-office system, platforms and research tools.
Viva la disruption We can break this down into three main elements: advice, investment solution and platform, to see how ripe each is for disruption and what that might look like.
While there is no sign of end-customer price sensitivity, there are an increasing number of low-cost advice services. And then there’s the regulator’s increasing interest in the suitability of advice fees, particularly ongoing charging. Over time this pressure is likely to lead to an increase in firms offering a fixed or capped fee. The amounts charged will remain the same; the structure will evolve. For client fees to fall, so must the cost of delivering advice. One way to achieve that is through better integration with the CIP, with each being as efficient as possible. A starting point for this is mapping the advice process, testing each element. This can also be useful for the move to fixed fees.
Models are, and will likely continue to be, the structure of choice. Beyond that, however, there is great potential in technology enabling new propositions which: •
Allow for ease of portfolio management and ability to quickly react to market volatility
Learn from the DC world and create structures for groups of clients where managers can be appointed and removed without heartache and paperwork.
Enable clients to invest in underlying assets at scale without the complication or expense of funds.
These all exist or will do shortly; the challenge is in their being widely adopted.
Investments & Pensions
The platform market is starting to fragment with low-cost, stripped back services joining established brands. These focus on core functionality with back-office integration a key feature and a paperless advice process encouraged, if not mandated. The biggest challenge for these new entrants is making it through due diligence, convincing advisers sufficiently to lure them away from the big platform brands. Another, more practical, challenge is the extent to which an adviser’s business will be bound up with legacy technology. However good a new offer may be for new business the majority of existing clients will remain in situ.
This is what better looks like CIPs are quickly becoming the kingpin of an advice firm. It’s easy to think of a CIP as a portfolio, but the most successful firms are proving that it’s the logic behind their recommendations, and the process each client is taken through to ensure they are offered robust, repeatable and personalised advice. While the majority of firms are comfortable with the outcomes their investment solutions are generating, there is a great deal of room for improvement from an operational perspective and in terms of client experience. With better integration of technology, a lot of CIPs could be run more efficiently and with less business risk along the way.
What needs to change? For advisers, integrating each element of the CIP, including research and planning tools, investment management and platform, with
each other and the back-office system is a far more effective way of delivering the proposition than the siloed solution most firms currently use. Only by integrating fully with the back-office system can firms improve the efficiency of their processes and, crucially, start to benefit from implementing a client portal – improvements to which are an ambition for 71% of our respondents. A client portal can address a good number of operation issues which currently blight firms, enhancing the client experience and making the business more efficient. With widespread adoption of digital services accelerating in the wake of Covid-19, an increasing number of clients are likely to expect to be able to interact with their adviser electronically.
Simplifying investment portfolio management To compliment your CIP with a fully adviser branded, truly engaging investment proposition - our Integrated Model Portfolio Service (iMPS) enables advice firms to offer an immersive investment solution which allows clients to visualise the investment decisions you recommend to them, and demonstrate the value you add to their financial journey. For further information on iMPS, integrated-model-portfolio-service
Investments & Pensions Jon Arthur Senior Product Specialist
PENSIONS AND THE EVER CHANGING LANDSCAPE Many celebrated investors have been guilty at some stage of being overly reliant on historical returns when constructing their portfolios. An overly zealous interpretation of Markowitz’s efficient frontier or the ‘business cycle’, combined with a loss of real world perspective can easily translate into periods of poor investment performance. Perhaps it is human nature to feel more at ease looking back than to look forward. In the same vein, those offering financial advice to clients approaching drawdown are at risk like never before of delivering poor client outcomes. The investment landscape has markedly changed, and this is having an uncompromising impact on successful financial planning and investment design in retirement.
Drawdown levels So what drawdown level is realistic in a defined contribution (DC) pension today? If we set the scene by winding back the clock over the past 25 years, let’s see what rate retirees could have taken each year. It would have been possible to comfortably take an inflation adjusted annual drawdown of 5.5%, or a 7% nominal annual drawdown from a diversified 60:40 equity portfolio. Most investors at the point of retirement today would bite your arm off for those returns going forward. In fact, today a 7% drawdown rate only has a 25% probability of lasting for 25 years of retirement (Source Moody’s, as at April 2020).
Decreasing growth rate forecasts The reasoning behind this darkening retirement outlook lies in the current extended market valuations and longer term global growth projections. To put this into numbers, long-term (15 year) annual growth rate forecasts for US equities have decreased by circa 20% over the past 5 years and closer to home long-term UK commercial property annual growth rate forecasts have halved over the same period (Source EValue, as at May 2020). The offshoot of this is that a 4% annual drawdown rate is only just about sustainable for retirement (25 year time horizon), and even that has a 30%
probability of failure (Source Moody’s, as at April 2020). This also does not factor in one off extraordinary costs, like medical issues.
