A New Investment Dawn – A New
Investment Age!
Michael Beveridge
Head of Wholesale Sales, Standard Life Investments
Agenda
• Market Environment
• Industry Trends
• How can Standard Life Investments help you?
UK Wholesale Distribution
Regulation
Retail Distribution Review (RDR) implements changes in Commission and, labelling and
professional standards from Jan 1st 2013
Commission - No significant direct back book impact for SLI as true wholesalers
Education – Greater requirement for education of IFAs
Long term asset class trend away from UK equities continue
How it’s
changing?
Asset Class Trend
Ongoing strong movements into bond funds
A sustained recovery in risk appetite
A focus on yield – various asset classes
Growing interest in tracker funds
Continued interest in Absolute return investing
Increasing sales in managed solutions
Whilst there has been evidence of a decade of decline in sales in UK Equity Funds, they still
account for circa 20% of gross sales
UK Wholesale Distribution
Outsourcing opportunities
Future
Opportunity
for SLI
Appropriate
Distribution
Model
•
•
•
Risk rated managed solutions (MyFolio)
Increased discretionary fund management leads to opportunity to dedicate
focused resource to DFMs
Target ratings agencies/ research groups who are developing model portfolios
Execution only opportunities
•
Working with various partners to ensure well positioned
Recent FSA Consultation and Policy
Papers
•
•
•
•
•
•
•
Distributor influenced funds
Dear CEO letter
Assessing Suitability - Establishing the risk a customer is willing and able to take
and making a suitable investment selection
RDR adviser charging - treatment of legacy assets
Independent and Restricted Advice
Replacement business and centralised investment propositions
Retail conduct risk outlook
The Unanswered Questions
•
•
•
•
•
•
•
Independent versus restricted
Consumer education
Segmentation - what do clients truly value?
The articulation of services
Advice gap and execution only
Risk profiling tools and due diligence on fund selection
Development of people talent within your organisation
UK Demographics – changing
investors’ needs
Number of People Aged Over 60
Population (thousands)
25,000
20,000
15,000
10,000
5,000
0
No. of People Over 60
•
During the period 1901 to 2010 the number of people aged over 60 has grown 544% - 2.8m in 1901 vs
18.5m in 2010
•
The number of people in the >60 age bracket has grown from 7.5% of the total population in 1901 to
22.6% in 2010
•
•
This trend will continue but moderate. By 2035 the number of people aged over 60 will hit 20.1m
By 2035 people in the >60 bracket will account for 28.6% of the population, from 7.5% in 1901
Industry trends
Understanding your business
challenges?
•
As the UK financial market evolves both in terms of client expectations and the
changing regulatory landscape, firms have many different challenges to understand
and overcome
• They now need to consider all of the following:
•
•
•
•
Keep up with
the regulations
Consistent investment advice process
Investment suitability for clients
Client portfolios are at the optimal risk/return level
Prove your product governance processes
Focus on
investment advice
and process
•
•
•
•
Control costs
• Increase resources to support investment decisions
• Increase resources to meet governance required as by FSA
• Allocate funding to cover the cost of people, technology and res earch
to manage investment processes in-house
Post-RDR qualification requirements and Gap-Fill
Improve technical knowledge of investments
Set client expectations about risk and market volatility
Align with the requirements in the FSA Retail Conduct Risk Outlo ok paper
Adviser Concerns for 2012
MAIN AREAS FOR CONCERN
MOST IMPORTANT DRIVERS FOR CHANGE
•
The fragile macro-economic environment is clearly a concern for advisers. The weak
economic
•
•
recovery, the sovereign debt crisis, inflation and the euro-zone crisis are all key concerns
The most important drivers for change among advisers is unsurprisingly legislation/RDR.
The industry is suffering from a lack
of trust
“The investment industry
has been ripping customers
off for far too long.”
“It is clear that investors
are becoming increasingly
aware that they have been
ripped by their fund
managers for years.”
“As an industry we’re
now ranked as low as
banks.”
Source: Standard Life Investments
“Only greater transparency
will allow fund managers to
earn clients respect.”
“The mutual fund model is
flawed with few sale
recommendations, hidden
charges, and no big switch
to cash when necessary.”
“The industry is suffering
from a lack of trust and
consumers tell us.”
