In this conference for institutional fund managers and trustees, Stuart provided insights from private wealth management, where most investment objectives are defined in terms of purchasing power at future known or uncertain horizons. This being the case,  inflation risk is one of the most important sources of risk to manage. Traditional ‘balanced management’, which is focused above all on short-period nominal return volatility, does not address this risk well and the main instrument of risk control, bond exposure, involves an unrecognised or unstated substitution of equity risk by inflation risk which is highly inefficient. Stuart explained how Fowler Drew uses two assets, diversified equity exposure and horizon-matched index linked gilts, to control the range of outcomes in purchasing power at the planning horizon.

This audience was familiar with the concept of ‘portfolio separation’ and using hedges, rather than constantly trying to find more (and less correlated) risky asset classes or strategies, to control risk. It is the basis of Liability Driven Investing (LDI) that has so successfully challenged traditional diversification, or ‘balanced management’, in UK occuaptional pension funds. But Stuart suggested that applying LDI successfully assumes you have correctly defined the nature of the liabilities, the hedging assets and the right priorities for different risk sources. Whereas for private wealth there is a clear definition for purchasing power objectives, and a clear risk free asset in the form of index linked gilts, the typical LDI hedging solution relies excessively on non-indexed bonds (because of the prescribed ways they measure liabilities) and the typical risky portfolio solution focuses excessively on smoothing return paths (which sponsors care about) at the risk of poor matching of purchasing-power outcomes (which is a problem for the next generation of trustees or managers). Whereas individual plans may be acting rationally, the society-wide effects are not ;at all rational.

Stuart also challenged this institutional audience to consider why, when most actuarial consultants believe in mean reversion of equity returns (which is implicit in their assumptions about the persistence of common, ‘normal’ means for real returns) , they do not make their future return assumptions specific to current market conditions and asset values or indeed specific to the planning time horizon. Both dependencies are part of a mean reverting return model whereas so-called ‘normative’ assumptions, blind to time and deviations from trend, clearly are not. Fowler Drew’s own model of real returns, also built on reversion to sustainable trend returns, does not rely on normative assumptions.

Though we have learnt much from the institutional market, perhaps we also have something to teach it!

For an audience comprised of insurance-company pension professionals, SIPP providers, advisers and actuaries, Stuart explained how Fowler Drew manages one of the most critical of all tasks: living off capital in retirement. Defining the problem first as an economic one, he showed how poorly suited is the conventional approach of ‘balanced management’ to such a complex, multi-faceted and idiosyncratic task. Of all the personal financial goals, meeting retirement spending objectives in a controlled way is both vital to individuals and important for society. We are living too long to rely on level annuties yet cannot afford index linked annuities, so we have to continue to take investment risk through much of our retirement. We therefore need a robust solution, soon.

Demonstrating how Fowler Drew uses technology to solve the problem of deep customisation (applying principles of Liability Driven Investment, managing  entirely by computer models and implementing using low-cost, basic investment building blocks), Stuart posed open questions about how the financial services industry might develop scaled-up, mass-market applications of this kind of approach, either as a service or as the basis of a packaged product.

In discussion, issues raised included:

• FSA attitudes to the use of stochastic modelling to project quantified outcomes and reliance on those to identify ‘true’ risk preferences.
• How to test for performance of different approaches when some are rules-based (quantitative models) and others haphazard (using judgement to adapt drawdown rates to changing fund values or GAD rules).
• The lack of relevance of the prescribed ‘critical yield information’.

Tuesday 28th September 2010

Olswang Offices, 90 High Holborn, London, WC1V 6XX

From our experience working with lawyers across a number of city firms we have identified characteristics that appear to persist.

