inBrief EDITION 5 | 2021
Wealth into words
Featuring... Responsible investing: What’s the outlook? Do Covoptimists and their belief in a green and ethical recovery signal a positive outlook for ESG investing?
Investing for the next generation There’s nothing like a modern day plague to highlight our own impermanence.
7 questions to ask your wealth manager Have you thought about evaluating your relationship with your wealth manager?
EDITION 5
INTRODUCING
Our 2021 webinar series Panel discussions, investment updates and lots more!
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Look out for more updates at www.7im.co.uk/private-client/events-webinars
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Welcome Welcome to the latest edition of inBrief magazine. I would like to take this opportunity to introduce myself as the new Managing Director of the Private Client Team at 7IM.
Colin Rowe Managing Director, Private Clients
2020 through the long-term lens Ben Kumar, Senior Investment Strategist, shares his thoughts on the last 12 months.
06 Investing for the next generation Jessica Whistlecraft, Private Client Executive, talks about leaving a lasting legacy.
08 7 questions for your wealth manager Lee Goggins, Co-Founder of Find a Wealth Manager, highlights seven things you need to ask your wealth manager.
12 Responsible investing: What’s the outlook? Camilla Ritchie, Senior Investment Manager, discusses how attitudes around the world are changing.
14 Protecting children, now and always Sarah Stevenson, Action Medical Research, explains about the work they have been doing through the pandemic.
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Get in touch with your Private Client Manager or call us on 020 3823 8678 and we’ll be happy to answer any of your queries.
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I have invested over thirty years of my life into our profession, ensuring clients achieve their financial goals across many different sectors of financial advice, wealth management and banking. I joined 7IM as I believe we are truly different to larger, more established, homogenised firms. The opportunity to build a business, with clients and my colleagues at the heart of what we do is inspirational. I believe we can create a firm that others will admire and wish to emulate. Having been in the business for just a few months, one of my first impressions is the dedication that the team here have to providing our clients with an unrivalled client experience. 2020 has been extraordinary in many ways, with unprecedented challenges. Nevertheless, that did not deter the team from continuing that dedication to our clients. Now I sit in the privileged position to help lead the Private Client Team into 2021 and beyond, continuing to help our clients navigate their wealth. The business itself has seen a number of challenges throughout the last 12 months, but also a number of successes. With the acquisition of Partners Wealth Management bolstering our Private Client offering, and the addition of Find a Wealth Manager, a trusted industry platform, I have no doubt that the Private Client business is stronger than ever. As ever, we value what our clients think about us, and we are constantly striving to better the service we provide. So please do get in touch if you have any questions or feedback, we would be delighted to hear from you.
Contents
EDITION 5
ARTICLE
2020 through the long-term lens
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At the beginning of every year, lots of words are wasted on predicting the big investment trends and themes of the 12 months to come. There are two types of forecast. Some are specific and wrong – “this will be the year that flying cars really take off”. Others are vague and useless – “this is likely to be a year with different risks and opportunities for investors”. Neither kind of forecast is particularly helpful. Part of the problem is the insistence on thinking about things in one-year instalments. First, that’s far too short a time horizon, and second, genuine human progress doesn’t follow the calendar. So using a long-term lens, let’s take a look at the big events of 2020, and how they might shape the world in the next decade or more. The scientific response to COVID-19 While the virus was the story of the year in 2020, its negative impact will be confined to history reasonably quickly. The ways in which humanity has responded to COVID-19 are likely to be far longer-lasting. An incredible amount of financial resources and scientific brainpower have been focussed on finding a vaccine. Two main candidates were leading the race to develop the first vaccine, with Pfizer/BioNtech crossing the finish line first. The speed at which it was approved and rolled out was unprecedented. Happily, we can expect a return to normality more quickly than in many dark predictions from earlier this year.
But the long-term ramifications of COVID-19 may be more profound. A huge breakthrough has been made in vaccination technology – the use of messenger Ribonucleic Acid (RNA) to talk directly to the body’s immune system. Nothing like this has ever been developed before, with such a global effort, and with much of the research publicly available. The consequences could be huge, as science starts to explore new ways to tackle hundreds of other potentially fatal viruses. The economic response to COVID-19 Economic cycles don’t die of old age. Usually, they finish because of internal excesses that eventually bring down the system. At the start of last year, everyone was looking out for signs of financial stress – was it interest rates, or property, or corporate debt, or something else? Often, the main problem is a complex, niche issue that takes time to spread – and it takes a year or so for the authorities to even notice what’s happening, much less respond with support and stimulus.
