By Jim Henning, Head of Investment Services, Dynamic Planner

Concerns over the rising pace of inflation have seen interest rates start their gradual climb and the beginning of the end of the great financial experiment by central banks, referred to as quantitative easing.

This raises a number of questions for those clients relying on natural income in their retirement:

  1. How durable is the portfolio’s income and underlying capital, post the era of fiscal stimulus and interest rate manipulation since the Great Financial Crisis of 2008 and the Covid-19 pandemic?
  2. What is the nature of expected risks with the underlying assets, particularly within the fixed income space given their elevated sensitivity to interest rates changes?
  3. There has also been strong growth in demand for alternative asset classes, such as investment in infrastructure, to drive the transition to a clean, low carbon economy and generate an attractive yield. How can risks be assessed accurately?

Dynamic Planner’s Income Focused Fund Research Reports might just help you out at the next client annual review.

The latest set of six, monthly reports provide a wealth of research, both in terms of how the solution has delivered historically and also what types of risks the portfolio manager is taking from a forward lens perspective.

This research is only possible because of the in-depth risk profiling performed at individual holdings level by the Asset & Risk Modelling Team at Dynamic Planner. The reports also share detailed content as to process and philosophy adopted by the management team running the assets.

As the recovery from the Covid recession gathers pace, we can see how income payments from this subset of risk profiled funds have stabilised over the last year. Below, the net income paid by the Risk Profile 5 income focused funds over the last five years are shown (specifically the median and the mid 50% range).

Source: Lipper Refinitiv, 12mth periods to end Jan each year

When it comes to talking about risks, your clients may be interested in widening the discussion to ESG.

If so, try Dynamic Planner’s sustainability questionnaire, launched last March and take a look at the MSCI ESG fund ratings available in the system. Using the above income focused Risk Profile 5 funds, it’s encouraging to see the MSCI fund ratings are predominantly AA and A, indicating the high quality of the underlying investee companies managing ESG risks (relative to their sector / industry peers) held within the portfolios.

Source: MSCI at end Jan 2022

The latest Income Focused Fund Research Reports are set to be available from Friday [11 Feb] in the latest version of Dynamic Planner for the following funds:

Risk Profile
BMO MM Navigator Distribution 5
Legal & General Multi-Index Income 4 4
Legal & General Multi-Index Income 5 5
Legal & General Multi-Index Income 6 6
M&G Episode Income 5
Premier Miton Multi-Asset Distribution 5
Premier Miton Multi-Asset Growth & Income 6
Premier Miton Multi-Asset Monthly Income 5
Rathbone Multi-Asset Strategic Income 5
Santander Atlas Income 4
Schroder Monthly Income 5
VT Momentum Diversified Income* 5
UBS Global Diversified Income 5

*Coming soon

Jim Henning – Head of Investment Services at Dynamic Planner – outlines the current climate and confusion around the labelling of sustainable investing solutions. In step with COP26, regulatory pace has been gathering in the UK in 2021. But how will new measures, aimed at asset managers, help advice firms and their clients? Plus, with investors’ sustainability preferences too being discussed, what can firms do now to prepare?

Broadly, what problem is the industry facing around solution labels for sustainable investing?

The fundamental problem of course is mankind being on a ‘code red’ warning, because of catastrophic consequences of climate change, and time is running out fast to do something about it.

As we have seen during COP26, this is a global problem, which requires global solutions on an unprecedented scale. The whole financial sector has a crucial and urgent role to play in reorienting capital flows towards a more sustainable global economy, if we are to have any hope in slowing down the rate of global warming.

However, defining what ‘sustainable’ actually means has always been the problem. Opinions vary; self-disclosed company data can be patchy and without external scrutiny; while of course science and regulation continually evolves.

The encouraging news is that global regulators and governments have been busy trying to get agreement for concerted action in setting clear and measurable targets and a comprehensive and common baseline of sustainability disclosures applying to businesses as well as asset managers.

Among the intense media coverage during COP26, HM Government showcased its ‘Greening Finance: A Roadmap to Sustainable Investing’, which will apply to UK listed businesses, including the financial services sector as well as investment products.