Sequencing risk Another dimension to the retirement planning quandary is sequencing risk, which was put into sharp focus by the recent Covid-19 crisis. Sequence risk is the danger that the timing of withdrawals from a retirement account will damage the investor’s overall return. It was almost impossible to forecast this particular ‘Black Swan’. From a statistical perspective the Covid-19 market correction sat below the 0.5% percentile in terms of probability (Source Moody’s as at December 2019). To put this into context, most risk models do not typically factor in risks below the 5% risk level or 95% confidence interval. So if it is perhaps unrealistic to model similar market shocks, how can advisers help their clients mitigate sequencing risk? Perhaps historically hedging with derivatives has been a go to ‘solution’. But like most things in life, there is no such thing as a free lunch. Using a hedging strategy to cover exposure in a 60:40 portfolio could have serious consequences for returns. For example if you took out a put option on the S&P 500 index that is out of the money, when the put option’s strike price is lower than the prevailing market price of the underlying stock, this would have equated to a total performance drag of 2.5% over the past 15 years. (Source: Architas / Refinitiv, as at July 2020). Going back to today’s capital market assumptions and market conditions, hedging costs are currently at elevated levels. Hence this approach is perhaps not likely to deliver strong client outcomes.
Using a cash buffer Instead a simpler and more pragmatic approach can be using a cash buffer to mitigate sequencing risk. While not wanting to fall victim of being overly reliant on what has come before, market
Investments & Pensions
corrections tend to be relatively short lived and increasingly central banks feel obliged to step in to reverse the slide in market sentiment and asset prices. Using this cash buffer manages or reduces the risk of an investor’s retirement account being seriously impacted by sequencing risk. For example holding a years’ worth of retirement income in cash would have mitigated 85% of sequencing risk exposure on a 60:40 portfolio over the past 30 years. If we try to keep track with the current investing environment, central banks and government appear more willing than ever before to step in with stimulus measures to prop up equity and bond markets. If this approach continues, it may shorten the length of market corrections and in turn validate the approach of holding a small cash buffer to fund pension drawdowns, until markets recover.
Not sticking with the status quo To pick up the narrative of not just sticking with the status quo in terms of asset allocation, alternatives can offer diversification benefits and help improve downside protection to DC pensions. This is particularly relevant when considering the bleak outlook for historical sources of diversification, such as UK commercial property. For example institutional pension schemes increased their average allocation to alternatives to over 25% in 2019 (Source: Mercer European Asset Allocation Survey). The Architas Diversified Real Assets fund offers an exposure to a basket of liquid alternatives, such as renewable infrastructure and medical property. Providing a low-cost single solution for investors that want real assets exposure to diversify risk in their portfolios. It’s a fund that generally delivers less volatile returns than UK equities, for example, during periods of stress. Offering investors an alternative means of diversification within traditional portfolios, which are typically allocated to equities and bonds. And it also aims to provide some protection against inflation over the long term.
At Architas, we design multi-asset funds with the goal of withstanding political uncertainty, without being overly tied to the fortunes of a particular country or type of investment, dependent on the fund’s objective and investment policy. We do this by spreading our clients’ money, where applicable, across a diverse mix of high-quality investments from all over the globe.
This is for professional clients only and should not be issued to or relied upon by retail clients. Past performance is not a guide to future performance. The value of investments, and any income, can fall as well as rise and is not guaranteed. Some of the fund’s portfolio is invested in nonmainstream assets, which during periods of stressed market conditions may be difficult to sell at a fair price, which may in turn cause prices to fluctuate more sharply than usual. AXA is a worldwide leader in financial protection and wealth management. In the UK, one of the AXA companies is Architas Multi-Manager Limited, an investment company that provides access to other investment managers’ services through a range of multi-manager solutions, including regulated collective investment schemes. AMML in the UK works with AXA Group internal fund managers, to find out more information about this please visit Architas.com/inhousemanagers. Architas Multi Manager Limited is a company limited by shares and authorised and regulated by the Financial Conduct Authority (Firm Reference Number 477328). The company is registered in England: No. 06458717. Registered Office: 5 Old Broad Street, London, EC2N 1AD.
Investments & Pensions Gareth Davies Pension Specialist
DEFINED BENEFIT ADVICE AND PS20/06 - THE RISE OF THE FCA On 5th June 2020 the Financial Conduct Authority published their muchanticipated response to the Consultation Paper CP19/25, where amongst other things they had proposed implementing a ban on contingent charging for defined benefit (DB) transfers. The background to this change is that the Government’s pension freedoms gave consumers with defined contribution (DC) pensions more flexibility in how and when they could access their savings. Since then, significant numbers of DB scheme members have transferred to DC schemes so they can access their money flexibly. The FCA data shows that nearly 235,000 members took advice from nearly 2,500 firms on a DB transfer between April 2015 and September 2018, on transfer values worth over £80bn in total. Over 170,000 of them then transferred, including over 9,500 who transferred against advice. In their view, given the advantages of DB pensions, the proportion of consumers that firms have advised to transfer appears too high. While a large proportion of the advice to transfer will have been suitable, their file reviews also show too many instances where transfers were not in consumers’ best interests. They have therefore decided to implement their proposals as outlined in CP19/25 largely as planned, with amendments where they agreed with the feedback’s suggested improvements. This includes proceeding with a ban on contingent charging, included in a package of measures to:
require firms to consider a workplace pension scheme as a destination for a transfer
ban contingent charging for advice on pension transfers and conversions, except in specific circumstances where a consumer is more likely to benefit from advice and maybe unable to afford non-contingent advice charges (carve-outs)
enable firms to give a short form of advice (‘abridged advice’)
empower consumers to make better decisions by improving how advisers disclose charges and requiring checks on consumers’ understanding during the advice process
enable advisers to give better quality advice and improve professionalism by introducing specific continuing professional development for pension transfer specialists (PTSs)
require advice firms to submit new data to improve their ability to supervise the sector.