Then came COVID-19. The virus, and the lockdowns that followed, caused immense social disruption. Dealing with the challenges of health service capacity and test and trace has been incredibly complicated. But the economic problem was simple, as was the solution: massive, immediate, global stimulus. And so this recession has done comparatively little disruption and damage compared to previous recessions. Of course, there are pockets of pain in some very visible areas like high street shops, and fast-food chains like Pret a Manger and Caffè Nero. But these are exactly the areas that needed refreshing – where the old business models needed to be shaken up, and new ones adopted. Economic disruption always requires some destruction. COVID-19’s economic impact has actually been more modest than in many other recessions, letting the global cycle be refreshed without causing too much economic destruction and raising long-term unemployment. That’s a good platform for the world to build on from here.
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The trend away from internal combustion vehicles is one way. So our three themes to keep track of over the next decade are: the resurgence of the healthcare industry, the overhaul of many old-world business models, and the creation of a more sustainable consumer society.
Ben Kumar Senior Investment Strategist
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A tipping point in ESG It’s been largely forgotten now, but at the start of 2020 the world was focussed on the cataclysmic fires that swept Australia, with smoke darkening the sky over 1500 miles away in New Zealand. And under the surface this last year, the emphasis on the sustainability of our current way of life has continued. 2020 may well come to be remembered as the tipping point for Environment, Social and Governance (ESG) concerns, with sustainable investing moving steadily into the mainstream. Whether measured by sentiment surveys, interviews with CEOs or fund flows, consumers, businesses and investors are now more worried than ever about where and how their pounds and pence are being spent. Just count the number of electric and hybrid car adverts on television over the next few months.
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Investing for the next generation
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Death is one of the few guarantees we get in life and yet it’s a topic that a lot of us don’t want to look directly at. This failure to acknowledge or accept our own mortality can mean that we do not adequately prepare for it. But, there’s nothing like a modern day plague to highlight our own impermanence. This and the rising panic about how the government stimulus is going to be paid for has caused much talk about accelerating plans to pass on wealth to younger generations. There are plenty of articles detailing all the granular points you should consider when estate planning. However, a lot of them omit a key ingredient that is essential to making it a success, that is involving those that are due to inherit wealth. If there is a shift towards passing on wealth during your lifetime these conversations become unavoidable, so how are they best approached? At a high level, estate planning considers what you have, what you need and what is left. So before you start giving money away or talking about it, it is essential that you have completed the necessary groundwork to ensure you have enough to last the rest of your life. The first step is the most simple and that is to take stock of your assets; what do you have and how is it held? Do you have
any large liabilities and if so what would happen to these on your death? Do you have any protection such as life assurance or death in service through an employer? Once you have a clear picture of what you have, the next step is to work out what you need. This might seem like an impossible calculation but most things in life are quantifiable – including care in later life. ‘Which’ have a ‘care cost calculator’ that provides average costs for a residential care home, nursing home and at home care based on your postcode. The importance of these calculations cannot be overestimated, and as with any big financial decision we would urge you to call on the services of professionals such as a financial planner. They can assist with a cash flow plan and discuss not only how much you need, but explore the most efficient way to draw an income. Once you have done the above you should have a clear idea about any shortfalls or excesses. If you have cash or assets ‘to spare’ then comes the time to consider how and where you wish to distribute this.
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The following points are a starter for ten when talking to family and/or potential beneficiaries. These conversations should be fruitful whether you are gifting during your lifetime or after. Any conversation around money you put off will still happen after you’ve gone, but without you as an adjudicator. 1. This doesn’t have to be a formal sit down meeting with the extended family. These conversations can be cumulative. Break the ice now so that money talk will flow more naturally over time.
4. Take time to understand their position. You may wish to gift to your children but do they want/ need it? If so, where? House? Pension? If not, can it skip a generation? 5. Remember these are your assets and wishes. Whilst it is important to discuss these matters in order to prepare your loved ones, you shouldn’t feel pressured or strong-armed into changing them.
6. If your family politics are complicated having a neutral party present in these discussions can help diffuse any emotive reactions. This could be the executor of your will, if they are not a beneficiary, or a professional such as a financial adviser, lawyer or mediator. 7. If you have real concerns over the maturity of potential beneficiaries, one option is to start small. This could be positioned as a test or an incentive to become better educated on financial matters. Another option is to gift into pensions that have a minimum age limit for access. Trusts are another option but this could add a layer of cost and administration so try the above first.
