Wealthsmiths
™
The Sanlam magazine – Winter 2021
UK inflation is creeping upwards How to prevent it eroding the value of your money
Don’t forget your digital assets Around £25 billion could be lost when people die
Remember these companies? Seven firms that failed to innovate and paid the price
Bright future? In our oceans, on land and in the skies, efforts are being made to protect biodiversity
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Wealthsmiths Issue 1
Welcome Welcome to the Winter 2021 issue of Wealthsmiths magazine. At the COP26 conference, world leaders agreed a framework for tackling the most urgent issue of our time: climate change. And it doesn’t take a crystal ball to see that the future of financial markets is a greener one, something that Sanlam has been aligning itself with for some years with increasing investments in low-carbon markets. As we move into 2022, it feels appropriate to reflect on a time of positive change – looking forward to the end of the pandemic, moving away from fossil fuels to a future that’s better for the planet, and, for Sanlam, a new future. We are very pleased to announce the acquisition of Sanlam’s wealth management and financial planning business by private equity firm Oaktree Capital. I explain the reasons behind this decision, and the opportunities opening up to clients, which include exciting new digital services and ESG investment products, on page 4. In light of the historic COP26 conference, our cover story (page 8) takes a look at the threat of extinction faced by so many plant and animal species on our planet, and the positive steps we can take to protect them. A move to cleaner and greener energy is one of many solutions – we find out more on page 23. Living in greater harmony with the planet will hopefully help us to live better, longer lives. But our lifestyles also have an impact on longevity and, on page 12, we consider whether retiring early really can help you live longer. And on page 20 we ask whether investing in something more unusual, like a rare first edition book, might be a lucrative addition to your portfolio. On page 26 we look at the strange and wonderful world of quantum computing, a rapidly developing technology that has the power to revolutionise many sectors of the economy. With plenty of reasons to look ahead with optimism in these pages, I do hope you enjoy reading this issue of Wealthsmiths.
Jonathan Polin CEO, Wealth Management
Wealthsmiths is produced for Sanlam by Wardour, Kean House, 6 Kean Street, London WC2B 4AS, United Kingdom +44 (0)20 7010 0999, wardour.co.uk For Sanlam Head of Marketing Christopher Dean Marketing Executive Kate Lovelace Marketing Manager – Private Clients Jolyon Dean Marketing Operations Manager Bhavika Gor For Wardour Editor Andrew Strange Art Director Rob Patterson Production Manager Jack Morgan Senior Account Director David Poulton Senior Account Manager Jennifer Flower Creative Director Ben Barrett Founder Martin MacConnol
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Contributors David Craik – David is a freelance journalist who has written for newspapers including The Sunday Times, Mail on Sunday and The Observer. Jill Insley – Jill is a financial writer who has had work published in The Observer, The Guardian, The Sunday Times and The Telegraph. David Burrows – David has written for media including The Times, The Financial Times, The Independent and The Wall Street Journal. Amanda Simms – Amanda is a freelance journalist covering subjects such as technology, sustainability and energy. In the past she has worked for the Economist Intelligence Unit.
Wealthsmiths Winter 2021
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Contents
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26 04 A bright future for Sanlam CEO Jonathan Polin explains what
15 Enter password Make sure that your digital assets
06 Inflation nation In a time of low interest rates and
18 7 companies that failed to adapt The household names that were
our acquisition means for clients
rising prices, how do you protect the value of your savings from being eroded by inflation?
08 Paradise lost? Financing the efforts to protect and restore our planet’s biodiversity
12 Retire early. Live longer? Whether or not taking early
don’t get lost when you die
consigned to history when they failed to innovate
20 Making a case for books When it comes to investing in rare books, it’s essential to be able to spot a valuable first edition from what’s for the slush pile
retirement will extend your life depends on your circumstances
23 Power to the people The energy sector needs to switch to renewable sources to avert a climate disaster, but it may take time. How can investors expedite the change to clean and green?
26 Quantum leap The strange and wonderful world of quantum physics is creating a revolution in computing
28 The great wealth transfer Millennials are set to inherit
£327 billion from their baby-boomer parents in the coming years. How should they manage their money?
Important note Sanlam is a trading name of Sanlam Private Investments (UK) Limited, registered in England and Wales 2041819 and Sanlam Wealth Planning UK Limited, registered in England and Wales 03879955, which are both authorised and regulated by the Financial Conduct Authority. Registered Offices: Monument Place, 24 Monument Street, London EC3R 8AJ. Past performance is not a guide to the future, investments may fall in value and you may not get all your capital back. Inflation is subject to change and is based on our understanding as at November 2021. The information provided should not be taken as financial advice, and you should always seek professional advice. If you no longer wish to receive your half-yearly edition of Wealthsmiths, please email us at getintouch@sanlam.co.uk to opt out.
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A bright future for Sanlam CEO Jonathan Polin explains why Sanlam’s recent acquisition by Oaktree Capital means a bright future for clients Wealthsmiths: Jonathan, what was behind the decision to sell Sanlam’s UK wealth and financial planning business? Jonathan Polin: Following a strategic review of its global businesses, the Sanlam Group took the decision to refocus its efforts on Africa and other emerging markets. It is already the number one insurer in its home market of South Africa and is the largest non-banking financial services business in wider Africa. There is a huge amount of growth to be had there but it is also a highly competitive market. So, the decision was about refocusing growth on those core markets, though the UK asset management business will be retained. W: Can you tell us a bit about Oaktree Capital? JP: Oaktree has a reputation for investing in and growing high-quality business. It knows the wealth management sector well, having acquired financial planning firm Ascot Lloyd in 2012. Outside of wealth management businesses, it has also supported the growth of a number of highstreet names including Ritz-Carlton, Fitness First and Countrywide Estates. Like other global investors, Oaktree likes the robustness of wealth businesses; we have deep relationships with our clients and carefully manage their investments to a long-term time horizon. I think that Covid-19 proved that wealth businesses were highly resilient in challenging market conditions. W: You’ve agreed to stay on as CEO. What has inspired you to do this? JP: What was important to me when I came to make my own personal decision was that we’ve done a huge amount here to rebuild and regenerate the business and we have brought a lot of great people in from other businesses. I thought that if I stayed, I could keep our team together and ensure that our clients wouldn’t see the sort of upheaval that you sometimes see when companies
merge and different systems and everything else is introduced. W: Can you share your vision for the future? JP: One of the things I had been looking at was setting up my own FinTech business to create a truly digital wealth service. I want to build a business that takes advantage of new digital technology while still providing a highly personalised service. Oaktree is now supporting this vision to bring in this technology-driven solution to give our clients that complete and compelling experience. Clients will use it to different extents, but they will have a much wider range of digital functionality. For example, we will offer open banking for those clients who want to be able to access all their accounts and credit cards in one place. All of these finances will be available on our platform, to complement our core financial planning and wealth management services, which clients will continue to enjoy. If a client chooses, they will be able to see everything from their current and savings accounts to their investments and loans, so they get a fully informed picture of their wealth in one place. This is about where we see the future of financial planning and investment advice. We want to enable clients to get a more complete, transparent picture of their finances, rather than looking at a single part of their life. W: Will we see any changes to the investment offering? JP: We want to be much more dynamic in terms of delivering environmental, social and governance (ESG) investment choices and ensuring that our business itself is ESG compliant. I’d really like to see all of our clients have portfolios where they can not only see the performance of their investments but would also have demonstrable proof that they are investing for the benefit of society. Moving to ESG investments is something that can be done by degrees, however, so there is no need to change
“The way we put our clients first will never change”
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Wealthsmiths Winter 2021
Interview
Jonathan Polin, CEO, Wealth Management
investment strategies overnight. It might be possible to, for example, hold a portfolio where 40% of investments have very strong ESG scores, while some clients will want a fully ESG-led portfolio. It’s about providing choice. W: When will you finally separate from the Sanlam parent company? JP: We hope the change of control will happen at the end of the first quarter of next year. W: Any hints on the brand identity? When we actually get change of control, our name will still be Sanlam because our own branding will not be finalised by then. We will have a licence from Sanlam to use its brand for six months. So, I think by the end of the second quarter of next year we will be able to unveil our exciting new name and branding.
