The year 2020 was one to forget.
But despite the negative aspects of 2020, there were some positives including the increasing use of technology and the impressive advice firms that turned their business models on their head overnight.
So, what does 2021 hold?
International Adviser spoke with industry players about their predictions for next year.
ESG
Nic Spicer, UK head of investments at PortfolioMetrix, said: “Regulations are on the way in 2021 that will mean advisers must have meaningful discussions with clients about ‘sustainable investing’.
“The regulations will require advisers to evidence that they have taken clients’ ESG preferences into account when making investment decisions. While the timing of the regulation has not yet been confirmed, we expect it to be sooner rather than later.”
Paul Stanfield, chief executive at Feifa, said: “With regards to financial advice, 2021 will almost certainly see “ESG investing” become mainstream. A combination of new regulations, particularly across Europe but also globally, to a degree, allied to consumer demands, will see this shift happen faster and more extensively than many industry experts previously believed.
“This speed of change has also been significantly exacerbated by some of the impacts of covid-19, of course.”
Mark Davies, partner at global data and analytics advisory firm Element22, said: “Little doubt remains that ESG will be one of the dominant themes for the investment management industry in the coming year. With vast growth potential, driven by rapidly increasing investor appetite and further propelled by the pandemic, ESG assets will continue to attract significant capital inflows.
“At the same time, investors will be increasingly challenged to comply with new regulatory standards, such as the EU’s new Sustainable Finance Disclosure Regulation (SFDR) coming into force in March. As part of this wide reaching mandate, EU asset managers will have to publicly disclose information related to the sustainability impacts of their products and of the companies in their portfolios.”
Elizabeth Gillam, head of EU government regulations and public policy at Invesco, said: “The Sustainable Finance Disclosures Regulation is just the beginning in a wave of regulation in this space, which will be followed by additional disclosure requirements on green investing and changes to product governance and suitability requirements to require financial advisers to assess their client’s ESG investing preferences.
“While much of this regulatory change emanates from the EU, we anticipate that the UK will adopt rules that would follow the spirit, if not the letter, of these EU regulations, with work to thrash out the details taking place in 2021.”
Regulation
Geoff Cook, consultant and independent director in Jersey, said: “Regulatory change tends to be one of the consequences of a global crisis, as authorities attempt to put in place a framework and instil a semblance of order in an otherwise uncertain environment.
“We saw it in the wake of the global financial crisis and over the past decade regulatory change has really amplified in multiple ways, including tax, reporting and data management.
“As the global economy recovers in 2021, we can expect the regulatory march to continue, particularly in the governance and oversight sphere and in terms of corporate transparency – and whilst additional regulation may be well intended and provide investors with added protection, it will also introduce new requirements and add greater complexity where cross-border investment is concerned.
“Those firms and jurisdictions that embrace the transparency and governance agenda and provide sensible pragmatic solutions will be highly sought after.”
Alastair Black, head of platform proposition at Standard Life, said: “The suitability of retirement advice has been an FCA focus for some time. So, while the disruption created by covid-19 prompted the regulator to divert its attention to the sustainability of the sector and supporting vulnerable customers, we can expect suitability to top the agenda once again in 2021.
“The FCA still made progress in the area in 2020. While its second suitability review of retirement advice has been deferred until the start of 2021, its assessment of defined benefit (DB) transfer advice continued as planned. Through this work, the regulator is forming its view of ‘what good looks like’ with regard to retirement advice as a whole. Understanding the FCA’s direction of travel here will help advisers ensure they are continuing to provide tailored services to clients at a time of particular need.
“The FCA is now looking to apply the same scrutiny it directed towards DB transfer advice to every element of retirement advice. Given the regulator’s communications so far, advisers should start to compare how they service DC clients with the advice they give clients on DB transfers.
“There will, of course, be differences. But this exercise should help advisers assess the strength and robustness of the procedures they have in place across the board to help clients make the right retirement choices for them. Ultimately, the hard work that advisers have already done to adapt to pensions freedoms means they are in a strong position to continue delivering a tailored service at each stage of clients’ retirement journeys.”
Brexit
David Denton, head of technical sales at Quilter, said: “Naturally, one of the biggest industry stories in 2021 will be the regulatory fall out from Brexit and how that impacts financial advisers and their clients.
