Prudential - Transitioning from old to new
Director of Specialist Business Support, Prudential
As the old father time of 2020 winds down and hands the baton onto the new baby of 2021, it’s hard not to think that a lot of the world will be glad to see the back of 2020.
But what have we learned? COVID has had a devastating effect on many aspects of life, and financial services was no exception.
A few ‘highlights’ of 2020
Whilst some investors pulled out of markets at exactly the wrong time, many advisers persuaded clients to remain invested. Those that did have generally seen their investments rebound at least partially. As I write this the FTSE 100 is around 30% up on the low point back in March. Some other markets have fared even better. Over recent years many advisers have already built the possibility of a ‘market shock’ into their cashflow modelling, which will also hopefully have made clients aware that markets don’t always go up!
Some of the effects of the lockdown have seen some adviser practices change, which are likely to be here to stay. The NextWealth adviser survey cites remote working, increased use of technology and less face to face meetings as changes due to COVID that are here to stay. This should mean less travel time, less carbon footprint and more efficiency. It’s not all positives but those are three big ones
Many firms experienced falls in new business, often due to the difficulty of bringing new clients on board ‘remotely’. So though the increased use of technology has certainly helped with existing clients, it seems to be more of a struggle to reach out and gain the trust of new clients
Not COVID related but many advisers pulled out of DB transfer advice, often due to one or more of PI problems, new advisory requirements, the contingent charging ban or regulatory enforcement. This will frustrate many DB members as there is certainly still a big demand for advice
So using the experience of 2020 what can we change in 2021? Continuing the theme of contemplating the effects of the march of time, perhaps some advisers could broaden out their ‘family’ offering to clients in 2021:
Technology enables more than one member of the family to be on a video conference. This can help in many ways – it can help appraise the next generation of what the overall plan is, it can effectively help bring them on board as a new client to look at their own financial affairs, and critically it can start forming the habit with them of speaking to their trusted professional adviser who looks after all the family
What is the family view on sustainable investing? It could of course be different across generations but it seems wise to raise the issue
Additional intergenerational planning opportunities can be considered such as IHT and trust considerations, gifting and third party pension contributions. etc
Power of Attorneys, will planning and ensuring forms of nomination are up to date are often subjects not raised within the family and very much should be. An adviser could be in a much better position to broach these subjects as an independent party
Who should have control of funds and when? Take a simple example of allowing a new student to access their JISA when just starting at university. Should additional measures of control be in place? Having an offshore bond in a discretionary gift trust with suitable trustees as an alternative perhaps? The answer will vary for different clients but the point is that this is where an adviser can really add value at an early stage
Growth could be tough to come by in 2021. Its worth remembering to maximise use of tax wrappers so the return that can be generated is maximised, - again a ‘family’ approach can help to ensure the best possible outcome
Perhaps some of these opportunities could go some of the way to replacing business ‘lost’ as some advisers pull out of the DB transfer market. Not only that, it can help protect the value of adviser businesses going forward.
Many advisers may think that they have already put sufficient plans in place for the transition of wealth from one generation to the next. But are they relying on word of mouth from their clients to their children and grandchildren who they may never have even met? At the very least this should be tested out – anecdotal feedback suggests this is often not the case.
For our part we have had our own ‘coming of age’ celebration this year, having just reached the 16th anniversary of the first PruFund, a ‘net of tax’ life fund. It’s not just us who will be celebrating either – investors in the fund at outset will have seen their investment grow by 138% - compared to 83% for the sector average. Not only that, the fund has smoothed out many of the ups and downs of markets along the way.
Have a Merry Christmas and a prosperous New Year from all at Prudential UK.