It is also worth noting that before these new rules come into effect on 1st October 2020, they will be monitoring the market for any signs of an increase in transfer activity. Let’s have a look at some of these changes in more detail:
Contingent Charge Ban The FCA have previously acknowledged that it is difficult to prove statistically a causal link between contingent charging and suitability. They are however proceeding with a ban on contingent charging for both pension transfers and conversions that require a pension transfer specialist to give or check the advice. To address initial conflicts of interest, advisers must charge the same monetary amount for advice to transfer as for advice not to transfer. There is an exception – the ‘carve-outs’ – for specific groups of consumers with certain identifiable circumstances. They are requiring that the amount these consumers, who are excepted from the ban, pay for a transfer, and for ongoing services, should be no greater than it is for those consumers whose transfer advice is charged on a non-contingent basis.
Investments & Pensions
Workplace Pension Scheme To address ongoing conflicts of interest, advisers must consider an available workplace pension scheme (WPS) as a receiving scheme for a transfer and demonstrate why any alternative is more suitable. The FCA believe that transferring to the default arrangement of a WPS reduces the need for, and costs of, ongoing advice. It should also reduce the level of transfers involving unnecessarily complex products and high product charges. The FCA are proceeding with their rules, with some amendments. In particular, they have amended the rules so that they refer to a proposed scheme being ‘more suitable’ than an available WPS, in line with the policy intent. They consider this to be a substantively higher test than the current ‘at least as suitable as’ in COBS 19.2.2 (still often referred to as ‘RU64’) and not just a clarification of existing standards. The use of the current WPS, rather than current and previous WPS, will reduce the time needed to get the information to carry out appropriate due diligence.
Abridged advice This short form of advice enables an adviser to: •
Provide the consumer with a personal recommendation not to transfer or convert their pension.
Or tell the consumer that it is unclear whether they would benefit from a pension transfer or conversion based on the information collected through the abridged advice process. The adviser must then check if the consumer wants to continue to full advice, and if they understand the associated costs.
In the final rules, they have clarified that firms must not undertake APTA, provide a TVC or consider the consumer’s proposed receiving scheme. If firms undertook these processes as part of abridged advice, they would effectively be giving full advice without charge which would undermine the ban on contingent charging. Their final rules confirm that a PTS must give or check abridged advice. In summary, the FCA believe that that proceeding with a ban is a proportionate response to the consumer harm in the market as:
there is a clear conflict of interest in charging on a contingent basis for DB transfer advice where the only two outcomes are transfer or do not transfer
there is a coincidence of advice to transfer and contingent charging: most advice results in a recommendation to transfer and most firms contingently charge
most consumers will not be materially harmed by remaining in their existing DB scheme if they choose not to take advice, and the carve-outs mean there will only be a small number of consumers who are likely to benefit from a transfer but cannot afford advice
as most consumers would not benefit from a transfer, they expect the ban to be effective in reducing both the number of consumers who proceed to a transfer following advice and the harm that unsuitable transfers cause
the ban places a value on advice itself rather than on a transaction, so helps to enhance market integrity
Finally, I would also like to draw your attention to the following FCA publication GC 20/1, Guidance Consultation – Advising on Pension Transfers. This is a useful resource for all advisers specialising in DB Advice, with many examples of good practice quoted for each area of the advice process, together with a handy scheme data template to assist with your data gathering requirements.
Richard Groom Head of Mortgage Sales
study by Best Advice showed that the most popular use of equity release was to fund home improvements.3 Other common reasons include moving to a retirement property, or releasing funds to enjoy their retirement comfortably. Another contributing factor that cannot be ignored is the importance of the Bank of Mum and Dad. It is widely recognised that parents are spending more money on helping their children to buy their first home, with the average donation now being £24,1004, collectively making the Bank of Mum and Dad one of the top ten UK lenders4. But how are they funding this? That’s where later life mortgages come in. By releasing equity to gift to a family member the older generation can make life easier for the first time buyers to get on the mortgage ladder. Many older borrowers have mortgages coming to the end of their term but do not have a repayment vehicle to pay off their mortgage. UK Finance quote some 20,000 borrowers aged 65 and over have interest only mortgages set to mature this year alone. Many of these took interest only mortgages out backed by an endowment policy, ISA or pension. A large number of these loans will mature with a shortfall, and these borrowers will be looking for a new mortgage as a result of this5.
LENDING IN LATER LIFE: THE ADVISER, THE MARKET AND THE LENDER With people living for longer, the UK has an ageing population1. As a result of this people are working for longer and borrowing later into their lives, creating a need for mortgage lenders to support last time buyers as well as first time buyers.
The Adviser With continued growth expected across the later life market, what do brokers think of the future? A recent Best Advice survey showed that of those asked 44% of advisers were clearly active in the market, with a further 31% confirming they are expecting to start writing later life business in the next 24 months. As much as 36% of advisers think that later life lending is likely to make up the majority of their income, this alone confirms the potential of the market and the growing interest advisers have in the area3. With product innovation and more lenders coming to market, the opportunities available for advisers and their clients has increased. This means that advisers no longer need to rely on equity release as the sole option for this growing group of clients.