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2. Don’t assume financial literacy or idiocy. Explore if there are gaps in financial education and talk about the best way to become more engaged in this area.
3. Explain your position. Are different beneficiaries going to be treated differently? Are their terms addressed? Equally it may be a relief or surprise to children that they do not need to financially cover long-term care costs.
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Jessica Whistlecraft Private Client Executive
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7 questions for your wealth manager
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Lee Goggin Co-Founder, Find a Wealth Manager
With 2020 behind us (and what a year it was!) you may be thinking of what comes next? Many of us have spent our enforced time at home evaluating things in our personal life – that kitchen is looking a bit run down, maybe it’s time to renovate? Is it time to renew the car lease, or think about a newer, faster model? What about the family finances? Maybe it’s time to think about evaluating your relationship with your wealth manager? While it may be tempting to let your wealth manager run on autopilot, it is not always advisable. Ultimately, it is your wealth that’s at stake. It is down to you to monitor what your wealth manager does and make the decision to switch if necessary. Here are the key questions to ask: 1. How have we fared compared to the benchmark? If your returns are based on a benchmark index, how have your investments fared? Ideally, you want performance that outperforms the benchmark.
Never assume that all wealth managers are equal.” INBRIEF
Lee Goggin, Co-Founder, Find a Wealth Manager
So if the benchmark index is showing returns of 7%, you would want to see 7.2% or higher. If it’s at – 4%, you would want results of – 3.8% or better. Do note, however, that some people consider this an unfair method of evaluating a wealth manager’s performance and there is some truth in that. Some wealth managers take a more holistic, long-term approach, rather than actively trying to beat the market. On the other hand, some investors insist that wealth managers should be able to outperform the market, as it is part of what they are paid fees for. It is up to you to decide whether or not your wealth manager should outperform the market. If you are not happy with the outcome, do consider making a change.
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About Lee
holding. What’s the reason? Is it an attempt to capitalise on industry knowledge, or to tiptoe around the fact that the chosen investments have performed badly for several quarters? You are likely to miss these details if all you have is a quick phone conversation. 3. How are you going to execute your plans? Even if you’re not a finance expert, you can gain something out of this question. What you’re looking for is not so much a ‘correct’ answer, but attention to detail. >>
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2. Have you prepared a written report? When making your evaluation, make sure you have more than a verbal conversation. A good wealth manager should have written reports, and will walk you through these. You need to keep these reports for comparison purposes. If your wealth manager changed your asset allocation two years ago for better returns, then check the latest reports to see if the plan worked. You also want to look out for certain disparities, such as a sudden change in the profile of investments you are
Lee’s career in investment banking spanned over 25 years in London and Asia before he decided to put his experience as a private client to use as co-founder of findawealthmanager. com.
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7 questions for your wealth manager Continued
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A good wealth manager can go into excruciating detail on what they’ll buy, when, through whom, and why. They will be able to point out past records that support their decisions, and give you specific dates and numbers. A bad wealth manager will give you nothing but ‘high level’ answers. They may answer with a lot of vague business quotes, or have no clear plans on how to execute what they’re saying. 4. How much have I paid, compared to my returns? Fees and commissions are part of the cost of investment. For example, a typical hedge fund may charge a management fee of up to 2% on assets under management, with performance fees based on net profit of 20%. The wealth manager may also earn entry and exit commissions on the amount you commit. To determine actual performance, you can’t just look at the fund’s stated performance but the returns after all fees are taken into consideration. A simple way of determining performance, if you dislike detailed number crunching, is to ask how much you were charged, versus how much you made. Note, however, that it is inaccurate to make a judgement based on a single quarter. You should look at the numbers over a period of at least five years, as this will give a fairer estimate on whether you’re getting your money’s worth.
Don’t just look at returns either – do remember to factor in other services your wealth manager provides, such as getting your trust funds settled or helping to deal with your taxes. Decide if these value-added services is worth what you’ve paid. 5. What could we have done differently? If there was trouble or a serious loss, you will receive many explanations on why it happened. The key question to ask is ‘What could we have done differently?’ When you ask this question, it reveals a large part of your wealth manager’s decision making process. An answer along the lines of ‘nothing’ is one of the worst responses. It’s honest, but it often indicates a wealth manager who lacks the flexibility to respond to different circumstances. A good answer is a frank discussion of precautions or responses that could have taken place, and a system to prevent repeat disasters. 6. Which milestones have we reached? In long-term financial planning, milestones are crucial. Examples include having dividend payouts of $10,000 a year by age 40, or owning your third or fourth property within 10 years – these will vary based on your own goals, which you would have planned with your wealth manager.
