The Dynamic Planner Investment Committee (IC) met on Tuesday 23 January, coincidentally called ‘Super Tuesday’ in the US state of New Hampshire, where the race for the White House began with primary elections for the Republican party nomination. In fact, elections are expected to cover around 60% of world GDP over the course of 2024, so plenty for investors to ponder should there be promises of unfunded tax cuts, more protectionism or increased fiscal profligacy. But no doubt the ‘re-match’ in the US will be the centre of global attention.
As the impact of higher energy and food prices has subsided, and supply chains for globally traded goods have normalised, headline rates of inflation have fallen significantly over the course of 2023, but remain much higher than Central Bank targets.
The IC reflected on the still high embedded inflation expectations and the current market fixation about what the US Fed plans to do next with interest rates (following its pause announcement in November). Premature expectations of early and deeper cuts have propelled the S&P 500 to record highs, whilst earnings growth, retail sales and industrial production levels have remained flat at best.
The global economy looks set to slow in 2024, as fiscal policy starts to drag on growth and higher interest rates weigh on household and business activity, with excess savings built up during the pandemic largely spent. By stripping away the impact of the massive fiscal stimulus measures, the likelihood was that the US economy has been in intermittent periods of recession during 2023.
The US and Global government bond yield curves remain inverted, and interest rate normalization is required as high non-transitory inflation expectations persist. With slow growth, lower tax revenue, eye-wateringly high government debt and fiscal deficits, and Central Banks unwinding their balance sheets with QT, there will be a rising supply of bond issuance at a time of declining investor sentiment / demand. Hence the curve is expected to steepen at the longer end, resulting in negative real bond returns into the foreseeable future. The risk of greater economic volatility and a potential global government debt crisis persists, despite recent market optimism.
The IC discussed the potential of AI (particularly generative AI tech) on productivity and employment, with echoes of a potential ‘dot.AI’ bubble, given the 25% concentration of the US stock market in the ‘Magnificent 7’ tech stocks. As AI will help drive robotics and accelerate onshoring, the implications of a diminishing competitive advantage for China and emerging markets were noted.
There were no changes made to this quarter’s capital market assumptions, which follows a consistent process of long-term analysis. In preparation for the annual strategic allocation review later in the year, the IC reviewed ongoing analysis of additional asset classes / risk factors to be potentially included in the model. It continues to ensure that the markets and instruments being used by our asset management clients are accurately represented in Dynamic Planner.
Read the full Q1 2024 analysis from the Dynamic Planner Investment Committee.
Dynamic Planner’s Investment Committee (IC) met on Monday 24 July with the main task of reviewing the inputs and outcomes from the optimisation process for setting the 2023/24 strategic benchmark asset allocations.
The IC discussed the anticipation of a ‘return to normal’ for financial markets as yield curves should normalize to an upward slope given higher inflation expectations. The US Federal Reserve’s next rate move and its ‘higher for longer’ policy mantra are predicated on high and sticky inflation.
Inflation may have fallen from its peak, but not enough for the Fed to officially pause rate hikes, given its official 2% inflation target. It is unlikely to pivot and cut rates meaningfully within the next two years. However, whilst unstated, a significant slowdown in economic activity or renewed regional banking problems would also get the Fed to take action. On the subject of US banks, the crisis has ebbed since March, but the dangers haven’t gone away.
The dual prospects of slowing global economic and negative earnings growth for the coming quarters raises the risk of ‘intermittent’ rather than ‘deep’ recession. Rising interest rates, unrelenting fiscal deficits and high government debt, reversing QE holdings and high levels of market leverage, due to LDI strategies however, increases the risk of currency and bond market volatility.
Conversely, China, the world’s second-largest economy, officially slipped into deflation for the first time in two years as consumer prices fell 0.3 per cent. Prices had already flatlined for much of 2023, bucking the global inflationary cycle. The property market debt overhang also continues to cast an ongoing shadow over any resurgent growth hopes in China.
UK gilt yields have spiked again in response to unexpectedly strong inflation and labour market numbers. The persistent underlying strength of core inflation suggests the UK is fundamentally diverging from Europe and the US. The recent interest rate rises have had a negligible impact on demand or the housing market (so far), but the economy is teetering on recession whilst unemployment remains lower than expected at this stage of the economic cycle and strong wage inflation (and industrial action) persists. Market expectations are for interest rates to be ‘higher for longer’ in the UK than elsewhere.
The IC approved the Capital Market Assumptions for Q3 2023 which signalled significantly large increases for fixed income volatility (around 10 bps), relative to previous quarters.