It included ambitious plans for reporting environmental impact using the UK’s own version of a Green Taxonomy, which provides an essential reference point for companies to report against and timescales on additional broader sustainability disclosures, referred to as SDR. Also, in recognition of the key role of retail advice within the investment chain, there can be no surprise it will be brought into the scope of this regulatory framework, subject to industry consultation.

Using this framework, the FCA recently issued a discussion paper ‘Sustainability Disclosure Requirements and investment labels’ which, following the consultation process, is likely to bring about improved clarity when categorising funds. The paper floats the concept of four potential fund type labels and how their underlying holdings are aligned to the Green Taxonomy of business activities:

  1. Not promoted as sustainable
  2. Responsible and Sustainable ‘Transitioning’
  3. Sustainable ‘Aligned’
  4. Sustainable ‘Impact’

Asset managers/owners and investment products will be required to substantiate ESG claims they make in a way that is comparable between products and is accessible to clients and consumers.

They will also need to disclose whether and how they take ESG-related matters into account in their governance arrangements at overall entity level, which will be useful additional information for the first two fund categories above and vital that a wider range of businesses are also encouraged to a greener transition pathway.

‘Drive now towards sustainable investment is unstoppable’

We know the barriers that many advice firms who use Dynamic Planner are currently facing in incorporating sustainability within their process. The graph below illustrates responses to an online poll conducted at a sustainability webinar we held for firms this October.

The drive towards sustainable investment is now unstoppable and these new regulations aim to help demystify some of the confusion felt by advice firms, improve the clarity of fund disclosures and increase trust in the sustainable outcomes claimed. While the UK regulator chose not to incorporate EU regulations for client sustainability assessment last year due to Brexit, the intention now is clearly for advice firms to do so.

What can advice firms do today, to get ready for regulation?

While these global initiatives are vital, they are very much focused around the provision of improved disclosures and objectivity of data reporting. However, what can’t be codified is how to measure individual preferences around sustainability, which must be based on discussions with clients. Approaches here clearly depend on individual circumstances.

There is a place for detailed, factually based questionnaires for those clients who are interested in aligning their portfolios with their personal values or religious beliefs. However, for the majority, bringing out those unique preferences in a more engaging way without bias could really help cement the future relationship.

Our sustainability preference questionnaire comprises 15 questions and has been developed using rigorous psychometric and statistical based techniques, to accurately predict these preferences. It offers a repeatable and structured framework to enable further client discussions within the wider suitability assessment process.

There is really no reason to delay trying out the sustainability questionnaire and marrying it with Dynamic Planner’s risk questionnaires, so you can properly demonstrate a ‘client profile’ assessment within your process.

What about ESG fund research?

Industry and regulatory efforts to improve clarity will no doubt shift the dial, but this will both take time and evolve. Dynamic Planner’s sustainability questionnaire uses five categories of investor preference, ranging from ‘low’ to ‘very high’ importance and can be used with any form of additional fund research as the follow-on step in the process.

In Dynamic Planner, you can also access ESG fund ratings and reports from MSCI, providing your firm with institutional grade research across the wide market of funds [hear from Naomi English, MSCI’s Head of ESG Product Strategy].

The good news is that the majority of formally risk profiled multi-asset solutions, in Dynamic Planner, have strong ESG credentials according to the MSCI research, meaning that your existing panel of funds may already be meeting the sustainability preferences of many of your clients.

Download our guide to sustainable investing and share with your clients, in support of your conversations

For those of you who couldn’t join us last month for our sustainable investing events, you may not yet have seen the new sustainability questionnaire in Dynamic Planner.

This has been specifically purposed to help you engage with your clients in a structured way, so you can properly understand their level of preferences when it comes to ESG investing.

Using proven, psychometric techniques, the questionnaire has been carefully constructed to enable you to bring out the level of client preferences, calibrated across five categories from ‘low’ to ‘very high’ importance and also, further guidance around what type of solution to consider once a profile has been agreed.

