It’s that time of year where Scots – at least those of us with school-age children – look all smug as we finish up for the summer and head off on holiday while our confrères to the South toil on; said holiday being considerably cheaper as a result. We won’t talk about the tables being turned when it’s time to go back to school; we’re all still kids and we know the summer holidays are NEVERENDING.
I don’t like to wish time away, but I do know that soon enough I’ll be waiting for the end of August to roll around. One day at a time…
Anyway, this will be my last Update for a few weeks as I take full advantage of all this and disappear off. So – as Elton John didn’t quite say at Glastonbury – I’d better make it a good one.
Macroeconomics and interest rate theory it is, then, because you love it, amirite? No, you do, you’re only pretending you don’t! Are you sure? But you never said before! Why are you using your safe word? I thought we’d developed a economic-positive framework where it was OK for us to go deep into monetary policy! Why are you calling the police? Arrrrgh!
Oh alright, we won’t. But we do need to talk about interest rates and their impact on what we do for clients. The current rate of 5% is the highest since April 2008; it’s a funny thing but there are presumably hundreds if not thousands of advisers, planners and paraplanners who have only ever worked in a hyper-low interest rate environment. Even those with longer memories will need to adjust, and I thought I might leave you with a few thoughts as to what some of the impacts might be.
First of all, cash as an asset class becomes more interesting. You’re already seeing this in the stooshie over interest on operational cash on platforms, but it’ll get much more profound than that. Incidentally, my dad was moaning about the rate he’s getting at his high street bank who – and I know this will shock you – haven’t been raising savings rates as fast as they’re raising mortgage rates. So I checked his rate against the operational cash rates on a range of fine adviser platforms, and what do you know, most of them pay better rates, including those who take a slice of interest, than what he’s getting. I’m not sure what my point is there, but it’s probably something along the lines of “cash, eh? Tricky stuff.”
Last time we had rates this high, there were relatively few offers aimed at you to help you manage cash for your clients; a very high proportion of advisers left cash to the client and maybe nudged them off to a best-buy rate somewhere. But now we have cash platforms, like this one and this one and this one and this one. Some of them have the ability to work with advisers as well as on a direct basis. And we also have a client base who has been schooled that their adviser works on a holistic basis. So now that we’re all interested in rates again, prepare to engage with some new suppliers, or at least to study up on them.
Next, if we’re achieving rates of four or five percent, we can expect to see rational investors and advisers asking whether their low-risk portfolios are performing at a level worthy of the risk. The 10-year annualised performance of Vanguard LifeStrategy 40 is 4.07% before platform and adviser charges. The 3-year performance is negative. 4.75% on a notice account is achievable right now. Just saying…
And we can see more structural impacts too. I was speaking to a perspicacious adviser yesterday who was pointing out that he or indeed she was now less likely to pay top whack for a book of business which had significant numbers of older clients in it. Previously you’d assume that a good amount of their assets would stay invested on death and the next generation would become a client, but in this environment already it’s clear that said next generation is much more interested in clearing their mortgage than taking advantage of 1.5% deals and doing better than that by leaving their money in the markets.
All round the place money is going to start behaving in a way it hasn’t for a decade and a half, and maybe in ways it never has before given new players and new tech. We could do worse than think about what that means from the deckchair.
- We’re pleased and relieved that Rob Reid is on the mend – that’s one of your nine used up Rob. Now will you please take it easy while you recuperate? (No, no you won’t).
- Congratulations to Richard Romer-Lee and connections as Square Mile is scarfed by Titan Wealth, the consolidator you don’t know yet but will soon. £12bn and counting…
- New podcat is up – this time Father McPhail talks to Tom Frackowiak from Cicero on the Labour Party’s approach to pensions. The times, they are a’changing…
- Our very own Rich Mayor is on the webinars with PortfolioMetrix and multiple IFAs discussing all the angles on adviser fees next week (5 July) and you can sign up here.
- Harry Markowitz just died at 95 years old. He is the reason your portfolios look the way they do, even if you don’t know who he is. Does Modern Portfolio Theory hold up in this day and age? Now might not be a bad time to look.
- Pimping our service paper again – well worth a read and you can even watch two middle aged guys discuss it in a low key way if you like.
- And your music choice…well, you’ve got a few weeks coming of whatever appalling stuff m’colleagues send your way, so I think some stone-cold classic Finnish ultra-catchy melodeath is in order. Here, then, is Amorphis – responsible for maybe the greatest gig I’ve ever been to – with House of Sleep. Even the Mark Kelly-esque keyboard bit in the middle is good. You are very, very welcome.
Right, ‘moff. See you in three weeks. Be good.