“After paying layers of fees
investors don’t know what
they will get and when they
will get it.”
“More than a decade of
poor returns and high
fees have eaten into
investors faith in
mutual funds.”
Fidelity has become the
first manager to back calls
for a more comprehensive
review of investment
charges in an attempt to
“restore trust.”
The industry is experiencing a return
to risk aversion
Industry Net Sales by Asset Class
3,000
2,500
Net Sales(£m)
2,000
1,500
1,000
500
0
-500
-1,000
Equity
Bond
Absolute Return
Balanced
•Investor sentiment is reflected in product choice. Equities have recorded net outflows in 5 out of 6 months in
the second half of 2011, recording their highest outflow on record in November. Global, Emerging Market and
Japanese Equities continue to record positive inflows
•In contrast, flows into bond funds have accelerated in H2 2011, hitting £634m in Dec-11, the highest since
October 2010.
Source: IMA
Growing demand for balanced/multiasset funds
1,200
16%
1,000
14%
12%
Net Sales (£m)
800
10%
600
8%
400
6%
200
4%
0
2%
-200
0%
Net Sales
•
•
•
Market Share of Gross Sales (%)
Balanced/Multi-Asset Funds Net Sales
Sector
Sales
£m
FoF
Sales
£m
Cautious
Managed
£3,114m
£1,880
m
Balanced
Managed
£2,043m
£1,403
£221m
£237m
Sector
Sales)
Active Managed
Source: IMA & Lipper FMI
Market Share of Industry Gross Sales (%)
Relative demand for balanced/multi-asset funds has grown sharply in recent years
On a gross basis, balanced funds now account for circa 13% of industry gross sales
Demand has been largely been driven by strong sales into Fund of Funds
Source: IMA
(Net
What matters most to your clients
Source: Cerulli Associates, FPA Principal Member Survey
Investment Outsourcing
According to a recent report completed for Standard Life by NMG Consulting, there’s a growing
trend for advisers to outsource aspects of their investment process
Drivers for IFA
outsourcing of
investment decisions
Increasing regulation
Managing risk
Reducing costs
Source: Standard Life Investments
Investment Outsourcing
According to a recent report completed for Standard Life by NMG Consulting, there’s a growing
trend for advisers to outsource aspects of their investment process
A few key findings: from NMG Research
•IFAs continue to migrate to more
structured and consistent approaches for
client portfolio delivery
•In 2006, 63% of advisers used discretion to create their clients’ portfolio
construction – compared to just 27% in 2010
•The use of bespoke portfolios (such as Standard Life Wealth’s
discretionary portfolios) by external specialists grew from 0% in 2006 to
7% in 2010
Source: Standard Life Investments
How can Standard Life Investments
help you?
Learning Gateway
•
•
•
•
•
•
Continuing Professional Development has always been important, but in the run up to
RDR andFocused
beyond, iton
has
become essential
all advisers - whether they are offering
delivering
superiortoperformance
independent or restricted advice
The regulatory requirement for ongoing training therefore encompasses banks, wealth
managers, IFAs and stockbrokers
Our research has shown that many of our clients do not have a solution as to how
they will facilitate the increased burden on their in-house training from 2013
It offers advisers free access to a comprehensive range of 136 investment, business
and compliance related online courses*
All tutorials are suitable for CPD purposes with a number of leading trade bodies
including the CISI, PFS, CII and CFA
We are partnering with Intuition, a leading and established provider of eLearning
* See Appendix for list of launch content
Working in partnership with our distributors
Login Page

Accessed at
www.standardlifeinvestments.com/
training



Introduces the Learning Gateway
Sign in & Registration buttons
Links to Intuition Support for
technical queries
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Sample content available at launch
Fixed income
Bonds - an introduction
Bonds- Primary & Secondary Markets
Bond Prices & Yields
Fixed Income - Credit Risk
Bond Futures
Zero Coupon Bonds
High Yield Debt
Bond Hedging with Options
Bond Hedging with Swaps
Relative value trading - an introduction
Relative value trading - strategies & risk
Equities