The Market Research shows that later life mortgage demands are growing,2 but with high demand what is it that clients actually want? A recent LOOKING GLASS
The Lender The Tipton understand that everyone’s needs and circumstances are different when looking for later life mortgages. With their standard later life range, clients can borrow up until their 95th birthday, meaning they can borrow into their retirement or if they are already retired. These products work to a set mortgage term, and the mortgage can be on either a repayment, or interest only basis. The Tipton have also recently amended their standard later life criteria. Where both applicants are retired but cannot prove affordability in sole name, applications can be considered if there is enough equity available to downsize to a two-bedroom flat/house within 5 miles of the mortgaged property. Alternatively, the Society’s RIO range allows clients to use the sale of their home as their repayment strategy (provided they are receiving pension income and have a minimum of 40% equity in the property), satisfying clients’ needs if their historic repayment plans haven’t worked out. In contrast to standard later life lending products, RIO mortgages have no fixed term, and can run until a life changing event occurs. For both product ranges applications on purpose-built retirement properties can also be considered.
https://www.ons.gov.uk/peoplepopulationandcommunity/ populationandmigration/populationestimates/articles overviewoftheukpopulation/august2019
Best Advice Intelligence: Later Life Lending Report (May 2020)
Nadine Edwards Corporate Account Manager
ADVISING IN UNCERTAINTY Feeling in control of your finances is fundamental in a crisis and having a trusted adviser never more valuable. Nadine Edwards, Corporate Account Manager at Accord Mortgages examines how brokers can provide the reassurance clients need when there are still so many unknowns. Whether it’s deciding if you’re comfortable going back to the pub, knowing where is ‘safe’ to go on holiday or being happy to send children back to school, we are constantly being asked to make decisions with very little evidence that what we choose will be the ‘right’ answer. It’s about judgement, understanding all the ‘facts’ and weighing up the risks. Making financial decisions should be no different, but for the majority of consumers, there is an added veil of mystery and many feel they are underqualified to make those choices without professional advice.
Understanding their needs Whilst this demand is great for advisers, when there is so much uncertainty, how do you ensure you’re presenting the best customer outcome? Whilst none of us know how the next few months will play out, the fundamentals of providing financial advice has not changed. Take a holistic view of your clients’ situation, explore their priorities and understand their motivations. Then you can provide them with the most suitable options to help them achieve their goals. For many homeowners, the lockdown will have confirmed one of two things. Either they are ready to move, wanting more space or a change of location, acknowledging that living within a reasonable commute time will no longer be crucial. Or, they may want to improve their existing property and need to release equity to enable this. However, with the economy unsettled making any financial commitment will be loaded with anxiety, so clients need to understand all the options and potential scenarios which may play out to ensure they can make the best decision for their circumstances.
Understanding what’s possible From a broker perspective, the range of options available will be dramatically reduced from where it was at the start of the year, so it’s important to keep abreast of lender updates and ensure that the client has a solution which is feasible for them to take. Given the impact the pandemic has had on employment, it’s likely there will be an influx in more complex cases and brokers
will need clarity around how lenders treat customers who have been financially impacted by the virus. Working with a lender that has a greater level of understanding and flexibility when looking at income assessment may be critical for the success of your application. Likewise, some lenders are still non-committal on how they will review applications from clients who have taken a mortgage payment deferral.
The route to advice And then there’s the actual giving of advice. Many brokers will be starting new relationships with clients remotely, unable to meet in person for obvious reasons. For some this has improved productivity, allowing them to fit in more meetings, with no travel needed and at times which are convenient to the client eg, a zoom call over lunch. Customers have shown that they’re happy to deal over the phone, online and via video calls and with social distancing measures set to be in place for the foreseeable, brokers need to adjust their businesses to ensure this is not a temporary fix, but something they can continue to offer. Recent research by Twenty7Tec found that 77% of advisers expected to continue using telephone and video conferencing as their primary means of communication. Whilst nothing can replace the strength of a face to face relationship, given the convenience and efficiencies more virtual encounters present, advisers are likely to rely on a hybrid of communication channels as we emerge out of this pandemic.
The value of advice With so many things in the balance, there has never been a more important time to get professional advice. So make sure you are marketing yourself properly locally, engaging with existing clients regularly to promote recommendations and utilising all the networks you can to drive business. There are plenty of hints and tips on doing this cost effectively within our Growth Series. And, whilst none of us can say for certain what things will be like in a year, or even six months’ time, any adviser knows how to prepare accordingly, highlighting the potential risks and rewards of particular options to ensure your client is comfortable with the decisions they finally make. For the vast majority of clients, the impact of the pandemic on their employment, their families and their finances is likely to last an extremely long time. As an industry we can be there to support them, adapting our services to reflect the changing needs and come out of this crisis stronger than ever.
Carolyne Gregory Head of Retail Lending
CAN THE MORTGAGE MARKET BE ETHICAL? As consumers become more concerned with ethics, what can our industry do to address this?
Written policies are a good start alongside staff training, so the whole organisation is on board.
An ethical mortgage market sounds great, doesn’t it? Something we can all get behind with no room for argument.
At Platform and The Co-operative Bank we call this ‘ethical governance’. Our customer-led Ethical Policy is written into our constitution and Articles of Association, and an independent Values and Ethics committee of the Board ensures accountability and reports on performance.
The important question is… what does it actually mean? While ethical means morally good, how that’s defined differs from one person to the next. And shoehorning such a far-reaching and subjective concept into a regulated financial market is no easy task.