Catch-up on-demand with our sustainable investing event in June, discussing how Dynamic Planner can support you here

To help join up the process of recommending suitable, risk-aligned solutions with a client’s sustainability preferences, we have teamed up with MSCI to host their ESG fund research reports in Dynamic Planner. These are available on an open-architecture basis, so you can easily assess the ESG metrics of funds you are already actively recommending within your current shortlist by downloading the research reports.

The MSCI research is also available across the multi-asset fund solutions we already risk profile and latest analysis shows a positive set of results across the range, with the majority of solutions rated within the MSCI ‘average’ range [A to BB] and plenty too within the ‘leaders’ [AAA to AA].

For your clients who have registered a higher level of interest in sustainable investments, click here for the latest list of risk profiled funds where there is an express policy commitment to an ESG objective.

Not a Dynamic Planner user? We’d love to talk to you about how our end-to-end financial planning process can help your firm, and how we make implementation and onboarding a breeze. Book a call

JIM HENNING, Head of Investment Services at Dynamic Planner, shines a revealing light on risk and volatility and the starkly different impacts they can have on a client’s portfolio in accumulation, as opposed to decumulation. Here, Jim contrasts the conflicting experiences of pound cost averaging and pound cost ravaging and what they mean for your clients

When elevated market volatility occurs, this typically coincides with an unexpected economic or geo-political event. Needless to say, 2020 is certainly a year that will forever be an infamous example.

It also serves as a reminder of the important challenge for advisers in helping clients navigate market ups and downs to ensure they remain on track. However, depending on the life phase of the client, periods of volatility can be more friend than foe and this is where it’s important to distinguish between the potential impact of pound cost ‘averaging’ and ‘ravaging’ when constructing suitable portfolios.

When it comes to an ‘averaging’ example, let us consider a typical client, approximately 25 years from retirement, saving monthly into an employer sponsored DC pension scheme. With the benefit of perfect hindsight, the two best IA fund sectors over the last 25-year period would have been China / Greater China and European Smaller Companies and both you would fully expect to experience considerable periods of volatility.

Investors who were fully prepared for the ride via monthly contributions would have benefited both from their long-term structural growth, but also during the periods of market falls, would have accumulated units at considerably cheaper levels. This is a very effective and automatic process to help smooth out the volatility over the investor journey to planned retirement.

While clearly few would consider investing in such funds in isolation, or continue to hold them closer to retirement, they are wholly unsuitable for funding income in retirement. It’s worthwhile though just taking a moment to remind ourselves why not, by looking at the impact of pound cost ‘ravaging’ in this scenario, given a fixed, 5% per annum level of withdrawal on a monthly basis over 25 years.

The difference between these two fund sectors has been significant. During the accumulation phase, the more volatile sequence of returns from China funds would have generated a 22% higher return. Conversely, the ravaging impact of taking fixed withdrawals when there is higher volatility can be seen with European Smaller Companies instead outperforming China by 52%.

Let’s take a look at more sensible multi-asset strategies instead and what would have happened using the Dynamic Planner risk adjusted benchmarks 4 and 9, over the last 10-year period as an example.

Accumulation phase Decumulation phase (assuming 5% per annum fixed withdrawals)
Dynamic Planner Risk Profile 9 outperformed by 9% Dynamic Planner Risk Profile 4 outperformed by 12%

Diversification across assets and region within the two above benchmarks has significantly reduced the level of volatility and hence the divergence of outcomes, compared to the initial example we saw.

Using different strategies to improve the likelihood of capital sustainability may include building a centralised retirement process around natural yield funds for more wealthy clients, to a combination of cash and decumulation solutions for the less so.

Controlling short-term volatility is the most important risk to mitigate where clients are taking fixed monthly withdrawals from their variable savings pots. None of this is simple and hence opportunities to improve research, efficiency and scalability need to be considered.

Actively planning for a sustainable retirement is of vital importance and where the benefits of using robust cash flow planning tools comes into their own.