Expected returns for fixed income were increased given the recent rise in bond yields. There were also increases for equity return expectations (but to a lesser extent), with the exception of the UK, where they have been lowered.
Read full, Q3 2023 analysis from the Dynamic Planner Investment Committee.
Dynamic Planner, the UK’s leading risk based financial planning system, has partnered with M&G Wealth to launch bulk valuation integration.
The partnership underlines Dynamic Planner’s commitment to expanding its ecosystem of integrated partners so that advice firms can enjoy the full benefits of integration, and at a critical point, when everything is about to be seen through the lens of Consumer Duty
The integration will effectively speed up the advice process for advisers selecting funds and other investment options via the M&G Wealth platform. It avoids both the need to rekey and risk of miscalibration, and in line with Consumer Duty, provides the adviser with a more accurate, direct from provider data flow.
Yasmina Siadatan, Sales & Marketing Director at Dynamic Planner said: “We welcome our new partnership with M&G Wealth. Advice firms face a difficult time over the coming months as they work hard to get ready for new regulation. We see our job as helping make this transition period easier. Direct from provider data flows are critical for both speed and accuracy, but also a key consideration for Consumer Duty. We are committed to continually broadening and deepening our ecosystem of integrated partners for the benefit of all our clients and look forward to working with M&G Wealth and our mutual customers over the coming months and years.”
Rich Denning, CEO M&G Wealth Platform said: “Consumer Duty is without doubt so important for our industry and we want to be at the forefront of adviser support in every aspect. This integration and our ongoing partnership with Dynamic Planner will help our mutual clients clearly identify and deliver value to their customers whilst assisting them in achieving the outcomes they require.”
Dynamic Planner, the UK’s leading risk-based wealth planning and financial advice system, is set to launch a Financial Wellbeing Questionnaire on Friday 16th June. It has been designed to enable advisers to identify vulnerability characteristics in line with Consumer Duty.
Its development and creation has been led by Dynamic Planner’s Head of Psychology and Behavioural Insights, Dr Louis Williams, in collaboration with Dynamic Planner’s fund research team and academics from Henley Business School, part of the University of Reading.
The launch forms part of Dynamic Planner’s long-term commitment to helping investors better understand their financial situation and is an integral addition to Dynamic Planner’s suite of investor profiling questionnaires. Advice firms can now assess a client’s risk appetite, sustainability preferences and vulnerability characteristics in one place.
Aligned with key questions and the algorithm of the FCA’s Financial Lives Survey completed by 22,000 people, Dynamic Planner’s Financial Wellbeing Questionnaire has been rigorously tested with over 1,000 UK investors, providing the means to understand a client’s individual differences and needs. Incorporating all elements to support the four key drivers of vulnerability as set out by the FCA, it meets the requirements of Consumer Duty to identify vulnerabilities and those who are susceptible to harm, so that appropriate support can be provided.
Louis Williams, Head of Psychology & Behavioural Insights at Dynamic Planner said: “With the first deadline for Consumer Duty imminent, the launch of our Financial Wellbeing Questionnaire powers the identification of vulnerabilities with technology, enabling financial advisers to assess individual clients across four key areas: health, life events, resilience, and capability.
“Aligned with the FCA’s Financial Lives Survey and designed in collaboration with academics from Henley Business School, it provides advisers with a solution to the call to action set out by Consumer Duty to assess a client’s vulnerability characteristics.
“We are committed to supporting advice firms in helping their clients better understand their financial situation and choose investments that are suitable to fund the life they want. The Financial Wellbeing Questionnaire is another example of us delivering on that commitment.”
Financial advisers using the Financial Wellbeing Questionnaire with their clients will receive a report for their Consumer Duty record which highlights areas of vulnerability. The report includes insights and tips to help with life’s challenges to share with the client and aims to encourage higher levels of resilience so that a client’s level of financial self-efficacy and wellbeing increase.
Using Dynamic Planner’s Financial Wellbeing Questionnaire with Clients
- Dynamic Planner’s Financial Wellbeing Questionnaire is intended to be used as part of a broader advice process that has already considered risks, costs and complexity of the financial product being recommended to a client.
- In line with the FCA, the questionnaire includes objective measures to understand the client’s current situation as well as subjective measures that explore how the client feels and their abilities to cope, which are both important for assessing client vulnerabilities.
- Psychometric items have been included, for example, examining a client’s emotional resilience when faced with financial challenges, confidence in their abilities to manage their finances, abilities to tolerate difficult and uncertain periods, and the healthy or unhealthy strategies used to regulate their emotions.