1. The investment approaches that have been adopted bear little relevance to the outcome the individual or family is trying to achieve. More often than not, risk has been shunned in favour of hope-for  lower volatility, using standardised portfolios that will result in lower outcomes, such as less spending in retirement.
2. Despite overwhelming evidence that it consistently fails to deliver better returns for retail investors, most solicitors are still paying a high price for active fund management and almost all believed  they were paying less to the financial services industry than they actually were, or needed to be.
3. Most solicitors had a lack of clarity about the relative attraction of property versus financial assets, particular when considering leverage in the form of a mortgage.
4. Confidence and trust in advisers was low, with many of your peers refraining from action, taking advice from multiple sources and some reluctantly driven to a self-directed approach.

We have been invited to speak to the Olswang partners for a second time because a group of existing partners valued highly the work that we completed for them and believe others should be offered an opportunity to learn a little more about how we work with clients.

In this workshop, Stuart and Joe will describe an approach that focuses on your goals and not those of the industry, including:

• The benefits that come about from goal-based financial planning, including a hierarchical framework that makes financial decisions easier and more consistent;
• How best to implement a simple low-cost structure suited to those in the early stages of high savings; and
• How we design and manage a portfolio of investments to deliver specific, duration-matched, quantified outcomes as defined by the client during the planning stage.

(Please note this is only open to delegates of the 2010 Clinical Radiology Annual Meeting )

By attending this short seminar attendees will gain a greater understanding of the NHS Pension Schemes, enabling them to;

• Understand the primary differences between the 1995 and 2008 NHS pension schemes
• Determine which one of the two schemes is likely to be most appropriate for them
• Calculate the deemed value of their NHS pension
• ‘Game’ the pension rules in order to maximise the level of pension benefit
• Determine whether they are on course to breach the Lifetime allowance and what it means if they do

For those with privately funded pensions supplementing the NHS Scheme, Joe will go on to;

• Set out why the investment approach should differ between ‘accumulators’ and ‘decumulators’
• Help you to understand which aspects of planning will have the greatest impact on retirement outcomes
• Discuss practical measures that allow you to keep control of costs
• Highlight practices that are to be avoided at all costs

And with the Coalition government setting out its pension objectives in two recent consultations, Joe will also cover the areas that are most likely to impact the seminar attendees, and so covering;

• The impact of likely changes to the pensions annual allowance
• Improved pension flexibility that is likely to come about with the introduction of a ‘Minimum Income Requirement’

Grange St. Paul’s Hotel, 10 Godliman Street, London, EC4V 5AJ

6.15pm for 6.30 start, 7.30 finish

Format
A small group of interested individuals (often including spouses) around a table, the content substantive and provocative, more education than sales, more conversation than lecture, with further opportunity for discussion and drinks after a prompt finish.

Speakers and subject
In this seminar, Stuart Fowler, who was a leading innovator in the management of institutional investments before founding No Monkey Business, will explain how and why private client advice and portfolio management is not fit for purpose. The consequences of this are most critical for retirees who will be drawing down their own resources to meet their spending in retirement and depending on the products and services the industry can offer.

No Monkey Business financial planning head, Joe Clark, will take you through an approach designed specifically for this purpose, based on the outcomes driven (or liability driven) investment techniques that have already overturned the traditional approach to occupational pension management. Adopting these techniques in private wealth management has been endorsed by academics but also by the professionals that work in private wealth firms.

Stuart and Joe will help you to visualise how different the experience can be when you work with the best techniques, delivered by smart people who are totally on your side.

Benefits of attending this seminar

• Powerful insights into the essential principles of drawing down from capital (whether in a pension account or other forms) when subject to particular constraints, such as competition from other financial goals; maintaining purchasing power; sustaining the rate of draw through bad markets; control and flexibility
• This should encourage you to think about your own needs in a different light and how they could be best met
• An opportunity for you to meet a firm that is successfully challenging the banking, stockbroking, tied agencies and IFA businesses who currently work with professional people.

Who attends
We invite people like our existing clients: high earning professionals that appreciate smart thinking, elegant engineering and who expect a professional approach to charging.

We hope to meet you at one of these seminars or by other arrangement. Places are limited so if you would like to attend please respond promptly by email joseph@nomonkeybusiness.co.uk or click here.