W: What lessons have you learned from Covid? JP: I think we’ve confirmed what I’ve always believed – that our clients are far more tech-savvy than many believed. We switched to Teams and Zoom meetings quite seamlessly as we went through the first lockdown, and we found that many people prefer it because it’s both efficient and enables them to have a face-to-face conversation with their portfolio manager or financial planner. W: Do you have any final message for clients? JP: Yes, I really want to thank them for being with us and interacting with us all the way through the pandemic. Our name may be changing, the look and feel of the business may be changing, and we hope to make real improvements in service delivery, but the way we put our clients first will never change. n
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Inflation nation Prices are rising rapidly and money in the bank will lose its value unless you take steps to protect it, writes Andrew Strange
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rices are rising at the fastest rate in a quarter of a century as businesses pass on the costs of energy, labour, materials and shipping to consumers. Inflation reached 3.2% in August, and the Bank of England has warned that it may rise above 4% this winter, with persistent pressure on living costs likely to last until at least the middle of next year. Simply put, inflation is the rate at which prices are rising – if the cost of a £1 jar of honey rises by 5p, then honey inflation is 5%. Current levels are a long way from the double-digit inflation that blighted the 1970s but, over time, price rises can have a big impact on how much you can buy with your money. The current inflation rate is far above the Bank of England’s 2% target and is particularly bad news for bank deposits. Many people built up large cash surpluses during lockdown but with interest rates at historically low levels, the value of cash in the bank is likely to be eroded. Families may need to make plans to protect their savings. Portfolio Manager Eleanor Ingilby explains: “Current interest rates are at an all-time low, standing at 0% and even in some cases creeping into negative interest rates. And, conversely, inflation is at a 10-year high. We have had a very unusual year and, until recently, it has provided quite limited opportunities to spend money. “That means that many of us have built up quite large cash reserves. Now the risk is that holding that excess cash in the bank could lead to that capital eroding. You should always keep some
“Holding that extra cash in the bank could lead to that capital eroding” 6
cash to hand in case you need it for emergencies or a rainy day, but it’s important to sit down and work out how much cash you actually need and make sure the rest of that money works hard for you.” Inflationary pressures Inflation has been affected by global developments, particularly the economic recovery from the pandemic and supply constraints in some sectors. Energy prices have risen since April as previous increases in wholesale electricity and gas prices have been passed on to households. But the Consumer Price Index shows that rising prices are widespread, affecting everything from petrol, clothing and footwear to catering services, which saw inflation rise to 7.9% in August, its highest on record. Global supply bottlenecks have also led to shortages of some goods, such as semiconductors, which have affected UK goods prices indirectly. For example, semiconductor shortages have disrupted new car production, which has led to an increase in demand in the used car market. Twelve-month used car inflation rose to 18.3% in August. The jump in inflation in August was the highest on record. But inflation data is measured against the same period in the previous year and recent data has reflected the change in prices relative to spring and summer 2020. For example, the rise in hospitality sector inflation in part reflected the impact of the Eat Out to Help Out scheme and the temporarily reduced VAT rate for hospitality. This has led some people to suggest that high inflation is transitory, but others believe that strong inflationary pressures remain, with the Bank of America’s CEO Brian Moynihan saying: “Inflation is clearly not temporary.” Sanlam Chief Investment Officer Phil Smeaton explains: “We have generally rising prices in the economy because we have inflated the money supply over the past 18 months which is enabling excess demand that the world’s productive capacity cannot meet. The inflation from printing money and government deficit spending
Wealthsmiths Winter 2021
The economy
is causing supply chain problems and disruptions which the market is trying to resolve and correct through increasing prices.” Growth trajectory So, the money in your bank account may not be as safe as it appears and, while investing does carry some risk, it could be the best approach at the moment. To illustrate this, imagine we put £20,000 into a stocks and shares ISA with a modest 5% growth rate. In five years’ time it will be worth £25,525, enough to offset the Bank of England’s expected 4% inflation rate [5% growth minus 4% inflation is 1%]. Left in the bank, that £20,000 would be worth just £20,658 in five years (assuming an average savings account rate of 0.65%). If 4% inflation persists over this five-year period, you could be worse off than when you started. Over the longer term the figures become increasingly striking. If you were to deposit £20,000 in a bank account for the next 25 years, you would still have the same amount when you withdraw it, but it would buy much less because of inflation. If you were to put the same amount in a stocks and shares ISA allocated to US companies, it would grow to around £75,000 over the same period, assuming the average historic growth rate for the S&P 5001 and 3% inflation. While you could expect some years of negative performance during this period, the eventual result is likely to mitigate inflation and leave you with considerably more capital. How you put your excess money to work depends on many different factors, including your financial goals and
“Inflation from printing money and government deficit spending is causing supply chain problems” the level of risk you want to take. You could ask a professional to help you develop an investment portfolio or simply open a stocks and shares ISA account. Each adult can put £20,000 into an ISA each year and if you want to put away a little bit more than that, most people can put up to £40,000 a year into a pension. Ingilby says: “There’s no perfect investment. There’s no one size fits all. The most important thing to do is to take into account your individual scenario. Think about how much risk you want to take. What are your goals? What do you want this money to achieve for you and how long do you want to put it away for? Once you’ve thought that through, we can help you. Speak to one of our experts and hopefully we can help to get your money to work as hard for you as you’ve worked for it.” n
Find out more To learn more about managing inflation, talk to your financial planner or portfolio manager.
Cash at bank (-3% inflation)
Growth of £20,000 over 25 years
100% Equity ISA (-3% inflation) Cash at bank (0% inflation)
Value of assets (GBP)
100,000 80,000 60,000
40,000 20,000
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5
9
13
17
21
25
Years 100% Equity ISA series is based on the average annualised 25-year return of the S&P 500 since 1927.
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This chart is for illustration and excludes costs and taxes. It is not a personal
recommendation to buy or sell. Past performance is not a reliable indicator of future returns. The value of investments and any income from them can fall and you may get back less than you invested.