- Clients can inform their adviser about any health conditions they have or challenging experiences they’ve faced. Additional questions then explore the severity of this condition/event and how it interferes with day-to-day life and whether someone is of low, moderate or high vulnerability.
- Questions included to assess client’s resilience and capability cover a range of vulnerability characteristics where Dynamic Planner’s algorithm, based on that which underpins the FCA’s Financial Lives Survey, identifies whether a client’s vulnerability is low, moderate, or high (see below).
Financial wellbeing results indicating the level of vulnerability for each of the four drivers
Not a Dynamic Planner user? Schedule a free no-obligation demo with a business consultant and experience the full functionality of Dynamic Planner.
The Dynamic Planner Investment Committee met on Thursday 27 April and reflected on the wider financial sector frailties following the fall-out of the Silicon Valley and First Republic Bank collapses in the US. In Europe, the dramatic loss of confidence in Credit Suisse led to a deposit run-off at digitally enabled speed and a wipe-out of its statutory capital reserves, held in specialist bonds called Contingent Convertibles or ‘Cocos’.
These events are symptomatic of the sharp increase in interest rates, shrinking central bank balance sheets and the receding tide of global liquidity that had flooded the financial system for much of the past decade. For those financial institutions that have relied too much on cheap liquidity, by taking on too much leverage and aggressively mismatching their balance sheets, times will be challenging given their magnified exposure to bond duration risk.
Should confidence in the banking system weaken further, this could result in contagion risks in other financial markets, particularly the leveraged pension funds. However, it was acknowledged that the major global banks are more robust than in the lead-up to the 2008 financial crisis, with global regulators requiring much greater capital and liquidity buffers. Despite the financial challenges faced from higher interest rates, growth has been more resilient than expected. Aided by a decline in energy prices, with a mild winter in the northern hemisphere helping reduce demand for natural gas, growth appears to have picked up in early 2023. Alongside the rapid reopening of the Chinese economy following the lifting of Covid restrictions, global growth has been more resilient than expected this year.
The IC also discussed the stickiness of underlying inflation being higher than expected at this stage of the economic cycle, indicating a broad-based ability for companies to both pass on higher input costs and maintain, or even expand, margins.
Read Q2 2023 analysis from Dynamic Planner’s Investment Committee.
Dynamic Planner has added to its range of Consumer Duty support to help advice firms take control of implementation.
Advisers can now download a free guide which puts technology and Dynamic Planner at the heart of taking on all of the challenges thrown up by the imminent deadline for open products and services. Dynamic Planner has just announced dates for its Consumer Duty Roadshow, plus advice firms can also attend its series of Consumer Duty focused Training Academies.
Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said: “The countdown to implementing Consumer Duty is well underway.
“We believe that technology is the key to overcoming the perceived challenges associated with what may feel like a very daunting prospect. Whether you are happily immersed in the process of implementation or still have unanswered questions, we urge you to download our free Consumer Duty Guide or join us at our Consumer Duty Roadshow or Training Academies.
“We are committed to helping our clients wherever possible and providing them with all the support they need.”
Along with insight, webinars, training and CPD at its events, Dynamic Planner also offers a range of services within its one system technology which echo the needs and standards of the regulation, including:
- Target Markets: A target market of clients can be defined by factors including age, wealth, risk and sustainability profile. Positive and negative criteria can be documented, underlining which products and investment solutions are suitable for targeted clients’ needs and objectives, and preventing foreseeable harm.
- Product and Service Governance: Investment solutions can be researched and recommended in line with target market needs. All research and governance is whole of market, independent and extends to products and platforms. It gives clear oversight of the product and investment recommendations universe and enables advice firms to demonstrate the controls in place to avoid harm and enable clients to pursue their financial objectives.
- Understanding and Supporting Clients: A client’s needs, characteristics and objectives can be more deeply understood through risk and sustainability profiling. Dynamic Planner’s client profiling process is rooted in behavioural science to capture the complexity of how a client feels, behaves and thinks concerning, investment risk and sustainable investing.
Not a Dynamic Planner user? Schedule a free no-obligation demo with a business consultant and experience the full functionality of Dynamic Planner.
Dynamic Planner has been awarded ‘Best Technology Provider’ at this year’s Professional Adviser Awards. The award assessed how providers had demonstrated innovation in the last 12 months while putting their adviser clients front-of-mind throughout.
Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said: “This week has marked Dynamic Planner’s 20th Anniversary, and to be recognised as Best Technology Provider at Professional Adviser’s Awards is a fitting accolade.
“Over the past 20 years we have built trusted relationships with our clients, always putting them at the heart of what we do, and partnering with them to develop Dynamic Planner into what it is in 2023.