Red lines In one respect, the regulator does the job for us on residential lending, with MCOB, responsible lending, and treating customers fairly. Job done. But of course, it isn’t. What about the bigger picture of industry ethics, not to mention unregulated lending? No matter how fairly we treat borrowers, we can’t really call ourselves an ethical industry if we engage in practices that our clients, colleagues and communities wouldn’t consider morally good. For example, talking the talk on diversity without walking the walk or failing to consider our environmental impact.
Proof positive It’s one thing for a financial firm to say it’s ‘ethical’, but how is it proving this isn’t just words without action?
As a broker, a good start is to think about your ethical purpose and goals and include them as part of your business’s values.
Future-proofing What was a ‘nice to have’ concept 25 years ago has moved from the fringe to the mainstream. A business’s ethics and purpose are more important to consumers than ever and an important a factor for those who are looking to make ethical choices about who they work with. What’s relevant for a retail bank won’t be the same for a brokerage, but there’s still a business case for having ethical credentials. In 1999, the size of ethical consumer market in the UK was £11.2bn. Today, it’s four times that at £41.1bn, according to the Ethical Consumer Markets Report for 2019. Our clients are increasingly concerned with how ethical we are. So, how do we start creating a more ethical mortgage industry?
Beyond lending You already advise responsibly and transparently under statutory regulation, but that’s not enough. Consumers want to know how ethical your business is. If you have a company pension fund, for example, are you investing ethically?
When you accept clients, are they screened before you take the business? The Co-operative Bank proactively screens suppliers and other organisations to ensure the businesses we work with don’t conflict with our customer-led Ethical Policy. Last year, the group declined the business of a consultancy firm involved in advising on arms brokerage services and a farming business that didn’t meet adequate standards of animal welfare. Your clients may not need to be screened like this, but what about the other businesses you deal with? Which firms are you and your clients comfortable dealing with?
The ethical workplace Diversity in the workplace has come to the fore and the HM Women in Finance Charter has been instrumental in driving change within our industry. But more needs to be done.
charity. We have helped fund its national helpline, which supported over 8,000 young people calling for help in 2019. This was made possible through our donations, driven by your clients, and which now stand at over £1.1m since 2017.
Environmental commitment You probably already do what you can to recycle – minimising waste and being more energy efficient. For small businesses it reduces your costs as well as your environmental impact. You could extend that commitment by making sure that your suppliers are upholding your environmental expectations, for example, or set goals to improve your recycling. We have a goal of zero waste to landfill by the end of 2020, for example.
Make a start
Plus, to be inclusive means to treat all people equally. You could start by ensuring all staff in equivalent roles are paid equally. Become a Disability Confident certified employer, sign up to pay the National Living Wage and speak to advisory bodies such as Inclusive Employers for support on inclusion.
Consumers are increasingly keen to deal with businesses that share their own values and ethics. Our Ethical Policy is customer led and shaped by more than 320,000 customer and colleague views over the last 25 years. In smaller businesses, this could be a simple discussion between employees, management and clients.
Charity and community
Ultimately, it’s a discussion about what sort of business you want to be, and what commitments you will make to achieve that goal.
The mortgage industry already works hard to support charities, both in local communities and nationally. It’s a way to use your business to support causes in line with your values and ethics. At Platform and The Co-operative Bank we commit to causes that are close to the hearts of our customers that they want us to support. For every new mortgage completed or switched with Platform, we donate to Centrepoint, the UK’s leading youth homelessness
Jonathan Stinton Head of Intermediary Relationships
RELATIONSHIPS: THE KEY TO KEEPING MORTGAGE CLIENTS The years between remortgaging are filled with many things for a home owner – typically, not thinking about one’s mortgage adviser. But those expert advisers don’t want to lose their clients at the end of every two, three, or five-year cycle. They know they have the expertise necessary to continuously help clients get the best deals and have their needs met at every step of their homeownership journey. At Coventry for intermediaries, we do everything we can to support you in securing new deals for your existing customers, because we know how valuable brokers are. We have developed our product transfer policy over time. We were among the first lenders to pay brokers competitive procuration fees for product transfers and to make new business products available to existing customers. We alert you to a product maturity a week before we write out to your customers, prompting them to get back in touch. When we then do write to them about their options we suggest they talk to their broker, if they have one. You can also request an illustration and even secure a new deal for your customer with us up to four months in advance of maturity. Yet we continue to see around 30 per cent of our members who came to us through brokers, contact us direct at the time of maturity. It is always the customer’s choice to decide what works best for them when they need a new mortgage product. But we hope to provide valuable insights to you on how to nurture relationships over time and keep customers coming back to help them navigate their options in a sustainable, trusted mortgage market.
The importance of communication Nearly half (46%) of borrowers who remortgaged in October 2019 opted for five-year deals, according to data from conveyancer LMS. If the client doesn’t hear from their mortgage adviser until the end of those five years, how likely are they to remain a customer? This is where you as a broker need to get creative in how to stay in touch and become a more familiar presence in your clients’ lives. An email newsletter is a great way for you to keep your clients up to date with what’s going on in the market, highlighting new
lenders or explaining how rates have changed. This could be a regularly scheduled newsletter, or more ad hoc advice based around significant events, like base rate cuts or, of course, a global pandemic. Your online presence is also essential. Keep your website fresh not just for new customers, but also to direct existing customers to additional services they might not have used previously. Many brokers are also using a range of social media, from Facebook to podcasts, to share engaging, relevant content and connect with clients. You need to be accessible to all potential borrowers, regardless of their demographic. Social media platforms can help you identify and engage with potential clients you may not have previously know about, making them aware of what’s special about your service and how you can help.