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Paradise lost? W ho remembers the passenger pigeon? Once there were five billion of them flying over the cities of Canada and the US. So many in fact that a flock would be the width of a mile and they would block out the sun. But thanks to hunters and trappers, by 1914 they had become extinct. Or maybe the Pinta Island tortoise – six feet long and weighing the same as a lion – which, if they weren’t hunted, starved to death after goats introduced by whalers and pirates ate all their vegetation. The last one died in 2012. We know there have been at least five mass extinction events on our planet, from the meteor which killed off the dinosaurs around 66 million years ago to the ‘Great Dying’ 252 million years ago when a rise in greenhouse gases wiped out 96% of all species. According to scientists we are on the brink of the sixth mass extinction – known as the Anthropocene extinction – and this time there isn’t an errant meteor or natural warming to blame. As the name implies, it is just us. “We are already within a biodiversity crisis and on the way to an extinction and biodiversity crisis. We see in every species of animal or plant group that they
The passenger pigeon
More plant and animal species are on the verge of extinction than ever before but work is under way to prevent the great extinction, writes David Craik
are in decline. They are slowly vanishing from our neighbourhoods and forests,” says Dr Thomas A Neubauer, of Justus Liebig University in Giessen, Germany. “There is a shift in the distribution of species. Where we once found them, they are now absent because they are trying to find refuge. But they can’t run away from us and our impact forever.” Species in decline That includes human activities such as habitat destruction, deforestation, agriculture, climate change, building, pollution, over-fishing and introducing invasive species of animals and fauna into new environments. “If we continue then many species will become extinct,” Neubauer adds. “The extinction rate after the dinosaur meteor remained high for five million years. Our biodiversity crisis is advancing much faster than that.” According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, one million out of eight million species on Earth are threatened with extinction. The WWF says population sizes of mammals, birds, fish, amphibians and reptiles have fallen by an average of 68% globally since 1970. It says that, in some parts of the world, leatherback turtles have declined by between 20% and 98%, with an 84% decline at Tortuguero Beach in Costa Rica. African elephant populations in the Central African Republic have declined by up to 98% and, in the UK, populations of grey partridge have fallen 85% and populations of Arctic skua in Orkney have dropped by 62%. Saving wildlife There are more than 138,300 species featured on the International Union for Conservation of Nature (IUCN) Red List, with more than 38,500 species threatened with
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Wealthsmiths Winter 2021
Biodiversity
“Our vision is that all orangutans will be able to live in the wild in secure environments” Leif Cocks, The Orangutan Project
extinction, including 41% of amphibians, 37% of sharks and rays, 34% of conifers, 33% of reef-building corals, 26% of mammals and 14% of birds. It includes the blue whale and the eastern black rhinoceros. In the UK plants like the spreading bellflower are on similar critically endangered lists. “We can’t restore nature to what it was 200,000 years ago before humans arrived, but we can mitigate this crisis,” says Neubauer. “We need to get everyone together, from investors to the public to government and business. It is
the fishermen, the politicians, and the non-governmental organisations. It is communication across all stakeholders, across countries to make the problem more visible.” Investors such as asset managers and owners are certainly becoming more aware. The Finance for Biodiversity Pledge incorporates 75 institutions such as Fidelity International and Lombard Odier with over €12 trillion of assets under management. They have pledged to protect and restore biodiversity through their finance activities and investments including
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The blue whale has a heart the size of a car and its call is louder than a jet engine. However, it is threatened by plastic, toxins, ship strikes and being entangled in fishing gear
Orangutan plan One non-WWF example is The Orangutan Project, which leads and sponsors projects aimed at protecting critically endangered orangutans and their forest homes. This includes creating a rainforest ecosystem in Sumatra where orangutans can be released and monitored via a small transponder inserted between their shoulder blades. The ecosystems, which are also aimed at conserving natural fauna and other animals, also include antipoaching patrols and habitat protection. “Our vision is that all orangutans will be able to live in the wild in secure environments,” says Leif Cocks, who founded the project in 1998. “In addition, many local people are employed in our Wildlife Protection Units. This has been wildly successful for many, many orangutans and we have even seen some give birth in the ecosystem.” His work is applauded by Neubauer who believes this style of ‘holistic ecosystem’ is the best model for future biodiversity protection. “You need to save entire habitats and regions, not
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Wealthsmiths Winter 2021
Photos: Alamy, Getty
engaging with companies, assessing impact, setting targets, and reporting publicly on these factors before 2025. One of the signatories, Federated Hermes International, has created an SDG Engagement Equity fund focused on the UN’s Sustainable Development Goals which include Life on Land and Life Below Water. It includes working with firms such as nutrition group Glanbia to restore degraded land and helping farmers learn more about protecting biodiversity. Action is also being taken by the WWF and other bodies via conservation projects around the world (see opposite).
Biodiversity
5 CRITICALLY ENDANGERED GROUPS Keeled box turtle Found in China, Vietnam, Thailand, Myanmar, and India. Wildlife trafficking for food and the pet trade decimated its population. The World Land Trust has helped protect and rehabilitate the turtles through a land conservation programme.
Blue-throated macaw
From top to bottom: blue whales; the Coral Triangle; the Arctic skua; and the leatherback turtle
just an individual species,” he says. “If you save the ecosystem, all species are preserved. But it must be sustainable. When the project funding has run out, the protection has to continue.” Biological clock Cocks is also looking warily at the future. “We’ve got 10 years left to get this right, both in terms of biodiversity and global warming because they are intertwined,” he says. “We need to ensure that we secure enough of the ecosystems to allow the orangutans, tigers and all the other species and biodiversity to survive this period. Then we can enable future generations to build on that and rewild the planet.” Some of this language can seem overwhelming to the ordinary man and woman with busy working or family lives. But they can also make a difference at a community level. Stephen Parker is chairman of the Somerset Rare Plants Group – a troop of 70 volunteers who cross the county’s countryside recording every single plant species they find. The aim is to promote vascular plant conservation. “We began recording the population of rare plants such as the Greater Water Parsnip on the Somerset Levels but have now moved on to looking for all species. We collect around 50,000 records a year,” explains Parker. “The results are fed to landowners, The Wildlife Trust, Natural England and the Botanical Society which are then utilised by scientists and conservationists.” He calls on other people to act and stem biodiversity loss. “There is a big role for amateur ecologists and botanists to provide data to help,” he says. “It is something we can all do.” n
Found in Bolivia, only 250 of these birds are left in the wild. Asociación Armonia protects the macaw’s habitat and has restored seven forest islands which are critical feeding areas.
Coral Triangle The WWF is working to create a network of marine protected areas in the Coral Triangle in the Pacific Ocean. It is home to 75% of the world’s coral species and six of the world’s seven marine turtle species. They protect reefs and sea grass beds from destructive fishing, let fish reproduce and populations recover.
Blue whale The largest animal on the planet, weighing as much as 200 tonnes or 33 elephants. It has a heart the size of a Volkswagen Beetle and its call is louder than a jet engine. However, the blue whale is threatened by plastic, toxins, ship strikes and being entangled in fishing gear. The WWF has satellite monitoring programmes to build up movement data and create protected areas.
Spreading bellflower The National Botanic Garden of Wales is carefully monitoring this extremely rare plant. It has learned that the flower, with its star-like purple petals, has been in decline since the early 1800s, impacted by herbicides in roadside soil and woodland management changes. It is considering reintroducing the plant to the wild.
