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Dynamic Planner CEO outlines 5 key issues for financial planning in 2020

16 January 2020

Suitability, cashflow, sustainability, regulation and technology. Dynamic Planner CEO Ben Goss outlines what he believes will be the most transformative issues affecting financial planning in 2020.

1. Sustainability becomes part of the suitability conversation: Addressing climate change is the most pressing need of our time. UK advisers, as gatekeepers to one of the largest investment pools in the world, are in a position to significantly influence the impact that these investments can have. In 2020 the European Securities and Markets Authority will complete their consultation on explicitly including discussion of environmental, social and governance risks in the investment advisory process. Firms will also be expected to ensure that staff possess the skills, knowledge and expertise for the assessment of these sustainability risks. Whether its conclusions reach these shores post Brexit is uncertain, however the crucial role that investment advisers play is clear.

2. More clients see real value from their annual review: Two years in from the introduction of MiFID II and with many advice firms now having upgraded or planning to upgrade their review process in 2020 clients will begin to really see the benefit of an ongoing advised relationship. Done well firms are able to demonstrate the value they are providing through assessing the ongoing suitability of the portfolio including its risk, performance against risk-based benchmarks, product, cost and as above, sustainability suitability. Helping clients feel they are on track should avoid switching due to short term performance chasing which is good for the client, the firm and the asset manager.

3. Risk-based cashflow planning comes to the fore: According to the ONS the number of people aged over 45 in 2020 is expected to grow by 258,000. While this is slightly lower than previous years the total numbers in this group will swell to almost 30 million. At the same time the number of people in defined benefit pensions will continue to fall. It’s currently around 1m in the private sector, down from 2.5m a decade ago. As potential clients start to get serious about accumulating wealth and ultimately planning their retirement with assets which require taking investment risk, the demand for cashflow planning based on an objective assessment of risk will grow.

4. Assessing suitability 2.0 is published: The FCA expects to publish its findings for its Assessing Suitability Review in 2020. Its last study in 2017, found that advice in investments, pension accumulation and retirement income was suitable in 93% of cases. There were two areas of concern however: defined benefit transfers and high-risk investments. This second review is expected to assess how well firms have implemented MiFID II, PRIIPS and Product Governance requirements. The timetable is expected in the spring. It would not be a surprise perhaps if some focus was given to the risks of illiquid investments given the issues this has surfaced in 2019. It will be interesting to see the FCA reflects ESMA’s work on sustainability.

5. 5G accelerates the pace of technology in the advice process: The adoption of 5G networks is expected to become widespread in 2020 with download speeds 10 to 20 times faster than today. For advisers and clients that means the ability to use digital systems to engage with clients either remotely on a mobile, or in person using a tablet will expand too. The use of computationally intensive planning systems to explore future scenarios or provide interactive reviews via mobile devices will grow.

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