“Regardless of whether a deal is reached or not there may still be significant problems revolving around the permissions UK brokers need to conduct business in the EU, and vice-versa.
“This is because at present negotiations revolve around goods and not services, so any deal announced in the remaining transition period may not provide the clarity the advice industry is hoping for.
“There was short-lived hope for financial services equivalence, and this was signalled by Rishi Sunak in a speech in October to ensure an orderly transition even if an agreement was not reached. This was, unfortunately, not specific to financial advice.
“Passporting will no longer exist. However, the UK has been generous in respect to their plans to tackle this problem in the short term by introducing both the Financial Services Contract Regime and the Temporary Permissions Regime.
“The former allows an EEA adviser currently whose passport will expire with the transition period to continue to service existing UK resident clients for up to 5 years. The latter regime will allow EEA firms to operate for a limited period while they seek authorisation from the FCA, in terms of servicing existing clients and new business.
“Whether this is returned by any of the EEA countries or the EEA per se, regarding financial advice, is yet to be seen. As it stands, we therefore may see some significant disruptions to the way international financial advisers, particularly those in the UK, can operate in 2021.”
Tax
Steven Cameron, pensions director at Aegon, said: “With the Chancellor now scheduled to set out his recovery plans in the spring, the question remains how he plans to recoup the huge costs of the pandemic and who exactly will bear the brunt of his plans. High on the list of possible targets are pensions tax relief and wealth taxes.
“But equally, he could be looking at increases to income tax and National insurance. And, will the state pension triple lock survive? While more will be revealed come Budget day, many will also be expecting an announcement on social care funding.
“The tax system can have a big impact on the most efficient ways of managing long term saving and investment, something advisers are ideally positioned to support their clients in. It’s also vital any changes to tax reliefs and incentives don’t discourage saving for retirement or for ‘rainy day’ emergencies. Those at risk of losing current incentives might be well advised to act sooner rather than later.
“On pensions tax relief, the latest suggestion is a move to a flat rate of relief at 25%. Clearly, this would reduce the incentives for higher and additional rate taxpayers, but benefit basic rate and non taxpayers.
“While a move has been suggested for many years, it would seem the practicalities of such significant change have held it back. Change of such a large magnitude is highly complex, particularly for defined benefit schemes or for those using ‘salary sacrifice’, meaning individuals and pension schemes would need sufficient time to adapt.
“According to proposals from the Office of Tax Simplification, sharp increases in the rates of Capital Gains Tax (CGT) or a harsh cut in the annual exemption may be imminent.
“Those holding significant investments outside of tax favoured wrappers such as pensions and ISAs, owners of second properties and business owners who plan to sell their businesses to fund their retirement will all need advice certainly after, but possibly before any changes.”
Technology
Simon Goldthorpe, joint executive chairman at Beaufort Group, said: “While the ‘face-to-face’ aspect of a client relationship will remain a crucial part of high-quality financial planning, we expect technology to play an even larger role over the coming year.
“Despite restrictions easing, it wouldn’t be surprising if advisers now reduce the number of physical meetings that they hold as standard, with the majority continuing to take place via video call. This in turn could save firms money on additional office space, giving them more time and resource to invest in service development.
“That said, we do think advisers will embrace being able to see their clients in the flesh again, especially in the early stages. So many of our advisers tell us how they miss the chit-chat that will often only come from sitting down in person, and this realisation will be beneficial for clients. The so-called ‘small talk’ on family life or holidays is not just important for the bonding experience; it also provides essential insight into a client’s long-term goals.”
Russell Andrews, head of solutions and marketing, asset management distribution, UK, Europe and Asia at SEI, said: “Technology adoption will continue to increase next year without question, but gears will be shifting from defence to offence as firms look to explore how to use technology to enhance their proposition.
“The focus will be on better, more flexible engagement and communication, with one eye on enhanced security as the risks of rapid technology adoption cannot be underestimated.
“Client expectations will only increase as the speed of evolution across technology generally escalates. This speed will ensure the financial industry works hard to keep pace but it is vital for the industry to note that it’s not the technology that is important – it’s the client experience that matters.
“In 2021, UK platform consolidation, which has long been a talking point for the industry, will come to the fore. Some platform owners are looking to offload, either as a result of other M&As or just a change in strategy. The question is – will this cause disruption in the UK advice market?”