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The spreading bellflower
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Retire early. Live longer? Some studies have found that people enjoy a longer lifespan if they finish working early, but it might depend on your circumstances, writes Jill Insley
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Wealthsmiths WealthsmithsSummer Winter 2021 2020
Lifestyle
T Retiring allows you to invest more time in your health by sleeping longer, exercising more, or simply being able to visit a doctor as soon as a health problem appears
ens of thousands of people in the UK have decided to retire since the start of the pandemic to reduce the risk of coming into contact with Covid-19. In the US, The New York Times reported that the pandemic had encouraged people as young as 30 to join FIRE (financial independence, retire early), where participants save 50% or more of their income to accelerate their retirement date. The idea of taking early retirement for health reasons is not new: several research studies in recent years have found that stopping work early can have health benefits and help to increase the length of your life. Economists from the University of Amsterdam found that male civil servants over the age of 54 who had retired early were 2.6 percentage points less likely to die over the subsequent five years compared to those who continued working. Researchers involved in the study drew two conclusions from the findings. Firstly, retiring allows you to invest more time in your health by sleeping longer, exercising more, or simply being able to visit a doctor as soon as a health problem appears. Secondly, work can be stressful, potentially causing high blood pressure, a risk factor for several potentially fatal conditions. People retiring early in this study were significantly less likely to die from a stroke or cardiovascular diseases. An analysis in the US in 2018 found that seven years of retirement can result in as much as a 20% reduction in the chance of getting a serious condition such as diabetes or heart disease. An English study found that retirement increases an individual’s sense of wellbeing and mental health, while German research concluded that retirement improved health and reduced the use of healthcare. Job for life Other studies have produced contradictory results, finding that early retirement has a negative impact on health. Jobs offer many benefits that we possibly take for granted – daily routine, physical and mental activity, a sense of identity and purpose and social interaction with others – all of which can help support mental and physical health. As many people found during lockdown, staying out of the workplace can result in social isolation and, over the longer term, lead to poor mental and physical health. An Italian study linked the length of retirement with dementia, saying “retirement duration plays a role in the evolution of cognitive decline at older ages, over and above the pure age effect… An implication of our analysis is
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that early retirement increases the risk of cognitive decline at older ages.” Scientists in the US found that the mortality rate of former staff at the oil company Shell was significantly higher if they retired at age 55 than for those who continued working until 65. However, researchers agree that results can vary dramatically depending on the circumstances of those taking early retirement. People who are in good health, white collar workers, well off and, importantly, actively choosing to stop work are likely to enjoy a very different retirement from those who are in poor health, manual workers, financially ill-prepared or having retirement forced upon them. Researchers involved in the Shell study agreed that some of those retiring at age 55 were likely to have done so because of poor health, while a majority of those who retired early but survived beyond age 65 were in a higher socio-economic group – that is, wealthier. Thriving in retirement Although scientific studies on the pros and cons of taking early retirement have not yet produced a firm answer, it is clear that much depends on your own individual circumstances. The earlier you start preparing for retirement, the better your financial situation is likely to be, enabling you to make the most of your greater freedom. Downshifting or going part time can help retirees become accustomed to – and enjoy – having extra free time. It’s a win-win situation providing greater freedom to do what you
want with continued earnings to fund your new pastimes plus a social framework and routine to fall back on for part of your week. Those who opt to stop work completely can make sure they lead a fulfilled life by joining a class or club, volunteering, or starting a new exercise regime. Jacquelyn James, an expert on ageing and work, told news channel CNBC: “We used to think that doing crossword puzzles was the best way to keep cognitive ability alive and developing and I think we’re seeing that it takes more than that. It’s much more important to do things that challenge the mind, like learning a new language, or a new technology.” n
Your chances of having a fulfilling and enjoyable retirement increase dramatically if your finances are ready to retire too. Michael Angus, Wealth Planning Director with Sanlam, says he starts preparing clients for retirement right from the very first meeting. “It is usually one of the top three, if not the most important thing that clients want to discuss,” he says. Initial steps involve identifying what the client would like to achieve during their lifetime – and when. Then Angus asks what pensions arrangements and any other investments and assets the client already has in place. He uses this information to help the client work out a plan
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to achieve their goals. Pensions are an excellent way to save for retirement, providing tax relief on contributions, tax-free growth within the pension wrapper and a tax-free lump sum when drawing the proceeds. But Angus says clients should still consider investing some of their money in tax-efficient ISAs as well. “Money invested in pensions cannot, in most cases, be withdrawn before the minimum pension withdrawal age of 55, due to rise to 57 in 2028,” he says. “If you want the option of retiring at a younger age, you need to be able to access money from another tax-efficient source such as an ISA.” Very few people get through life without encountering a few
Wealthsmiths Winter 2021
curveballs, so it’s important to reassess that plan at least once a year to make any necessary adjustments to ensure you are still on track. This doesn’t just mean looking at the amount you save: you might need life and health insurance to protect your family, inheritance tax planning or a Power of Attorney to ensure you have help with financial decisions in later life. It is vital to be realistic about your retirement plans, he says. “There is no point in aiming for retirement at 55 if you are going to run out of money at 65. You want to have enough money to be financially comfortable when you are in your 80s and 90s.”
Photos: Getty, iStock
HOW TO PREPARE FINANCIALLY FOR RETIREMENT
Digital assets
Enter password
Andrew Strange asks how you can make sure that your digital assets, such as photographs and cryptocurrency, won’t be lost when you die
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Making sure that your executors have the passwords and codes they need is a key part of digital inheritance planning
T
here is around £25 billion1 in digital assets held online in the UK, but much of this wealth could be lost because it is often forgotten during inheritance planning. And with inheritance laws designed for physical possessions, the legal framework for protecting your digital assets after you die can seem flimsy at best. You may have music accounts, ebooks and treasured photographs held online as well as assets such as cryptocurrency, but careful planning is needed if you want them to be included in your estate. Your Bitcoins, for example, will be useless unless you also leave the pass key – consider James Howells, from Newport, who unwittingly lost millions by throwing away an old computer containing his Bitcoin security information.2 Wealth Planning Director Michael Angus says it’s important that people not only create an inventory of all their online assets as part of their inheritance planning but also ensure that beneficiaries will be able to access key information such as passwords. “Identify everything you have and note it down because with all of these things, especially cryptocurrency, if people don’t know about them, then they are gone,” he says. The growing popularity of cryptocurrency is making the issue of what happens to it after someone dies increasingly urgent. According to the Financial Conduct Authority (FCA), 2.3 million3 consumers now own electronic currencies, up from 1.9 million in 2020. The median value of individual holdings has also risen, to £300, although the FCA believes that overall understanding of cryptocurrencies among consumers has declined.
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Sentimental value But sentimental assets are just as important to many people, and the case of US marine Justin Ellsworth reveals just how difficult it can be for beneficiaries to access online assets. In 2004, when 20-year-old Ellsworth was killed in Iraq, his father sought access to his email account, which in effect amounted to a diary. Yahoo refused, claiming it was contrary to its terms of service, and Ellsworth’s father was forced to obtain a court order.4 More recently, Rachel Thompson, from Chiswick, was refused access to 4,500 family photographs and 900 videos belonging to her late husband. A court order was again needed before Apple would release the content.5 Many people may be under the misapprehension that they own their online content, whereas in reality they have nothing more than a licence to use a website’s service. This is governed by the website’s terms and conditions, which have to be accepted before use but are often so difficult to understand and long-winded that people don’t read them. The terms vary depending on the service provider, but the licence often ends on death and is non-transferrable. Although privacy and confidentiality is often cited as the reason for this, it can be at odds with an individual’s wish to transfer their digital assets to the next generation. In the UK, there is no legislation to give executors the power to access and manage someone’s accounts and a grant of probate may not be sufficient for executors to gain legal title to digital assets. The government has, however, asked the Law Commission to make recommendations for changes to the law.6 Its review will consider whether digital assets should be made ‘possessable’.