“Today over 1 million people are actively advised using Dynamic Planner, more than 40% of UK investment advice firms use Dynamic Planner and more than 150 asset managers have their assets certified or targeted with us, over £250 billion. Our winning streak of awards over the past few years is testament to this.
“We are incredibly proud to be recognised for the innovative technology that our team has created. Whether it’s our award-winning Cash flow, our Product and Platform Research, our Risk Profiling built on in-house behavioural psychology expertise, or Target Markets, designed to help firms meet the requirements of Consumer Duty, our one system delivers everything our clients need.”
In support of International Women’s Day, Dynamic Planner, the UK’s leading risk based financial planning system, has conducted further analysis of findings from its Spotlight Report to paint a picture of women today in the advice industry.
Age Breakdown of Respondents of Spotlight Report
While the number of men increases with age it is the opposite for women, as the number of women, as a trend, decreases with every subsequent age group with the highest share of women (just over one in five) stating that they were under 30. The median ages for men is between 50-54 while median age for women is much lower at 40-44 showing a skew towards women being much younger with more than half being under the age of 44. Even though the number of female respondents was only 112 (30%), nearly an identical number of men and women indicated that they were under the age of 30, which equated to just over one in ten of male respondents and just over a fifth of female respondents.
Female respondents are increasingly successful. In 2021, almost 1 in 2 said they serviced less than 100 clients on an ongoing basis, however in 2022, that decreased dramatically to just under 1 in 5. In 2022, just over half of women increased the number of advisers in their firm versus 42% of men. Women are also pushing the efficiencies of their roles – in 2021, 16% of female respondents said they serviced over 200 clients, whereas in 2022 that number more than doubled to 35%.
When it comes to roles within a firm, just three in 10 women work in an advising capacity versus a majority (77%) of men. A large proportion of women (58%) work as paraplanners or admin staff. For men this number is less than a fifth. On the whole, women are incredibly happy within their role as either an adviser, paraplanner or support staff, with 88% saying they would recommend their profession as a career.
Yasmina Siadatan, Sales and Marketing Director at Dynamic Planner said: “We are proud to support International Women’s Day and its theme for this year #EmbraceEquity. While the industry is moving in the right direction, this annual event gives everyone time to pause and reflect. Around the world women are forging change and this is borne out in our own research of the advice community – women are buoyant, bullish and paint a picture of their own success. More importantly they love their job and their clients will only benefit from such positive feeling.
“What’s really fascinating is the number of women across all age groups, with the largest number aged under 30 and how this will play out with the contrasting population of older males. Time will tell if there will be a levelling out of adviser numbers across the two groups, which could also be driven by more female investors seeking financial advice. As a company which inherently believes in equity and continually demonstrates this to our own team, we are also committed to helping the financial advice community to appeal to more women whether as potential employees or clients. If the industry can pave the way to a more equal working world, then we must level the playing field for investing too.”
Dynamic Planner supports #EmbraceEquity for International Women’s Day and beyond.
The Investment Committee (IC) met on Monday 23 January and reflected on the downstream impact of the dramatic escalation in geopolitical risks, due to the Russian invasion of Ukraine, now almost 12 months ago, and the associated commodity price shocks.
The macro environment is radically different to the optimistic one prevailing at the start of last year. Global growth has slowed much more than anticipated, whilst the expected ‘temporary’ spike in inflation, rather than easing, further increased and has become embedded. As core measures of inflation remained far above central bank targets and headline rates reached double digits in most economies, this prompted global central banks to embark on the most rapid pace of policy tightening in 40 years.
The current macro perspective can perhaps be best described as a fiscal and monetary ‘hangover’. The previous 10-year plus regime, where a 2% inflation target was made possible due to secular disinflationary forces, is not normal by historical standards. The supply chain problems that emerged in 2021, following the initial economic recovery from Covid, extended into 2022 as labour shortage issues and the ensuing commodity price shock embedded a higher level of inflation and lowered growth expectations.
Now the elephant in the room is high inflation, requiring rising global interest rates and a reduction in the bloated balance sheets of the central banks. This implies steeper yield curves, more quantitative tightening and ongoing high budget deficits. Alongside extended levels of bond market leverage (mainly due to widespread use within LDI strategies) and persistently high inflation, the risk of a liquidity driven global government debt crisis and ongoing bond volatility increases.
The impact of both the energy supply shock and the rapid tightening in monetary policy will slow global real growth, but also risks some economies flirting with moderate or intermittent recession in 2023. This is particularly pertinent to the UK economy, forecasted by the IMF to be the only G7 country to contract this year. It continues to grapple with supply chain issues following the Covid bounce back and has a higher dependence on expensive liquid natural gas, which has been driving up the cost of living even further. This is alongside rising taxes, labour shortages, widespread public sector worker unrest and the persistent lack of productivity growth in the economy.
