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The changing world of investment | Ten Year Retrospective

Part of the series of retrospective articles celebrating this month’s ten year anniversary of IFA Magazine. Sue Whitbread talks to experts from a range of different investment companies to find out where they have seen some of the greatest changes occur since IFA Magazine was launched in 2011 – and what they see coming next.

Since 2011, investors have enjoyed bull market conditions in global equities and bonds. The huge government stimulus packages, which were a consequence of the 2008 financial crash, have had a long and lasting effect on prices of securities.

Here in the UK, regulatory change has also been firmly in the spotlight, with the likes of RDR, MiFID 2 and other significant initiatives all impacting on the business of investment. It has been a decade of transformation with improvements in choice, transparency and flexibility for advisers and investors alike.

We have seen not only sweeping changes in the outsourcing of portfolio management by advisers but also in the big increase in platform usage. In addition, we’ve seen a huge boost to the popularity of passive investments, exchange traded funds (ETFs), investment companies, multi-asset funds, CIPs, model portfolios, discretionary managed portfolios, alternative investments, tax-efficient investments like VCTs and EIS etc. I could go on – and on. And that’s before we even begin to mention the huge shift in focus on environmental, society and governance (ESG) issues within investment. So, what do the experts think? Where do they see the main changes?

Jackie Boylan, Head of FundsNetwork sees developments in regulation and technology as responsible for some of the most significant changes to the advice sector occurring within the past 10 years. Boylan explains “The RDR and MiFID have required advisers to adapt, placing even greater demands upon their time in order to remain compliant. This means finding new, more efficient ways of working without having to sacrifice time spent with clients – and this is where technology and platforms play such an important role.

“Technology is both a solution to addressing this regulatory change, and a disruptive force in its own right. This is evident in the rapid growth of the platform market during this period, which looks set to continue – I’d expect to see some new entrants as well as further acquisition activity. However, as the saying goes, you can have too much of a good thing, and that’s certainly true of technology. As more systems are introduced, the more conversations need to be had between them to ensure they integrate effectively. This is where platforms and advisers need to work together, identifying challenges and how to address them with specific propositions, and I think we’ll see many examples of co-creation in years to come.”

Freddie Woodhead, investment manager at JM Finn establishes three main themes that have shaped the industry over the last 10 years. The first theme relates to costs, with Woodhead commenting: “As investment managers, I have always been extremely conscious of 3rd party fees and strive to get value for our underlying clients. The disclosures that are now produced as a result of MiFID II, one of the most important regulatory events over the period, have helped focus the minds of fund houses, which can only be a good thing for the industry.”

Investing on a global basis is the second area in which Woodhead identifies change. He comments “Traditionally, wealth managers have focused their investment in the UK for many reasons but the last 10 years has seen a move away from this. At JM Finn, we have made a conscious effort to widen our outlook away from the UK by broadening out the research of direct stocks and creating a dedicated research function for funds.”

The third and final point relates to ESG, Woodhead noting “I think the biggest trend for the last 10 years has to be the ESG awareness when it comes to investing. Governance has long been a huge part of many investors’ investment process but the move to include the “E” and “S” is a big change and one the industry is still trying to get to grips with.”

Neil Blankstone, Director at Blankstone Sington is confident in identifying where he has observed the main changes, asserting “The last 10 years dominated by the rise of models and the explosion of index funds as well as the cost of keeping up with regulation and technological advancement.”

Aymeric Forest, Global Head of Multi-Asset Solutions at Aberdeen Standard Investments agrees that over the last 10 years our investment industry has experienced substantial changes driven by market events. According to Forest “A 60% global equity/40% domestic bond mixed strategy delivered double-digit returns on average per annum over the decade helped by unprecedented monetary and fiscal policies. Such a strategy passively managed using ETFs outperformed active equivalent at a low cost. It is therefore no surprise that advisers relying on external manager selections, for example, lost faith in active management. The financial regulator implemented RDR rules and recently raised concerns about the value for money of some actively managed strategies. In 2019, the amount of passively managed equity funds in the US surpassed the active ones. A milestone in this epic battle. Asset managers had to adapt to such rapid transformation with eroding margins. Large investment in technology have helped streamline processes, generate new sources of alpha through AI, or offered clients new, bespoke, and user-friendly experience to manage their wealth or pension including robo advisers.”

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