Wealthsmiths Winter 2021
Digital assets
Photos: Ben Stevens, Shutterstock
“Very few people understand what happens to their digital assets or why it’s important to include them in their will” Worrying research The issue is exacerbated because the majority of people have little understanding of what they need to do to pass on digital assets. Research published this year by the Law Society found that just over a quarter7 of those surveyed knew what would happen to such assets when they died. The Law Society explained: “Technology is a huge part of modern life and our digital assets include everything from photos stored online to online bank and email accounts. Photos, social media accounts and emails from loved ones are just as treasured as physical possessions – and yet very few people understand what happens to their digital assets or why it is important to include them in their will.” It added: “With many social media platforms only created in the last few decades, it is all too easy to overlook your digital assets when making a will. However, this can leave family members unable to access family photos saved on the deceased’s online accounts or close their loved one’s social media accounts. It can also leave them unable to access information they may need for probate which is stored on the deceased’s email or online banking accounts.” Angus warns that it’s not just when someone dies that problems can arise. “Alongside your will you should consider Powers of Attorney as well,” he says. “That’s just in case, while you may not have died, you are unable to make decisions for yourself. By giving someone you trust Power of Attorney, they can get access to your bank accounts, cryptocurrency and other assets. We recommend every client has an up-to-date will and an up-to-date Power of Attorney.” He adds: “Everything we do for clients starts with having a flexible plan and then projecting forwards. We always ask, ‘what’s the worst-case scenario?’ and often it’s that someone dies. We can’t advise someone to buy or sell cryptocurrency, but we can make sure it has been identified and is noted somewhere. When it comes to sorting out your estate, cryptocurrency must be considered for inheritance tax purposes, so along with all your other assets, your beneficiaries will need a note of all the values.” You should also check the fine print of online accounts to see what happens to them on your death and then leave guidance for your executors, including whether you want particular accounts to be deleted, while also giving them specific authority to access and manage your digital assets.
Rachel Thompson obtained a court order to access her late husband’s photographs
James Howells lost millions when he lost his Bitcoin security details
This should be in writing and can be included within your will or made in a separate document that is signed and witnessed, which might carry the day if there is a subsequent dispute. Passing on all your assets, whether digital or otherwise, can be a complex process. We can work with you to ensure that both your physical and digital assets are passed on successfully to the next generation. n Sources 1 PwC survey, 2013 2 Motley Fool, 18 June 2021 3 Financial Conduct Authority 17 June 2021 4 NBC News, 21 April 2005 5 The Times, 1 May 2019 6 Law Commission, 4 September 2021 7 Law Society, 6 January 2021
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Find out more To learn more about inheritance planning, talk to your financial planner or visit www.sanlam.co.uk
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7 companies that failed to adapt These businesses were once household names, but failed to innovate. We mitigate these risks through our research into companies and the industries they operate in, helping us build resilient, diversified portfolios that protect investors against ruinous mismanagement.
The Finnish company was the giant of the mobile phone market until 2007, and was once known for being one of the most innovative and adaptive around: it invented a smartphone in 1996 and even a prototype touchscreen, and made mobile phones into fashion accessories. So, what went wrong? It was perhaps a victim of its own success in creating brilliant hardware, but failing to understand the importance of software, and apps in particular. Crushed by Apple and Android, by 2013 Nokia’s market share had shrunk to just 3%, and it eventually sold off its remaining assets to Microsoft for $7.2bn.
Kodak once dominated the photographic industry with a market share of around 50% worldwide, but the company failed to progress with the digital camera revolution, instead pouring its investment into photographic film, as it had done for decades. Despite one of its own engineers creating the first digital camera in 1975 as well as holding over 7,000 patents, the company failed to innovate and steadfastly stuck to the tried and tested film roll business model until it was too late. Kodak filed for bankruptcy in 2012, with the loss of 7,000 jobs.
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Wealthsmiths Winter 2021
Photos: Alamy
The collapse of Woolworths, the UK’s iconic high-street store that sold everything from CDs and children’s clothes to paint and pick’n’mix, shocked both business and consumers when all 800 shops closed in 2008. Though the tipping point was the global economic crash, the 100-year-old brand’s demise had been on the cards for some time, due to a combination of poor management, a highly unionised workforce, failure to adapt to changing consumer demand, rising high-street rents, and an awkward market position that was neither high-end department store nor pound shop.
Investing
more In its late-90s heyday, Blockbuster had 84,000 and rs ome cust d stere regi than 65 million the profits employees worldwide. Too focused on y seemed from its video rental stores, the compan r behaviour, unwilling to react to changing custome rental service, such as the demand for a postal DVD g revolution. let alone keeping up with the streamin on the radar “Neither RedBox nor Netflix are even Jim Keyes screen in terms of competition” CEO Blockbuster said, unwisely, in 2008. Two years later ion debt. filed for bankruptcy with over $900 mill
The children’s toy store giant Toys R Us was a victim of poor management and bad investment. In 2000, it launched a 10-year partnership with Amazon, to be its exclusive seller of toys and baby products. When Amazon began to allow other toy vendors on the site, Toys R Us sued. Though it won, it had missed the opportunity to develop its own e-commerce presence. Meanwhile mounting debt meant the company failed to invest in its stores and staff. When children turned away from traditional toys to more tech-related entertainment, Toys R Us couldn’t keep up with competitors; it filed for bankruptcy in 2017.
The British music retailer HMV was ‘top dog for music’ during the CD and DVD boom of the 1980s and 90s. With its strong brand heritage it was a destination for leisurely Saturday afternoon browsing; it had more than 400 UK stores and a stock market listing. However, it failed to keep pace with the disruptive technology of downloads and streaming and continued to focus its core business on bricks and mortar retail when almost 75% of music and film was now downloaded or bought online. Despite being bailed out in 2013 and streamlining its offering, it hit the buffers again in 2018 – a case of too little, too late.
Forever associated with the humble photocopier, Xerox could have been another Apple. It opened its ground-breaking Xerox Palo Alto Research Center (Xerox PARC) in 1970. The prototype of the modern PC, Ethernet and the mouse were all invented there. However, the company failed to realise the potential of these ideas, instead focusing on what it saw was its core business: the ‘office of the future’. This culminated in the unsuccessful Xerox Star, a workstation that cost an eye-watering $16,500 in 1981. Meanwhile Xerox had invested in a young entrepreneur called Steve Jobs and given him access to the technology at Xerox PARC. The rest is history.