Don’t stop at mortgages The more products and advice touchpoints involved in your relationship with your client, the better for you and for them. Protection products are an absolutely essential conversation for you to be having with all of your clients, as made clear by the pandemic. Partnerships with pension advisors, equity release advisors and financial planners are also important, with a wide range of benefits – referral programmes between likeminded but non-competing advisory firms can ensure customers don’t go elsewhere in search of a service you don’t offer, as well as offering up potential for additional revenue streams. As we step forward into a world marked by a vastly different housing market and economic outlook, at least for a time, borrowers will need the support of trusted mortgage advisers more than ever. Continuing relationships with existing clients should be just as exciting as contacting new customers. The market is open for business, and remortgage customers and home-movers alike need your insights to get the right product and make the most out of their individual situations. For more tips on how you can build stronger relationships with existing customers click here to read our guide.
COVID-19 Support Hub The latest expert knowledge and advice from across the industry and beyond, supporting our advisers and the wider financial services community through the coronavirus (COVID-19) pandemic.
Letâ€™s bounce back to business Here at Bankhall, we understand the challenges we are all facing. And we know that your main priority right now is continuing to give your customers the support they need throughout these challenging times, while also adapting to our new working life. But where to begin? Because weâ€™re committed to supporting you, weâ€™ve compiled a hub of content, templates and resources, giving you all the tools you need to thrive, both personally and professionally.
Protection & GI
Craig Brown Director, Intermediary Insurance
AT LEGAL & GENERAL, WE BELIEVE IN THE IMPORTANCE OF SUPPORT Our strategy is intermediary designed, meaning we put intermediaries at the centre of everything we do. In today’s uncertain times, we recognise that supporting you, intermediaries, has never been more important. We designed our support structure to meet the needs of our intermediary partners and deliver fantastic client outcomes. Alongside this, our service proposition provides advisers and businesses with end to end support - including sales training, system and pipeline management, quality and retention, plus claims information.
Dedicated Support Teams In place to support intermediaries, our dedicated relationship management teams consist of over 40 professionals who provide advisers support both face to face and by telephone. Each region has two dedicated Business Development Managers (BDM). These roles provide consistent contact, with a personal and friendly approach. Individual relationship managers are also on hand for some of the larger networks.
“In 2019 our relationship management teams were extremely busy taking calls and having face to face meetings” ‘MUTAL’ is the acronym for our Medical Underwriting Technical Advice Line - a team of expert pre-sale underwriters. This team are on hand to provide intermediaries with a rapid response to queries and an accurate indication of terms for their clients. MUTAL takes
on average 8,166 protection calls every month from over 6,800 separate protection-selling firms. It can take just 4.30 minutes to assess any medical, financial, occupational and hazardous activity impact on an application. MUTAL can be contacted on 0370 333 3699 or firstname.lastname@example.org (Call charges may vary. We may record and monitor calls) With a purpose of bringing our business partners and our operational teams closer together our Partner Relationship Team (PRT) is one the first of its type in the industry. Our PRT focus on areas such as knowledge and system training, improving processes, and technology management.
Learning and Product knowledge Supporting intermediary learning and product knowledge is one of our priorities, so our BDMs and Market Development team provide regular training on topics covering market, products and sales skills. Our Market Development team consists of five specialist trainers with over 135 years of combined experience in the industry. In 2019 they delivered webinars to almost 5000 advisers, with 190 workshops and events were attended by 7013 advisers. “All of our intermediary education content is accredited by the Chartered Insurance Institute for the purpose of structured Continued Professional Development (CPD,). Which we believe is unique in the market” Richard Kateley- Head of Intermediary development Webinars play a big part in our learning provision, and we work on regularly evolving this content. Our expanded programme of live
Protection & GI
webinars includes 13 currently available. In addition, our exciting new virtual workshops have been launched. These are short, interactive and operate remotely. You can see our current range of webinars here.
Useful Online Tools Online tools are particularly vital when physical proximity and travel are a challenge. With this in mind, we’ve made even more updates to our online options in 2020, so that virtual help is always available. Our application platform (OLPC) allows intermediaries to submit, track and manage all aspects of their applications, and we give almost 84% of lives a decision at point of sale. All of this of course means the most up to date information for clients, obtainable faster. Making it easier to connect with us, our live web chat tool is accessible via OLPC and helps deliver support, quickly. And now we’ve made it even better. You can download your chat transcripts, giving a record to refer back to later if needed. We understand it is helpful to receive support with customer conversations. This is why we’ve created new sales aids for our Income Protection Benefit in addition to our existing selection, all designed to help intermediaries talk to clients. These include: •
6 steps to selling Income Protection
Income Protection Infographic
Customer and Adviser Guides
Our new Adviser Toolkit includes all of the above and more, such as benefit calculators, product guides, links to workshops and the latest webinars.
Evolving processes with changing times As the current world evolves, so too have our processes. We’re working hard to identify innovative solutions to ensure we support your customers through this challenging time, and help them access vital protection cover.
Digitised Trust form process Our current Trust form process requires documents to be physically signed and witnessed. We recognise this may not be possible or safe for many people right now. Therefore we’ve introduced an alternative digital solution where trusts can be established without the need for a witness signature. This will give you another opportunity to contact clients whose policies are not currently in trust, and offer guidance. If you would like to learn more about the support Legal & General provide intermediaries, please contact your usual account manager.