If milestones are reached or exceeded, you know you are in competent hands. If certain milestones are not met, or have changed, your wealth manager should be able to explain corrective measures. 7. How has the portfolio been changed to cope with recent events? If there has been an upheaval in the markets (spot gold price fall, Chinese stock market plunge, etc.) what is your wealth manager doing to cope with it? A good wealth manager would have a well-defined macroeconomic perspective of the situation, and be able to explain how each event affects your portfolio specifically.
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Not all wealth managers will suit your needs so it is important to ensure that your investment goals are interests are aligned. If any of this resonates, and you think it’s time for a review, either with 7IM or with your other Wealth Managers, get in touch today and see how we can help.
Lee Goggin, Co-Founder, Find a Wealth Manager
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They will be able to answer questions relevant to your portfolio. Which of your assets are affected? Which of them are now liabilities? What should you consider selling or buying, and when? If your wealth manager’s response is to do nothing – because they feel it is an appropriate cause of action – then evaluate their decision during the next quarter. Were they right to do nothing, or have you suffered losses as a result? Never assume that all wealth managers are equal – rather they vary in competency, speciality and access to investment products.
If certain milestones are not met, or have changed, your wealth manager should be able to explain corrective measures.”
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ARTICLE
Responsible investing: What’s the outlook?
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The COVID-19 pandemic has done many things to us as a society, including introducing us to the ‘Covoptimists’ – those who think the world will build back better after COVID-19. Does their belief in a green and ethical recovery signal a positive outlook for Environmental, Social and Governance (ESG) investing? ESG has certainly been a ‘thing’ during 2020. Research company Morningstar said that “responsible investing has never been such a hot topic as it is right now”, and investment in ESG exchange-traded funds (ETFs) has soared, with asset totals reaching unprecedented levels. One factor driving this flow into ESG has been performance, with studies showing some ethical and sustainable funds consistently outperforming other non-ESG funds. That said, if the performance picture changes, some of this positive impact could reverse. In contrast, however, another factor could keep ESG as a ‘hot topic’ for very much longer: societal change.
INBRIEF
Has the world become greener? One much-discussed upside of the early pandemic was the environmental bonus it delivered, with pollution and greenhouse gas emissions way down on 2019.
However, much of this fall was down to the temporary suspension of economic activity rather than fundamental change. Talk of ‘green recovery’ may fizzle out into ‘greenwash’, and, closer to home, our embrace of fire pits and patio heaters for outdoor socialising may not exactly reduce our environmental footprint. The jury is still out on whether the environmental dividend will be sustained. The ‘S’ focus could last longer Another trend identified by the Covoptimists is the increased focus on the ‘S’ of ESG. It’s clear the pandemic has increased inequality – with professionals who can work at home suffering a lesser financial impact than those who depend on casual work, whether they’re a hospitality worker in the UK or a street vendor in India. It’s also clear that we're not all ‘in this together’ when it comes to access to education, digital connectivity and even a COVID-19 vaccine.
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Themes for future growth It’s hard for anyone to know which of COVID-19’s environmental and social trends will last beyond the pandemic. Will we be flying less in 2021? Using less plastic? Rejecting fast fashion? Regretting the patio heater purchase?
retailers and buying luxury; and a move from buying ‘stuff’ towards spending on experiences. Automation and digitalisation: from farming to manufacturing to finance, automation is driving reductions in costs, and improvements in productivity and environmental impact; digitalisation is a multi-decade trend around the adoption of digital products and services, such as e-learning, cloud computing and machine learning. As with any investment, ESG gains are not guaranteed after the pandemic. But we’re longtime believers in the value of long-term responsible investing, and we will continue to be so. Post-pandemic, the growth themes linked to ESG issues, such as climate change, healthcare and digitalisation, will be more relevant than ever – to people’s investments as well as their lives.
If you’re interested in adding an ESG focus to your investment portfolio, get in touch with your Private Client Manager, or call 020 3823 8678.