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Making a case for books Some books are worth more than the paper they’re written on, writes James Cash
I
n October 2020, a copy of William Shakespeare’s First Folio, the first collected edition of his plays, sold at auction for a staggering US$9.98 million (£7.6 million), a record. It’s an astonishing price, and to think the Bard never even clapped eyes on a copy, which was published in 1623, seven years after his death. Other books have come close, a Gutenberg Bible, one of only 50, sold for $4.9 million in 1987, twice the price of the previous record for a Gutenberg Bible – one sold for $2.2 million a decade earlier. Then there is artist John James Audubon’s The Birds of America, William Shakespeare’s First Folio was sold at auction
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containing more than 400 prints, that sold for $9.65 million in 2018 with a presale estimate of between $8 million to $12 million. While books of the calibre just mentioned are unlikely to enter the average investor’s portfolio, the world of books is brimming with opportunities for all budgets. To the canny and lucky, rare and antiquarian books can make a lot of money. And yet, while books can appreciate and hold their value while stock markets waver, buying them has always been an investment for the soul. If you haven’t a genuine love and interest in books, it’s probably not a suitable asset class for you. Richard Davies of AbeBooks, an international online marketplace for new, used and rare books, says: “We always recommend that you have a passion for the books that you collect and invest in. If you’ve got a passion, I believe you are also going to have some knowledge, and that is critical to building a quality collection that retains and increases value. “There are resources out there to help you gather that knowledge, and it’s much easier to acquire than it used to be. But my first reference point for you would be the booksellers. Their knowledge of the book world is second to none. Establishing relationships with rare booksellers is a great way to go.” There are still rare booksellers with open shops, and many now exist online. But a good way to meet them is a rare book fair. London hosts several events a year; the Provincial Book Fairs Association also organises provincial events across
Wealthsmiths Winter 2021
Lifestyle
John James Audubon’s The Birds of America on display at Transylvania University Library
Photos: Alamy
the UK. Booksellers provide a service with networks of expertise in niche areas, who can source the publications you seek, acquire them and offer them to you. “That’s a common process. That’s why building personal relationships with booksellers is important.” Beware of pitfalls The disclaimer you always see in traditional investments is that stocks go down as well as up, which is valid with the perceived value of a book. Davies says: “It’s a common pitfall to think that just because a book has survived 100 years or more, that it is valuable, simply because it has aged. That’s a mistake.” Family Bibles, for example, pass through generations, but being the most printed book in history means that unless it is one of the very early fundamental Bibles from the early days of printing, it isn’t going to be worth anything. Books, like everything else, obey the simple rules of supply and demand. An industry code binds booksellers
affiliated with the ABA (Antiquarian Booksellers’ Association). They offer a guarantee for every book they sell, unlike many casual online traders, which means they have been vetted and checked for authenticity and completeness. They can help avoid costly mistakes and introduce you to fascinating material you may not come across independently. Pom Harrington, who has worked in the family rare-book business Peter Harrington for more than 30 years, is also President of the ABA. He says, like many collectables, rare books are illiquid assets and can only be traded within a relatively small market of interested buyers. He says: “Transaction costs can also be high, although book dealers tend to have slightly lower transaction costs than auction houses. A typical commission on sales ranges between 15–30% when sold through a dealer as compared to 35–45%, split between buyer and seller when sold through an auction house.” Other factors can affect price, such as desirability – not always an aspect
“We always recommend that you have a passion for the books that you collect”
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FIVE GOOD INVESTMENTS Later works by Agatha Christie While earlier works will be very pricey, first editions of later works sell for as little as £30 to £50.
Taschen Books These coffee table books, which include beautiful photography and design, are printed in limited numbers. While around £60 brand new, there are a few that sell for thousands.
On The Origin of Species by Charles Darwin Not technically scarce with 1,250 first editions printed, but highly desirable, commanding a sixfigure price when found in good condition.
James Bond novels by Ian Fleming These are perennially popular and highly desirable by collectors,
of scarcity. Socio-political and cultural elements can cause specific titles, authors, or subject matter to fall in and out of fashion. For example, first editions of seminal scientific and economics texts have seen significant growth in price since the 1990s fuelled by like-minded, newly monied scientists and dot-com moguls chasing books that influenced their careers. Harrington says: “Individual copies of the same title do not command identical market prices. There are many variables, such as completeness, condition, binding, and provenance, which mean that prices can vary hugely between different copies of the same book based on its physical condition, ownership history and any inscriptions or annotations it contains.” A book for every shelf and pocket “No matter what your budget,” Harrington says, “I always recommend buying the best you can afford. A physically fine copy of a book is more likely to hold its value when it comes to being resold, and you can always upgrade your collection when the opportunity comes along. Inscribed and presentation copies with interesting associations are also a good place to start.”
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with renewed interest following every new film.
The General Theory of Employment, Interest and Money by John Maynard Keynes This has quadrupled in price to around £12,000 from 12 years ago before the financial crisis.
It can be fun for first-time collectors to anticipate which books may be desirable in years to come. This could be due to many influences. The adaptation of a book into a film or mini-series, for example, could prompt a spike in interest decades down the line. Davies says: “Modern first editions or signed copies of books that win prizes like the Booker Prize or Nobel Prize for Literature can be a good bet. With a shortlist of just six books, that’s better odds than a horse race.” A signed copy of a book can increase the value over time but can usually be purchased new at little expense at most bookshops. Davies says: “I know one bookseller who took a gamble on the then little known author, Dan Brown, who had been on tour promoting The Da Vinci Code. He bought around 40 signed copies because he felt it was going to be successful. And the book took off and became a movie, and he was soon selling them for $100 or $200. And now they fetch $1,000 to $2,000.” Rare book collecting is not a science. It rewards those in it for the long haul – a good dealer can help get you started by honing your understanding of the market and helping you source and acquire the best books within your sphere of interest. n
Wealthsmiths Winter 2021
Energy
The energy sector must adapt if we are to avert a climate catastrophe, but fossil fuels will be needed for some time yet, writes David Burrows
A
ccording to the International Energy Agency (IEA), climate pledges by governments to date – even if fully achieved – would fall well short of what is required to bring global energy-related carbon dioxide (CO2) emissions to net zero by 2050. It insists more needs to be done to give the world a chance of limiting the global temperature rise to 1.5°C.1 Nevertheless, it’s true that we are already seeing positives with regard to a transition to clean energy. According to Statista, the global renewable energy market is expected to reach $1.1 trillion by 2027. Yet fossil fuels are likely to be with us for some time, both because of our insatiable appetite for energy and the reliance of some countries on fossil fuel extraction. According to the UN, while energy efficiency and renewables are often seen as the only way to meet climate goals, other technologies will be needed. Widespread use of carbon capture and storage (CCS), for example, could support hard to abate but essential industries such as cement and steel production through the energy transition. CCS is expected to result in a16% annual emission reduction by 2050. Extraction nations And such technologies could play an essential role given the reliance of some nations on fossil fuel extraction. According to the Financial Times, one-third of the global population currently lives in countries that are badly exposed to the energy transition – for example, Iraq receives more than
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A tokamak fusion reactor, offering the prospect of abundant carbon-free power
23.7% of UK power comes from wind energy
7%
of UK power is generated by biomass
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9.5%
of UK power is produced by solar energy
Energy transition It would be disingenuous to say that progress has not been made towards the net-zero goal – but a lot is still potential rather than actual achievement. According to GridWatch, gas still accounts for 34.8% of UK power, with wind energy accounting for 23.7%, solar 9.5%, biomass 7% and just 1% from hydro.3 Wind power in the UK is a success story. Electricity generation from wind power increased by 715% between 2009 and 2020 and the UK has the largest offshore
Wealthsmiths Winter 2021
Photos: By RS Wilcox
34.8%
of UK power is generated by burning natural gas