Protection & GI
Brian Coulton National Account Manager
HOW COVID-19 HAS AFFECTED THE HOUSING MARKET AND WHAT PAYMENTSHIELD ARE DOING TO HELP YOU Over the past 5 months coronavirus has drastically changed the way the world works and will continue to affect it long into the future. Social distancing has made it harder for people go out and continue with their lives and furlough has meant thousands of people were unable to work and lost part of their income.
Paymentshield research shows nearly half of advisers (47%) admit to missing opportunities to sell general insurance. When it comes to remortgage and product transfer clients this is because of renewal dates not matching, cancellation fees, or simply because clients perceive their existing policy to be meeting their needs.
These changes have had a massive impact on financial advisers especially those selling GI, as home moves and first-time buying has stalled. The Guardian have reported that new home loans have fallen by 90% since the start of COVID-19, which is the lowest it has been since the early 1900’s.
Paymentshield are aware and understand the struggles facing advisers and clients at this time, which is why they have launched 2 new initiatives to help those clients that need it most, whilst helping you energise your business.
Prior to COVID-19, in December 2019 the housing market was doing well – there were around 29,000 new first-time buyer mortgages written (a 0.3% increase on Dec 18), roughly the same number of home mover mortgages, this time an increase of over 3% from Dec 18. However, the remortgage market saw the biggest jump with an increase of 5.9% compared to 12 months earlier. Experts predict that the housing market could be back to near normal levels by Q3 2021, a survey carried out by Blandy and Blandy solicitors recorded that 79% of people predicted that the number of transactions would increase and potentially return to normal levels. Rightmove have noted that house prices are around 1.9% higher now than pre-lockdown, with the number of people who have suffered financial losses in 2020, rising prices could be an off-putting factor when it comes to purchasing a new home. With the slowing of new mortgages being written, now is the time to focus on your remortgage, product transfer or equity release clients, as those clients who may have been looking to move or purchase a new home may not have the confidence or the disposable income anymore.
The first initiative is an average 22% price discount for your remortgage, product transfer and equity release clients for their Defaqto 5 Star Rated Home Insurance. This approach is designed to help you create a steady and recurring income even while COVID-19 continues to affect other areas of your business such as first-time buyers and home moves. Paymentshield now also offer a 3-month payment holiday on their Home Insurance. This will allow your clients to take a 3-month payment holiday at the start of their policy and pay the annual cost (including credit) over the remaining 9 months. This offer could be attractive to any clients who may be worried about any cancellation fees they may incur when cancelling their current policy. To further support advisers, Paymentshield have created dedicated materials which includes eBooks such as; 7 steps to supercharge your remortgage sales, 22 questions you should be asking yourself and your clients, and how to grow your GI business from you cancelled clients. Download them now from their adviser website and help light your path to growth – www.paymentshieldadvisers.co.uk/toolkit
Protection & GI
Sue Helmont Marketing Director
Medical professionals including doctors are seen as the best source of support on nutrition and diet – nearly half (47%) of people trust them the most but Government health guidelines are only trusted by 27%. People seeking diet and nutrition advice are wary about troubling the NHS for support – nearly three out of four adults (73%) say people should take more responsibility to ease the pressure on NHS services. To help people manage their health and adjust to the ‘new normal’, we have worked with nutritionists to create four free fitness and nutrition guides – eat well to feel well, how to exercise at home, good mood foods and nutritious kitchen essentials. They offer tips and advice on staying healthy while social distancing and spending more time at home. The guides give a glimpse of the personalised support that AIG protection insurance customers can seek from its Smart Health app and online wellbeing service to improve their general wellbeing, mental health or manage a medical condition. Smart Health was launched in August 2019 to give our new and existing customers unlimited, 24-hour access to health services. It provides access to an online UK-based GP as well as diet and nutrition advice, as part of their protection insurance and at no extra cost. ‘The foods we eat can have a profound effect on our wellbeing. In these times of stress and uncertainty, we can take small steps to look after ourselves – both physically and mentally. Yet knowing where to start and changing eating habits isn’t easy.’
HOW DIET CONFUSION CAN HIT HEALTHY EATING Research1 from AIG Life Limited shows more than two out of three adults find it hard to eat healthily despite millions going on diets at least twice a year. The nationwide study highlights a hunger for nutritional advice with 40% of adults saying they go on a diet at least every six months to keep their weight down. Around one in eight (12%) are permanently dieting with women more likely at 14% to be full-time dieters than men at almost one in 10 (9%). But the dieting effort is not paying off. Nearly one in three (30%) say their weight gradually creeps back up again. Our study found 67% of adults say eating healthily is hard with one in five (20%) finding it very hard. Finding reliable advice is difficult – 61% of those questioned say there is too much conflicting advice on diet and nutrition while 60% blame the variety of fad diets around.
‘Smart Health nutrition experts can recommend the best foods to eat whatever someone’s circumstances – whether you’re gluten free, want to improve your immune system or need help finding new healthy recipes that will go down a treat with the whole household.’