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Camilla Ritchie Senior Investment Manager
We don’t know the answers to any of those. But when we explore the outlook for ESG investing, we do see some longterm trends. Pre-COVID, we saw strong themes for future growth, which we see continuing to steer ESG investing post-COVID: Climate change: the cost of renewable energy has fallen fast, due to technology advances. Governments across the world are also waving the flag for ‘clean’ energy from renewable sources, such as solar, wind, hydro and geothermal, and energy efficiency. The world is getting older: ageing populations want to stay healthy and active for longer, and the healthcare sector can gain from this. Consumption patterns are changing: COVID-19 has accelerated the shift to online buying, but the trend isn’t new. Well before 2020, there was a shift away from the middle market towards discount
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However, the visibility of that inequality has opened many people’s eyes to the ‘S’. Think about the huge support for footballer Marcus Rashford’s campaign for free meals during the school holidays. Or the success of the #PayUp social media campaign, which pressured fashion retailers to pay for garment orders cancelled during lockdown. Or the ‘Make My Money Matter’ campaign, spearheaded by film director Richard Curtis, urging people to ‘use your pension to change the world’. All these could be early indicators of changes in the way people think, vote, spend or save.
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The COVID-19 pandemic has affected children in ways we could never have predicted. New research is urgently needed to better understand the short and long-term impact of infection in the general population, and why certain children are particularly vulnerable.� INBRIEF
Professor David Rowitch, Head of Paediatrics at the University of Cambridge, part of Action’s COVID-19 advisory group.
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CHARITY PROFILE
Protecting children, now and always Sarah Stevenson Action Medical Research for Children For almost 70 years, children’s charity Action Medical Research has risen to the health challenges of the day. We’ve helped develop life-saving vaccines, treatments and cures – saving countless lives. In 2020, a new health crisis has emerged and once again we’re ready to help. Many parents are understandably worried about the unknown effects of coronavirus and they have questions that need tackling such as: • Why are some children more vulnerable than others? • What are the long-term effects of this condition for children? • How will the COVID-19 pandemic affect children’s mental health? We also need to ensure that children’s care is tailored to their needs – treatments suitable for adults may not always be transferable. So it is important that children and young people are included in any trials of treatments or vaccines. And finding out why most children have been less affected by COVID-19 could also help us to better understand and fight the disease in all age groups. >>
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The unfolding COVID-19 pandemic highlights that medical research has never been more important. But while there has been investment in research to help understand the disease in adults, there is a worrying lack of research specifically focusing on children and how the virus affects them. That’s why we’ve launched our COVID-19 children’s research appeal – to help fund research to protect children. Although most children are not considered to be at risk from coronavirus, tragically, some children are still vulnerable and COVID-19 has caused severe illness and loss of life for some children across the world. Children who have underlying health conditions, such as severe asthma, cystic fibrosis, obesity and diabetes, are at higher risk of developing serious complications from COVID-19. Children with weak or compromised immune systems may also be at higher risk of catching the virus and of developing severe disease.
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Protecting children, now and always Continued Expert help Building on our impressive track record of funding high-quality research that saves and changes children’s lives, we have brought together an expert advisory group of leading children’s health researchers to help us fund research to better understand how COVID-19 affects children. As Dr Barney Scholefield, Clinician Scientist & Honorary Consultant Paediatrician, and a member of the Action advisory group says: “Children have been the quiet, forgotten bystanders in the COVID-19 pandemic. It is essential we bring them to the forefront as they can help us all understand this disease better and we must improve the way we care for them during these uncertain times.”
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Action’s history of protecting children Action began its work back in the 1950s in response to an outbreak of another terrible disease – polio.
Polio was one of the most feared diseases in the world, and at the time schools, churches and cinemas closed. In the 1950s, 8,000 people were paralysed by polio each year in the UK, and five to 10% died after their breathing muscles became immobilised. We were instrumental in helping to develop the first polio vaccines in the UK which have kept millions of children safe from this deadly virus ever since. Since then we’ve helped to tackle dangers like meningitis and rubella, saving countless lives. Today, once again, parents are living in fear of the unknown with many unanswered questions that need tackling. We are ready to act to protect children from the threat of COVID-19. We believe that medical research can help to find answers and protect children against this virus and the mental health effects of this health crisis. But we can only make this research happen with support.
Help us raise £1 million to fund vital research to find answers to protect our children and their futures. Please help with a donation today – 100% of your gift will go towards making this research happen. Donate now at action.org.uk/COVID-19
INBRIEF
You should address any questions to your financial adviser. The value of investments can vary and you may get back less than you invested. Tax rules are subject to change and taxation will vary depending on individual circumstances. Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority, the Jersey Financial Services Commission and the Guernsey Financial Services Commission. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740.