At Dynamic Planner, we ensure consistent calibration of customer risk to end investment recommendation, by fully integrating our client risk assessment and cash flow modelling tools to a dedicated new Risk Managed Decumulation fund service.

For the latter, this combines the highest level of conviction from asset managers to control monthly volatility of their packaged multi-asset solutions within the service alongside independent and granular, monthly oversight and consultancy services from Dynamic Planner.

How can Risk Managed Decumulation funds help my clients? Find out.

Unprecedented. Extreme. Sobering. It has been hard to keep pace with what’s happened in markets this year. Here, Dynamic Planner’s Head of Investment Services Jim Henning takes a step back from the headlines and highlights the immediate and longer-term trends and shifts witnessed in 2020.

How does this year’s volatility compare in the context of the last 20 years? Which asset classes have been the biggest winners and losers in the first half of 2020? And how have the benchmark asset allocations, representing Dynamic Planner’s 1-10 risk profiles, stood up to all this?

Individual asset classes

None of us escaped the headlines earlier this year detailing dramatic drops of more than 20% in major financial markets, which of course has been a concern for advice firms and for their clients. Looking beyond that, clients’ investment portfolios by and large are well diversified. So how have individual asset classes performed this year against such a volatile backdrop?
Considering this through first the lens of an equity investor and then a bond investor can perhaps put this into greater perspective.

The graph below shows what is called the ‘fear index’, implied market volatility historically over the last 20 years. In this context, it is sobering to see the scale of what we’ve experienced this year as a result of the pandemic. That is what equity markets have had to address, while the story has been similarly brutal for bonds.

We can see below bond yields this year and where we have circled March, when we witnessed the most dramatic market downturns due to Covid-19. First, they plummeted. Then, they jumped back up. Then, they have fallen again. And these are huge shifts.


Things thankfully have settled down somewhat since, but we can see an inexorable trend of UK 10-year gilt yields falling to just 0.1%, which is unprecedented in scale and is driven by the massive financial stimulus we’ve seen globally here and from other central banks in response to the pandemic.

Here in the UK, it is forecast that the Bank of England – in terms of issuance and showcasing the scale of QE, quantitative easing – will own approximately one-third of the UK gilt market and around £2 trillion of debt in issuance. Quite sobering. We have never seen anything like this.

It’s interesting if we look at how all that has manifested itself, in terms of core asset class performance in H1 2020, as we see below.


On the left-hand side, we can see a dichotomy in that UK index linked gilts were the best performing asset class followed by UK gilts or government bonds. Meanwhile on the opposite, right-hand side of the graph, we can see the travails of equities markets and the UK, in particular, which has very much been the pariah here this year, given the gloomy outlook for the UK economy and dare we mention it, Brexit uncertainty which continues as I write. Ditto here, UK property, which too has had a torrid time.

How have the Dynamic Planner asset allocations fared?

Moving away from that, how have the 1-10 Dynamic Planner benchmark asset allocations performed and stood up to these pressures in H1 2020?

We can see below in the claret bars the returns and losses experienced in Q1 this year before, in the gold bars, the strong recovery we enjoyed in Q2. In short, most losses had been recouped, which is comforting to see.



Another way we can consider this is by looking in greater detail at the returns you would expect from a diversified portfolio. For example, below left shows the performance of the benchmark asset allocation for a Dynamic Planner Risk Profile 5 over 18 months from January 2019 to July 2020, with the blue line trajectory showing expected returns we forecasted over this period back in January 2019. We can see the returns, as of July 2020, actually exceeded expectations.


Above right we can see our Value at Risk measure in H1 2020, showing what we would expect with a 95% confidence. Given the torrid time markets have had, it’s been encouraging to see our Asset Risk Model perform largely in line with expectations.

To put this further into context, below left we can see actual observed volatility across our 1-10 benchmark asset allocations in red, since launch in 2005 and in gold, since 2015 in the last five years, where we can happily see that symmetry and relationship between risk and reward, which has again been largely consistent over these periods.



Above to the right, what we see is more challenging. Of course, as we have repeated, we have been in unprecedented times, with untold helicopter money pouring into risk assets and that has undoubtedly impacted at the lower end of our 1-10 risk scale.