Smart Health Smart Health provides your clients with the tools they need to manage their health and wellbeing. It offers unlimited access to six services; a 24/7 UK-based GP, second medical opinion service, mental health support, a health check, access to nutrition consultations and an online fitness programme developed by professionals. Smart Health is available 24 hours a day, 365 days a year and at no additional cost to you. All elements of the service are also available to your clients’ immediate family, including their partner and children up to the age of 21. Find out more: https://www.aiglife-smarthealth.com/
1 Research conducted by ID Insight Consulting among a representative sample of 2,008 working adults aged 18 to 65 between 8th and 15th April 2019
Protection & GI
Siobhan Rowland National Account Manager
COVID CASTS A WHOLE NEW LIGHT ON ‘PROTECTING INCOME’ – FOR BOTH CLIENTS AND ADVISERS The COVID-19 outbreak has clearly brought the issue of financial resilience into the spotlight. Press headlines have repeatedly commented on how the sudden change in circumstances has exposed the financial fragility of millions of workers, as they suffer significant drops in income or earnings have stopped altogether. So, against this backdrop what are the prospects for protection advice and take up? Out of adversity, might protecting income rise to the fore?
The changing view of income For some, the ‘it won’t happen to me’ reaction towards protection may have changed from a distant and intangible concept into a much clearer viewpoint. In such times, we’re more conscious of our daily outgoings, and our dependents. Your clients are now appreciating the real value of their most valuable asset (after health)…their income. Many people’s outgoings have become uncluttered whilst we have been in lockdown, with the removal of ad hoc luxury spends such as going out, and holidays. Their bank statements over this period will also give a clear picture of what their base level outgoings are. Making this a perfect time to talk about protecting income.
Income in life and in death When we talk about protecting income, we should also think not just about the client themselves, but also their families. Protecting a household income becomes just as important when that income is removed due to death as well as illness.
Many clients may have taken out life insurance to protect their mortgage payments and to help keep the roof over their loved ones, should the worst happen and they pass away. However, in this situation, even if the mortgage is paid off the bills don’t stop. Their regular living expenses continue, which may leave loved ones/family members exposed and financially vulnerable. Talking to your clients now about Family Income Benefit as well as Income Protection is where you can ensure they have a complete Protection Portfolio – protecting them against a range of risks and giving them more peace of mind. And as we transition fully out of lockdown (and again are able to spend money on luxuries such as holidays and nights out), clients will have had time to adjust their disposable income to accommodate that new much needed policy premium.
Making that Protection Portfolio affordable LV= are income specialists and we have a fantastic range of sales aids, tools for advisers and suggestions on how to help grow your business. Protecting income at LV= doesn’t need to be expensive, with lower cost options available such Budget Income Protection or Budget Personal Sick Pay. Our Flexible Protection Plan, which includes our Critical Illness cover, Life insurance and Family Income Benefit, is the only menu plan in the market offering specialist income protection. Because it is a menu, your client will benefit from just one application, one set of underwriting and one direct debit. To find out more about the LV= protection proposition, please visit LV.com/adviser/protection, contact your LV= account manager or call us on 0800 032 4219.
VIR TUA WH L EV ENT ATâ€™ SO S N?
With a continued focus and evolution of SBG virtual events, we feel it is essential to remain engaged with yourselves to ensure you still have a wide choice of learning.
Extra Live Events 08.09.2020
Mortgage Extra Live
Protection Extra Live
Mortgage Extra Live
Protection Extra Live
Mortgage Extra Live
Protection Extra Live
Mortgage Extra Live
Protection Extra Live
Future Learning Events
Mortgage Extra Live
ESG - BNY Mellon
Protection Extra Live
Stress for Success - Janus-Henderson Investors
Mortgage Extra Live
Macro Update - Fidelity
Protection Extra Live
Art of Wow - Janus-Henderson Investors
Mortgage Extra Live
Protection Extra Live
Successful Options in Retirement - Architas
Mortgage Extra Live
Protection Extra Live
Equity Release and Later Life Lending Aviva / Hodge / Scottish Widows / Iress
Mortgage Extra Live
Brainworks - Janus-Henderson Investors
Protection Extra Live
Sustainable Investing - Liontrust
We have worked to offer you the most interesting content, and ensure your CPD requirements are met. For those of you with a Learning Hub licence, the catalogue of learning material is currently expanding by the day, and we are monitoring to ensure everything is current and beneficial.
Pension Transfers Skills Workshops Business Development Skills Workshops 02.11.2020
This virtual classroom session is designed to get you thinking like a Managing Director. We will consider how you can achieve growth through various methods of expansion, while also giving thought to your succession or exit plan intentions.
This workshop, earning you up to three hoursâ€™ CPD, is designed to give you a firmer understanding of how to deliver compliant advice in this complex area. We will also be covering in detail the FCA papers PS20/6 and GC20/1, and what impact these new rules may have on your businesses.
Leadership Development 2020 Leadership & Management Excellence Our Leadership Development modules are dedicated to discovering, studying and understanding the best techniques and trends in the core areas of management and leadership. The modules are designed to strengthen the way you as a manager get the best out of yourself and your people. It will give you the skills and tools you need to master the challenges and opportunities facing your business now and in the future. From crafting your communication style and getting the people culture right, to building and creating positive mind-set, to embedding continuous change and managing talent, to simply becoming a more agile leader, these modules will provide you with the tools, action-planning and confidence to take on a wide range of business issues. Cost per module: ÂŁ150 +VAT All costs are payable upon committing to the module, and are non-refundable.
Communication and development through coaching and feedback
Leading through change
Decision making skills
Setting direction and managing performance
Employment law and sensitive issues
Productive team meetings
Brilliant basics and customers experience
Recruitment and interviewing skills
Influencing skills and team motivation