However, whilst there are significant short-term headwinds in the UK, markets always look forward and signs of inflation easing will help slow the pace and quantum of further rate rises. The IC discussed the latest proposed Capital Markets Assumptions (CMA’s) to be applied in Dynamic Planner. The impact of the sharp rise in bond yields across the board over the previous quarter and the observed uptick in their volatility, has been reflected in the calibration process when setting the CMA’s this quarter.
Given the considerable economic headwinds, the key unknowns are how close we are to reaching the peak in the interest rate cycle this year and the extent of potential corporate defaults, which are still running at low levels by historical standards. For equities, the focus is now on the extent of earnings downgrades and how much of the recession risk is already priced into current valuations.
Dynamic Planner’s asset and risk model provides volatility, covariance, correlation and expected return assumptions, which are updated each quarter. They cover a wide range of bond maturities, equity market capitalisations and alternative assets, thereby equipping users with the flexibility to tilt portfolios relative to the risk-adjusted benchmarks as they see fit. Since the CMA’s are updated each quarter, these remain sensitive to long-term secular trends and reflect the average expected outcomes for investors buying and selling at different times over the cycle.
You can read the full Investment Committee update here
Speaking at its 11th Annual Conference in the year which sees Dynamic Planner, the UK’s leading risk based financial planning system, mark its 20th anniversary, CEO Ben Goss said:
“We founded Dynamic Planner almost 20 years ago today, and I am as excited now as I have ever been about the prospects for this industry and the customers we all ultimately serve. The pandemic and ensuing uncertainty in the world around us are driving growing demand and need for financial advice. These factors have also driven technology adoption at an unprecedented rate. The industry is in the foothills of something really quite special when you combine great advice with the right technology and aligned asset management.
“We believe that as the industry embraces personal financial planning at scale, the era of product sales is over. But 10 years on from the banning of commission, why has it taken so long? Historically the industry was wired back to front, from the product systems and their needs to the customer, not from the customer and their needs to the product. And while RDR was undoubtedly the catalyst for change, financial planning technology with the client at the centre, allied with their adviser is now enabling real change.
“Like RDR before it, the advent of Consumer Duty comes with many questions of its own, not least how do firms demonstrably ensure clients get the outcomes and value they are looking for, while at the same time growing value in their own business?
“Productively servicing clients in a way that delivers the outcomes they are looking for, in an era of increasing price transparency and on the eve of regulation which scrutinises not just outcomes but value received, crystalises the challenge now. I am confident that as an industry we can get to grips with the productivity challenge, in part because of how we all responded to RDR, but more than that, the industry now is arguably in the best shape it has ever been with clients getting consistent ongoing services and firms benefiting from a profitable ongoing fee model.
“The industry has come far. It is technology that has underpinned this transformation and it is technology that is integral in enabling the productivity we are seeing now. Dynamic Planner is firmly at the heart of this transformation, with our purpose the same as it was in 2003 but today stronger than ever – to help firms match people with suitable portfolios though engaging financial planning. ‘The Power of Now’, the title of our 11th Conference encapsulates this. We see there is a moment to be grasped and that’s exciting for all of us.”
Key Innovations and Developments from Dynamic Planner in 2023:
- Multi Million Pound Investment: We have completely rewired Dynamic Planner in the last three years to give you a huge advantage over your competition by embracing PROD and using target markets to drive consistency of financial planning and advice and huge productivity gains.
- Target Markets: Now launched, save firms hours of time with every piece of client advice. They provide the ability to research and link products, shortlists and portfolios from across the relevant universe along with automatically including relevant explanations.
- Dynamic Planner in the palm of your hand: Continually demonstrate your firm’s value digitally – even when you’re not with your client. We’re already working with a small number of early adopter firms to design and perfect a premium version of Dynamic Planner’s client access before making it generally available later this year to support firms through Consumer Duty.
- New partnerships: Data flows are critical for firms. Dynamic Planner is committed to continually broadening and deepening our ecosystem of integrated partners. We have just launched valuation integrations with Aegon ARC and Prudential via the Origo hub.
- Open API: In addition to IO and Iress as integration partners through our API we are now live with Curo from Time 4 Advice. Curo is the first CRM partner to use our Open API. It is live today and we are on a journey with the team from Time4Advice over the coming month to extend the breadth of that integration. We are delighted to be working with the team from 360.net to migrate their existing integration to the Open API.