Equities - an introduction
Estimating Volatility
Correlation & Regression Analysis
UK Equity Market
US Equity Market
European Equity Markets
Japanese Equity Market
Hong Kong Equity Market
Derivatives
Inflation Swaps
Credit Default Swaps
Interest Rate Swaps
Futures
Options
Inflation Linked Instruments
Inflation Linked Instruments - an introduction
Inflation Linked instruments - pricing
Securitization
Securitization - an introduction
Securitization - mortgage backed securities
Securitization - Commercial mortgage-backed securities
Securitization - Asset Backed Securities
Securitization - CDOs – an introduction
Portfolio Theory
Risk Management
Risk Management - an introduction
Risk - Measurement & Management
Interest rate risk - Identification & Measurement
Interest rate risk - Management
Market Risk - Identification & Measurement
Market Risk - Management & Regulation
Liquidity Risk - Identification & Measurement
Liquidity Risk - Management & Regulation
Credit Risk - Identification & Measurement
Credit Risk - Management & Regulation
Operational Risk - Identification & Measurement
Operational Risk - Management & Regulation
VaR
VAR - an introduction
VAR - Variance-Covariance approach
VAR - Monte Carlo simulation
VAR - Historical Simulation & other Issues
Custody
Role of a Custodian
Role of a Custodian in Trade Processing & Settlement
Corporate Actions - An introduction
Corporate Actions - Major Types
Registrar & Transfer
Islamic Banking & Finance
Key principles
Deposit & Financing Instruments
Introduction to Macroeconomics
Gross Domestic Product
Inflation
Unemployment
Balance of Payments
Fiscal Policy
Monetary Policy
Economic & Technical Analysis
Economic Indicators - an introduction
Economic Indicators - National Accounts
Economic Indicators - Business Cycles
Economic Indicators - Inflation & Employment
Technical Analysis - An Overview
Technical Analysis - Charting
Technical Analysis - Tools & Techniques
Collective Investment Schemes
CIS (UK)
Investment Trusts (UK)
Unit Trusts (UK)
Open Ended Investment Companies (UK)
Alternative Assets
Alternative Assets - An introduction
Hedge Funds - an introduction
Hedge Funds - Investing
Hedge Funds- Styles
Private Equity – Part I
Private Equity – Part 2
Real Estate - an introduction
Real Estate - Investing
ETFs
Corporate Governance
Corporate Governance - An introduction
Corporate Social Responsibility - an introduction
Socially Responsible Investing
SRI - an introduction
Green Investing
Regulation
Financial Crime (Europe)
Market Abuse (Europe)
Bribery Act (UK)
UK Anti-Money Laundering
Data Protection
UK Data Protection
Data Protection (Ireland)
Portfolio Theory
Performance Measurement Models
Passive & Active Strategies
Asset Allocation
Asset Management - An introduction
Asset Allocation - An introduction
Asset Classes - Part I
Asset Classes - Part II
Strategic Asset Allocation
Tactical Asset Allocation
Deriving the Optimal Portfolio
Plus various Business Skills tutorials
eg. Effective Time Management, Cost Management, Effective
Objective Setting
Mutual Fund Matrix
Strategic
Single Strategy Funds
Single Strategy Funds
(Investment Solutions)
GARS
Global Smaller Companies
AAA Income
MyFolio
Global Index Linked Bond
Corporate Bond
MyFolio Income
Global Equity Unconstrained
Higher Income
Global Equity Income
UK Equity Recovery
European Equity Income
UK Equity High Income
UK Equity High Income
UK Equity Income Unconstrained
UK Equity Unconstrained
UK Smaller Companies
UK Property
Select Property
Strategic Bond
Japanese Equity Growth
MyFolio Funds
Select
asset
classes
Strategic
asset
Allocation
framework
Tactical
asset
allocation
Fund
selection
Rebalancing
Portfolio
&
construction ongoing
review
Establishing a quantitative and qualitative decision framework
The MyFolio Fund Range
Three ‘styles’ of funds – Each available at five risk levels – 25 funds in total
Growth Options
Risk level
I
Risk level
II
Risk level
III
Risk level
IV
Risk level
V
Income Options
MyFolio
MyFolio
MyFolio
MyFolio
MyFolio
Market Fund
Managed Fund
Multi-Manager Fund
Managed Income
Multi-Manager Income
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Enabling advisers control of risk, investment style and cost
A New Investment Dawn – A New
Investment Age!