90% of its revenues from crude oil. And consider the levels of production of countries such as Australia (coal) and Saudi Arabia (oil) – is there the political will to make changes at breakneck speed? Activists and investors are urging the oil majors to deliver the solutions that will bring the world closer to its net-zero objective. Unsurprisingly, the seven largest integrated oil and gas companies – BP, Chevron, ExxonMobil, Royal Dutch Shell, TotalEnergies, ConocoPhillips, and ENI – have garnered most of the attention and criticism. BP is seen as one of the green front-runners in the oil and gas industry. The company is on record stating its aim is to become a diversified business operating in renewable power, biofuels and green energy – but still without completely divesting its operations in the hydrocarbons industry. But according to the IEA, the majors account for only 12% of oil and gas reserves, 15% of global production, and 10% of estimated emissions from industry operations. By comparison, national oil companies – which are fully or predominantly owned by governments – account for more than half of all global production and an even greater proportion of reserves, and most are not well positioned to adapt to the changing landscape.2
Energy
wind farm in the world, which is located off the coast of Yorkshire.4 The problem with the headline figure of 715% is that it represents growth from an ultra-low base. Also, the fact that gas still accounts for over a third of power generation in the UK is another indication that we will likely need fossil fuels for some time yet. Recent supply chain issues with regard to oil and gas reinforce just how dependent the world still is on fossil fuel energy. Clean power That said, global renewable energy generation as a share of total generation continues to grow as renewable technologies become more cost-effective.5 Whether it is wind farms at Dogger Bank off the Yorkshire coast, the Rusomo Falls hydroelectric project in Tanzania or the vast Ivanpah Solar Power Facility in California, countries are developing clean energy ideas that better utilise their natural environment and climate. There are plenty of new ideas to explore, such as fusion energy, which generates electricity by using heat from nuclear fusion reactions. The benefit of fusion energy is the potential abundance of power, a carbon-free footprint and absence of highlevel radioactive waste. The drawback, according to the International Atomic Energy Agency (IAEA), is that controlling thermonuclear fusion for energy production is a complex and challenging undertaking. Then consider car-to-grid technology – though the concept is still in its infancy – which works by drawing unused power from an electric car into the smart grid. Known as vehicle-grid integration, it could help the energy grid supply electricity during peak hours. There are other left-field ideas, such as using used ground coffee beans to generate power rather than being sent to landfill.6 If we are to transition our energy sector to net zero by 2050 then it is unlikely to be achieved by one solution or source alone but by several, including fossil fuels. Some ideas may not gain the same traction as others but with enhanced government incentives, and given the huge increase in environmental, social and governance (ESG) investing in recent years, financing the energy solutions of tomorrow might prove easier than once envisaged. n
HOW DO YOU INVEST IN THE THE ORDERLY TRANSITION TO NET ZERO? Chris Greenland, Fund Manager at Sanlam, explains that while there is an urgency to meet targets, transition cannot be instant. “The low-carbon transition is a process that, if done sustainably will happen over a period of years (it’s why many businesses/governments have targets for 2030 or 2050). The good thing is we have many of the tools and tech today to take us towards a net-zero society.” Greenland stresses that we’ve moved from a period where wind and solar were only viable with subsidies to a period where they are attractive investments without any support. “It’s come about through tech advancements, efficiency gains and cost declines over the years and things continue to move in the right direction,” he explains. “Renewables are now cost competitive with fossil fuel energy sources, and in many parts of the world, the economic case stacks up for renewables.” Sanlam has been investing in renewables for several years and has seen a huge positive change. “We have been identifying a lot of interesting opportunities that are facilitators to net zero; businesses sitting before the operational assets that enable the transition,” Greenland says. He concludes: “We only invest in businesses that can generate our required returns – that is not a secondary thought. What we have found is that ESG transparency is improving, and the data is more readily available to us today than it was beforehand, which is ultimately a positive thing.” Sanlam supports business models that advocate steps towards net zero as well as pure‑play green energy.
Sources 1 Pathway to critical and formidable goal of net-zero emissions by 2050 is narrow but brings huge benefits, according to IEA special report – News – IEA 2 Sanlam – The rebranding of big oil Megatrends – Going green – the rebranding of big oil June 2021 pdf 3 GB Fuel type power generation production as percentages (gridwatch.co.uk) 4 Wind energy in the UK – Office for National Statistics (ons.gov.uk) 5 Global installed wind energy capacity 2020 – Statista 6 Here’s 5 innovative ways your coffee grounds can be recycled – World Economic Forum (weforum.org)
www.sanlam.co.uk
“We only invest in businesses that can generate our required returns – that is not a secondary thought” 25
Quantum leap The quantum computing revolution is coming and could provide huge benefits to sectors right across the economy, writes Amanda Simms
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various circumstances become exceedingly difficult to simulate,” he explains. Using quantum computers, scientists could potentially accelerate the development of new drugs, saving time and vast amounts of money that could be distributed elsewhere. Plant says that financial services, manufacturing and logistics will also see early benefits from the technology. He divides the use cases into three categories: simulation, optimisation, and combining with machine learning or artificial intelligence programs. Qubits So, what are quantum computers? They work in an entirely new way to the technology that we use today, instead harnessing what happens at the level of individual atoms, electrons or photons, which are governed by the laws of quantum mechanics.
Wealthsmiths Winter 2021
Photos: IBM
Q
uantum computers represent a new stage in the evolution of computing. By sidestepping the binary limits of traditional computers, this new breed of technology is set to have huge benefits for sectors such as life sciences, manufacturing and financial services. Simon Plant, Deputy Director for Innovation at the National Quantum Computing Centre, explains that quantum computers can be extremely fast, solving some problems that would take traditional computers “the entirety of time”. Siddharth Joshi, a Research Fellow at the Quantum Engineering and Technologies Labs at the University of Bristol, believes the most immediate benefits could be in biochemistry and medicine. “The problem there is if you have these complicated drugs, or compounds, or chemicals, their interactions and how they behave under
Technology
A BIT CONFUSED? Classical BIT
1
0
Today’s computers translate everything to a zero or a one. These zeros or ones enable us to do the kind of computation we are all used to.
Qubit But the building blocks of quantum computers, qubits, can be both zero and one at the same time. Qubits can process many inputs simultaneously. This is what makes quantum computers so powerful that they could revolutionise whole sectors.
1 z
Scaling up Small-scale, purpose-built quantum computers already exist, their size only reaching tens of qubits at present. IBM has deployed several quantum computers, including a 53-qubit system accessible via cloud – IBM Quantum System One. Meanwhile, some of Google’s quantum technology is offered up to researchers with approved projects, while an open-access scheme called Cirq allows anyone to test quantum algorithms. However, big tech and academics are working towards realising this technology on a larger scale. “The state which quantum computers are in right now, I would equate this to the very early days of computers,” says Joshi. However, Plant adds that it’s accelerating “very rapidly”. But there are challenges that still need to be overcome. One is the fact that qubits are immensely fragile and prone to random errors, so must be shielded in protective infrastructure and kept at extremely cold temperatures. Moreover, it’s not just about the hardware, Plant adds, but also about training a next-generation workforce who can progress and make full use of quantum computers.
Logic gate In order to manipulate fundamental bits, they must be transformed by logic gates
1 y
x
0
“Quantum computers work in an entirely new way to the technolog y that we use today”
“In a normal computer, everything gets translated ultimately to either a zero or a one. And it’s the strings of zeros or ones that allow you to do computation,” explains Joshi. But the building blocks of quantum computers, qubits, can be both zero and one at the same time, a state that is known as superposition. And it is this attribute that allows quantum computers to be so agile. In fact, when qubits are connected, “what that can do is process many inputs simultaneously. So, you effectively get this parallel processing effect. And that potentially can create a step change in computing power for certain tasks”, notes Plant.
Qubit superposition
0or1 Qubits can be both 1 or 0 at the same time
Result Either 1 or 0
0 Measurement A special type of operation at the end of a circuit gives the final values of the qubits
Another challenge that both Joshi and Plant highlight is moving from purpose-built to general-use quantum computers. But we should expect to see general-purpose quantum computers in the next decade or so.