There is a flattening towards the centre of the scale of performance of the benchmark asset allocations over the last 12 months, which perhaps is not what we would have expected, but given that environment, hopefully it is still apparent that there is a long-term trend of being rewarded for taking extra risk. Of course, that is clearly becoming more challenging and that is across the board for multi asset investment portfolios today.

Find out more about how you can research funds for your clients in Dynamic Planner.

Dynamic Planner Investment Committee – Q1 2020 Update

Global growth levels were muted for 2019, but forecasts are for a modest pick-up in 2020 for the G7 economies.

The US still stands out among the advanced economies, given the current full employment and strong retail sales growth. With 2020 being an election year, there have been hints from the Federal Reserve of letting the economy ‘run hot’ rather than raise rates again. The previous three rate cuts had certainly improved market sentiment over 2019, but further cuts this year are being viewed as unlikely.

The Euro Zone (mainly Germany) is re-adjusting to weaker demand globally and has seen consumer confidence fall, resulting in muted growth.

Emerging markets and the Asia Pacific region still remain the powerhouse of global growth, but structurally we expect this to temper, especially in China, because of the growing trend to repatriate manufacturing back onshore by the developed economies as a result of technological advances. The spread of the coronavirus is also a growing existential threat to the expected growth levels in China as well as to the wider global economy.

In the UK, we have finally got closure over the Brexit divorce and the resulting ‘Boris bounce’ in consumer confidence after the resounding general election result in December. However, several big challenges await during the future UK – EU trade relationship negotiations this year.

We are expecting generally muted growth in 2020, with focus mainly centred on the impact on world trade negotiations and the potential lowering of tariffs, rather than further monetary policy initiatives. While talks between the two largest global economies, China and the US, will continue to hold centre stage, we could see more fiscal stimulus measures elsewhere to revive economic growth fortunes, particularly in Japan, UK and Europe.

The US, as we have already mentioned, still stands out among advanced economies, but expansionary monetary policy may have less than expected impact on growth at current levels of employment and consumer confidence. The growth rate in China will continue to slow.

Inflation will remain subdued, in spite of continuing loose monetary policy across the globe.

The current macroeconomic backdrop all points to a continued ‘Risk On’ approach throughout 2020, but with levels of negative yielding debt estimated at $12 trillion (albeit down from its peak of $17 trillion), as a result of ultra-loose central bank monetary policy, there are many reasons to remain aware of the downside risks should policy or external events suddenly change

The degree of the impact of the coronavirus on global growth is still difficult to predict at this stage and also, we have the US presidential race this year, so one can expect President Trump will be doing all he can to get re-elected.

As a result, the Dynamic Planner Investment Committee felt at this time no changes to the current risk profile asset allocations were warranted and the strategic theme of maintaining a globally diversified portfolio with reducing exposure to bond duration continues.

Find out more about Dynamic Planner fund research

The fundamental search for high and rising income can come at the cost of increased complexity – and, in some cases, increased risk that might not be that easy to assess for suitability when using traditional, asset allocation sector analysis methods.

This challenge is a very specific one faced by the traditional investor base seeking income – typically those heading into or at retirement.

But as we move on from the period of unprecedented low volatility, yield compression and strong stock market returns of recent years, it stands to reason that managers who are trying to provide a fixed income distribution rate have often been forced to up the risk scale.

It’s therefore important to understand the asset manager’s philosophy and track record regarding income generation and how the competing requirements of income generation and capital preservation have been reconciled. Or, put another way, examining the outcome and the journey over the investment duration.

Investors who have embraced risk over recent years have certainly been rewarded, but how can they be better prepared for the expected risks over the horizon?

Take a look at our new Multi-Asset Income Focused Research reports, now available in Dynamic Planner’s Portfolio Suitability Hub (post login).

In them you will find a wealth of resource at your fingertips that can help you evaluate suitability for your clients and understand the manager’s approach to generating income and protecting underlying capital.

Research and Recommendations