Investment Paths To Retirement
Ronnie Binnie
Head of Business Development, Standard Life Wealth
Insight
At Retirement Customers
• At or reaching retirement in the next 10
years (age 50 – 70)
• Accumulated a £100k plus pension pot
• Require an income from their fund
• Want/require more flexibility than is
available through an annuity
• 11.9 million individuals currently in retirement
with £1.1 trillion of assets
• a further 9.7 million individuals approaching
retirement with £700 billion
• 500,000 retired people p.a. for the last ten
years
• over 800,000 p.a. will be retiring over the next
ten years (impact of Baby Boomers)
Insight
Client Characteristics
• These customers need ongoing
advice
• A client segment that is well aligned
to many IFAs business model
• This is wealth management, not
product provision
• Regulations strongly suggest that SIPP
Drawdown is an advised sale
• In 2010, 40% of IFA clients were secured at the
point of retirement
• Changes to IFA business models as a result of
RDR favour relationship based solutions
Focus on customer
Client Priorities
1. Sustainable
retirement income
2. Access to
additional income
3. Death benefits
An Annuity provides sustainability,
but none of the other requirements
“Delivering greater sustainability
in drawdown is the objective”
4. Flexibility
5. Control
Source: Scott Porter, Customers at retirement, February 2012
28
Volatility vs. performance
Portfolio performance over 30 years
Portfolio A
6.1% return
p.a.
Portfolio B
5.0% return
p.a.
Performance is illustrative only
30 years
29
Volatility vs. performance
Portfolio performance over 30 years
Portfolio values after 30
years of annual drawdown*
Portfolio A
6.1% return
p.a.
£500,000 initial portfolio
value,
£29,000 annual
withdrawals
Portfolio B
5.0% return
p.a.
Performance is illustrative only
30 years
30
Volatility vs. performance
In drawdown, volatility is as important as
performance
Portfolio performance over 30 years
Portfolio values after 30
years of annual drawdown*
Portfolio A
6.1% return
p.a.
£500,000 initial portfolio
value,
£29,000 annual
withdrawals
Portfolio B
5.0% return
p.a.
Performance is illustrative only
Portfolio A = £0 !!!
Portfolio B = £281,000
In drawdown, your ability to
‘bounce back’ from a market fall
is considerably reduced
30 years
31
Sequencing of returns
“Ruin age” analysis of portfolios with same
volatility
Return sequence
Average return
Portfolio I
Portfolio II
27%, 7%, -13% …
-12%, 8%, 28% …
6% p.a.
7% p.a.
Volatility
20%
20%
Ruin age
?
?
Is the solution purely lower portfolio volatility?
Data is illustrative only – examples starts at age 65 and assumes 9% income is drawn per year
and the portfolios have a repeating three year return sequence as shown above.
Source: Moshe Milevsky
32
Sequencing of returns
“Ruin age” analysis of portfolios with same
volatility
Return sequence
Average return
Portfolio I
Portfolio II
27%, 7%, -13% …
-12%, 8%, 28% …
6% p.a.
7% p.a.
Volatility
20%
20%
Ruin age
94
84
Data is illustrative only – examples starts at age 65 and assumes 9% income is drawn per year
and the portfolios have a repeating three year return sequence as shown above.
Source: Moshe Milevsky
33
Retirement clients have specific
requirements
 ‘Path dependency’:
The ‘retirement investment journey’ is as
important as the total return earned over the
period.
 The impact of short term losses can
devastate the portfolio value.
 Focus should be on finding an investment
solution that:
 exhibits low volatility,
Defining difference
The impact of Market Volatility
 Accumulation clients may have the
choice to ‘wait out’ market volatility
whereas,
 Drawdown clients cannot afford to
‘take a hit’ arising from market
volatility
 avoids short term losses,
 while still generating sufficient growth.