Code breaker However, the very thing that makes quantum computing so powerful also introduces a worrying problem. Think of any piece of encrypted information – from nuclear codes to banking details. This could all be at risk from decryption. Current computers can also do this, just infinitely more slowly, by going through every possible combination. “With the advent of quantum computers, you then have the possibility of running different algorithms that are potentially far, far better at solving this kind of problem. Which means that what you previously thought was secure for 50 years is now secure for five minutes”, explains Joshi. However, this has been recognised as an upcoming issue for a long time – and there are numerous solutions, from changing the type of encryption you use, for example quantum encryption, to a software-based solution known as post-quantum cryptography. All new technology has posed risks or ethical problems of some sort or another, so quantum computing is hardly unique in that regard. More uncertain at this point is overcoming some of the technical challenges to take us from the present day 20-qubit computers to those with 1,000 or even one million qubits. Quantum computers could not only boost the economy and advance scientific progress, but they could also accelerate our ability to solve problems in some of the most pressing issues facing humankind today – from modelling climate change risks and advancing the green energy transition, to averting future pandemics. n
www.sanlam.co.uk
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Julia Griffiths Jones
“Glass is hot and it’s molten when you work with it, yet you get these extraordinary pieces out of it. I am in awe of the people who can hone and harness its behaviours to create really beautiful pieces”
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Wealthsmiths Winter 2021
Inheritance
The Great Wealth Transfer In the next decade, £327 billion will be left to millennials by their wealthy baby-boomer parents, but what should they do with the money? Jill Insley finds out
M
illennials are about to become the beneficiaries of the biggest wealth transfer in history as their baby boomer-parents and grandparents leave them inheritances. Baby boomers – those born between 1946 and 1964 – have lived at just the right time to benefit from soaring property prices, inheritances and final salary pension schemes. As a result, they are estimated to control around 80% of private wealth in the UK1, and one in five of over-65s is a millionaire.2 This wealth is set to be transferred to the following generations as inheritances or gifts during the next 30 years: in the next decade alone £327 billion is expected to be passed on to 300,000 younger people in the UK.3 The amounts involved are so enormous the process has even been given its own name – the Great Wealth Transfer. This begs the question of what the recipients, many of them millennials born between 1980 and 1996, should do with their inheritance windfalls. Initial steps Harry Finster, Portfolio Manager for Sanlam – and at the age of 28 a millennial himself – says that the first step should be making sure that the inheritance is stored safely to give time to decide about longer-term requirements. “The Financial Services Compensation Scheme protects up to £85,000 deposited with each institution that holds a banking licence,” he says. “So, if you have inherited £500,000, you should look to spread that money between accounts with six different banks to ensure the entire inheritance is protected.4” Some of that money should be kept permanently in an easy-to-access cash account for emergencies. “We would normally recommend an amount equivalent to six months’ expenditure to be held in a ‘safety net’ account,” says Finster. “If you are a high earner you might not need to hold quite so much – the aim is for you to be able to meet normal expenses without disrupting your longer-term investments.”
Cash savings accounts should not be considered a long-term solution for the remainder of an inheritance unless the beneficiary is very risk averse. The interest paid on savings accounts currently is easily outstripped by inflation, meaning that the purchasing power of cash savings will gradually diminish over time. How the remaining inheritance is distributed depends on many factors, including how much money there is, the beneficiary’s appetite for risk and their individual circumstances. One of the first steps a Sanlam adviser will take is to carry out a risk tolerance assessment. “All investments involve risk,” says Finster. “It’s important to make sure you are comfortable with how your money is invested and understand the potential volatility investments will experience over your investable time horizon.” As debt invariably costs more than the interest paid on cash savings, the most obvious action is to pay off any loans and credit cards. “Paying off debt provides you with a solid foundation for your finances,” says Finster. “It means that none of your income, including investment gains, will go towards servicing interest payments and more can go towards growing your net worth.” Investing in property An inheritance can also be used to eradicate another major expense – rent. Fewer millennials are renting now than four years ago, currently accounting for 42% of all rent paid in Great Britain compared to 55% in 2016. But research by the estate agency Hamptons indicates that they are still paying £24 billion in rent annually.5 Even if there is just enough to provide a deposit for a property, paying a mortgage can prove cheaper than rent.6 Research by the Halifax found that, in December 2020, it was 9% more expensive to rent, with an annual difference of £816. Also, as you are buying your own property, you, rather than your landlord, are benefitting from the monthly payments. “We are expecting interest rates to start rising in the next 12 months. If you can get a
www.sanlam.co.uk
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three- or five-year fixed rate mortgage, you will still be in a very strong position to save in the long run versus paying rent,” says Finster. Depending on how big the inheritance is, the beneficiary might want to invest in buy-to-let property as part of a diversified investment portfolio. According to the Office for National Statistics, UK property prices have risen by 175% in the past 20 years, from £81,628 to £224,337.7 However it’s important to remember that property prices can fall, property can be timeconsuming to sell, and buy-to-let can be hard work. Stock market Millennials have one huge advantage over older investors – time. Finster says: “How you invest depends entirely on what you want to use the money for and when you will need to draw on the assets.” If you are likely to need the money within the next five years, then equity markets may prove too volatile to ensure safe receipt of your initial investment. If you have a longerterm horizon, time will help mitigate short-term market volatility and you can afford to take more risk. Finster says that ensuring the suitability of the investment portfolio is paramount to his work as an investment professional: “Usually we build clients a bespoke, risk-adjusted portfolio that looks to reach their growth or income objectives by investing in a blend of equities, bonds and other asset classes.” Having that extra time also means millennials can benefit from ‘compounding’, which is the reinvestment of interest or capital growth to generate additional earnings. Done correctly, investors can benefit from exponential returns. Finster recommends maximising use of tax-efficient wrappers such as ISAs and pensions to protect investors from capital gains and income tax,
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using annual allowances to gradually move money from a taxable portfolio of assets into a tax-free environment. Further tax efficiencies to be considered later in life include the reduction of inheritance tax by asset sharing with spouses or gifting to individuals and trust structures. Many of the millennials inheriting windfalls will also plan to pass wealth on to their children and grandchildren. It is a good idea to seek professional advice early on to understand how best to use, preserve and grow this additional wealth, be it through careful investment, the purchase of life insurance, wills and inheritance tax planning and/or the setting up of trusts. Finster says that, for younger millennials, some of the actions will seem premature or unnecessary. “Some things, such as paying off debts or taking out life insurance policies offer huge advantages, have few downsides and should be done as soon as possible,” he says. “The benefit of other steps, like contributing to pensions, may not become apparent until later on in life. But creating a plan for your wealth could help to protect you and your family for generations to come.” n Sources 1 FTAdviser, 27 April 2021 2 FT, 9 January 2019 3 FTAdviser, 26 September 2019 4 FSCS, 5 November 2021 5 Property Industry Eye, 13 September 2021 6 Money Advice Service, 15 September 2021 7 The Times, 23 August 2021
Find out more To learn more about passing down or managing an inheritance, visit www.sanlam.co.uk
Wealthsmiths Winter 2021
Sanlam has offices across the UK. To find your nearest Sanlam office, simply visit www.sanlam.co.uk/contact-us You can also call us on 0333 015 5600 or email getintouch@sanlam.co.uk We welcome your feedback on Wealthsmiths magazine. If you have any comments or ideas, or if you would like to unsubscribe, please email: wealthsmiths@sanlam.co.uk
Sanlam UK
@SanlamUK
www.sanlam.co.uk/wealthsmiths
Sanlam is a trading name of Sanlam Private Investments (UK) Limited, registered in England and Wales 2041819 and Sanlam Wealth Planning UK Limited, registered in England and Wales 03879955, which are both authorised and regulated by the Financial Conduct Authority, Registered Offices: Monument Place, 24 Monument Street, London EC3R 8AJ.