34
How the super-diversified approach can
support retirement investment strategies
Through the active management of investment risks, Standard Life Wealth, MPS and the
Dynamic Drawdown Funds aim to provide:


a positive return over a rolling 12 month period
the target return over a rolling 3 year period
35
Drawdown Investment Solutions
Approach has delivered strong performance, low volatility and minimised
portfolio losses
SLW Medium Risk Portfolio Performance
140.00
130.00
120.00
SLW Medium Risk Portfolio
100.00
90.00
80.00
UK Equities (total return)
SLW Medium Risk Portfolio
APCIMS Balanced Return
FTSE All Share Return
70.00
31/07/2012
31/05/2012
31/03/2012
31/01/2012
30/11/2011
30/09/2011
31/07/2011
31/05/2011
31/03/2011
31/01/2011
30/11/2010
30/09/2010
31/07/2010
31/05/2010
31/03/2010
31/01/2010
30/11/2009
30/09/2009
31/07/2009
31/05/2009
31/03/2009
31/01/2009
30/11/2008
30/09/2008
60.00
31/07/2008
Cummulative
110.00
Date
The data in the illustration shows the representative performance of a SLW medium risk portfolio targeting a Libor +3% return after fees and charges.
The index is the APCIMS Balanced Total Return Index and the data shown is for the same periods as the SLW data.
The APCIMS and FTSE® All Share index returns do not include fees. Past performance is not a guide to future performance.
Source: SLW, Bloomberg, BBH, TDW (31/07/2008 to 31/07/2012)
36
Drawdown Investment Solutions
Approach has delivered strong performance, low volatility and minimised
portfolio losses
Frequency of Monthly Returns August '08 to July '12
14
12
•Cumulative returns #
•SLW 3
8
31.4% (after
fees)
6
•FTSE® All-Share (TR)
23.2% (no fees)
4
2
Distribution of returns
SLW Model Portfolio
FTSE All-Share (TR)
12% to 13%
9% to 10%
6% to 7%
3% to 4%
0% to 1%
-3% to -2%
-6% to -5%
-9% to -8%
-12% to -11%
0
-15% to -14%
Number of Months
10
•Volatility *
•SLW Portfolios
•FTSE® All-Share (TR)
•
5.5%
18.3%
Source: Standard Life Wealth
# 31/7/08 to 31/07/12
* Standard deviation of monthly returns, annualised
Past performance is not a guide to future performance
37
Focus on customer
Client Priorities
1. Sustainable
retirement income
2. Access to
additional
income
Helping retirement client achieve
more of their priorities through:
• the provision of ongoing
monitoring and financial advice
3. Death benefits
combined with
4. Flexibility
• a more sustainable drawdown
investment strategy.
5. Control
Source: Scott Porter, Customers at retirement, February 2012
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Investor Risks
Past performance is not a guide to future performance. As with any investment, the value of your client's fund can go down as well as up and may be
worth less than they invested.
The SIA Fund
The SIA Fund is designed to be used as part of a strategic approach to individual client wealth objectives and should not be considered as a stand-alone
investment.
The SIA Fund is only suitable for those investors who require a separate asset allocation fund to be used in conjunction with their existing investments,
primarily global equities, to achieve an overall objective of a total return.
The fund is designed to generate an absolute return when viewed with other assets in the client’s portfolio. As a result, if other assets in the portfolio are
performing well, this fund may not produce a positive return.
The use of derivatives in the fund may result in increased volatility in the fund’s price.
Due to the leveraged nature of derivatives, gains and losses can be greater than associated with traditional investment instruments.
The fund will have the ability to hold short derivative positions. This means that the fund will not necessarily follow market trends i.e. if stock markets rise
the fund may not do so at the same rate, or at all.
*"FTSE" is a trademark of the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ("FTSE") under
licence. Standard Life Wealth is licensed by FTSE to redistribute the FTSE All Share and FTSE 100. All rights in and to the FTSE All Share and FTSE
100 vest in FTSE and/or its licensors. All information is provided for reference only. Neither FTSE nor its licensors shall be responsible for any error or
omission in the FTSE All Share and FTSE 100.
Standard Life Wealth Limited, registered in Scotland (SC317950) at 1 George Street, Edinburgh EH2 2LL is the discretionary investment manager and
Standard Life Savings Limited, registered in Scotland (SC180203) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH is the ISA plan
manager. Both companies are authorised and regulated by the Financial Services Authority. www.standardlifewealth.com
2012 © Standard Life, images reproduced under licence
Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life
Assurance Limited is authorised and regulated by the Financial Services Authority. www.standardlife.co.uk
2012 © Standard Life, images reproduced under licence
39