“What is really interesting is that clients who use VCTs for the first time are continuing to use them and it becomes part of their annual planning. So, whilst they are making the pension contribution whilst they’re doing their ISA, they’re also thinking about their VCT as part of that.”

A trend French has noticed – and predicts will be a key area this coming year – is a focus on the diversification of VCTs.

“There has been anecdotal feedback for looking at different areas of the market. There is a wide variety of VCTs out there and for people that are interested in that particular space, there are teams that focus on very different areas that can suit a client’s particular needs,” French said.

See also: Understanding Venture Capital Trusts 

In this interview, French also explains why investors should be interested in VCTs, why it offers a valuable planning opportunity for IFAs, and the challenges and opportunities that accompany the investment approach. You can view the whole video by clicking on the picture above, while the timecodes for each question are set out below:

0:16 – How are VCTs supporting smaller companies to find the next so-called unicorns?

2:51 – Why should investors consider VCTs? What can they offer in terms of financial planning and exposure to different companies?

6:01 – How does Triple Point work with advisers and what tools/support do they provide?

7:23 – What trends do you expect to see in the VCT market in 2024? Where are the challenges and opportunities?

Northway discusses how capital can be maintained, how financial advisers can work with clients worried about running out of money during this phase and how the FCA’s Retirement Income review will impact the market.

What are the best strategies for maintaining capital during decumulation?

Decumulation strategies involve a fundamental dilemma, particularly since the introduction of pension freedoms. The motivation to maximise legacy values must be tempered by the fear of outliving one’s pension savings.

There is no one-size-fits all strategy for addressing this dilemma, but there are an increasing number of useful tools available to advisers. The range of solutions has become far more attractive following the normalisation of interest rates in 2022 and 2023.

Much will depend on the size of a prospective pensioner’s retirement savings relative to their intended cost of living. It is important to size the client’s target retirement income as a smaller pot may only address a portion of target income. A larger retirement pot – one that exceeds the cost of providing a safe retirement income – can be viewed as containing a discrete legacy component.

Strategies addressing smaller pots must focus on managing longevity risk and on certainty of outcome. In recent years the traditional annuity has looked prohibitively expensive, but that has now changed, at least in nominal terms. Advisers have tended to focus on smoothed funds or have simply relied on the accumulation growth portfolio, perhaps with the addition of a cash pot to address sequence of return risk.

Modelling suggests that a combination of income and growth products can, in most instances, reduce longevity risk while still providing attractive expected legacy values, this is particularly the case where mortality pooling guaranteed income instruments are used.

For those retirees who have built up a legacy component to their retirement savings, this portion of the pot can and should be used to target long-term growth, which means continued exposure to stock markets, restricted only by the client’s attitude to risk.

What are your strategies for sequencing risk?

Our modelling suggests that traditional growth portfolios, while producing strong long-term expected returns, are nevertheless surprisingly prone to sequencing risk. We have estimated, for example, that a 100% global equity portfolio with a traditional 4% nominal withdrawal rate, carries a 1:14 chance of depletion after 20 years. This rises to 1:7 at a 5% withdrawal rate.

Here, combining a growth portfolio with guaranteed income provides an efficient way of reducing longevity risk and sequence of return risk simultaneously. This strategy maintains the exposure to growth assets, which produces attractive expected portfolio values and provides some degree of expected inflation protection.

How should advisers work with clients worried about running out of money in the decumulation phase?

The point of retirement (and arguably the years immediately before retirement) is where an adviser can really shine. Choices, costs and tax implications can be bewildering for clients, and mistakes at this point can be extremely costly. Explanation, looking at potential future scenarios and mentoring are all part of the adviser toolkit at this stage.

The thought of running out of money is very concerning for many, and needs to be specifically addressed in the advice process. Where the retirement pot is insufficient to safely address income expectations, there needs to be an early reassessment of living standards.

There is a tendency for advisers to deal with inadequate pension provision by increasing equity risk to bridge the expected shortfall. This increases the sequencing risk (and consequently the chance of running out of money) in exchange for an improved median expected return, but client experience isn’t limited to the median outcome. This is surely foreseeable harm.

To read more on this topic, visit: 35% of employees worried they won’t be able to afford to retire

What trends are you currently seeing in the decumulation market?

We are seeing innovation around integration of customised solutions on platform and within the SIPP wrapper. These provide the client with a better overview of their overall financial position in retirement, and provide greater flexibility as payments are made into the SIPP to be drawn as required.

We are also seeing the development of bespoke principle protected strategies which could prove more effective than traditional glidepath approached pre-retirement.

What can the decumulation market expect from the FCA’s Retirement Income review and how will it affect the market, will it be positive or negative?

The FCA is expected to focus on the changes made to portfolios at the start of the decumulation phase, and the reasoning behind those changes. This will underline the different decision frameworks required for accumulation and decumulation and will place an onus on advisers to take positive action and to review that action regularly. This can only be a good thing.

How has the rise in annuities impacted the way advisers have interacted with those in the decumulation phase?

Annuities have certainly grown in popularity, but the past decade of near-zero interest rates has underlined the importance of growth assets in a retirement portfolio. That genie isn’t going back in the bottle anytime soon, even though market return expectations remain lacklustre.

We are, however, seeing a renewed appreciation of the benefits of pooled mortality risk to the individual retiree. As more innovative and more flexible guaranteed income schemes come to market, we expect them increasingly to usurp the traditional role of fixed income in retirement portfolios.

The financial services firm has appointed Nigel Gregory and Christopher Somers to the group’s Dubai office.

Gregory joins as global head of GSB Capital and has worked in various senior executive roles across compliance, training, sales, and management in UK banks for 10 years.

Somers joins as senior partner in the GSB Private banking team and prior to joining, has held senior positions at Standard Chartered Bank and the Royal Bank of Canada.

CII

The Chartered Insurance Institute (CII) has announced Enas Asiri and Suresh Nair as vice presidents.

Asiri is a long-standing member of the CII and became a Fellow (FCII) in 2015. Prior to joining National Life Assurance (BNL) in 2017, she was the head of the life and medical operations at the Arab Insurance Group (ARIG).

Nair brings three decades of experience in the insurance industry and is currently the executive director at Gargash Insurance Services in Dubai. He is also a Fellow of the CII and holds an MBA.

Lombard Odier

The wealth planning team has announced David Barker as senior wealth planner.

Barker has worked for over 25 years at the accountancy firm, Rawlinson & Hunter, in roles including head of tax and managing partner.

Sarasin & Partners

The investment manager has appointed Edward Lloyd and Jack Brodie.

Lloyd joins as senior investment manager after six years at Quilter Cheviot, whilst Brodie joins as investment analyst at the Sarasin Bread Street team.

Loyal North PLC

The financial planning business has hired Kuan Ang as group finance director and board member of the executive committee.

Ang brings 20 years’ experience working in senior roles for Ernst & Young and Deloitte.

SimplyBiz

The financial advice firm has hired Fabian Wiesner as head of distribution partnerships.

Wiesner joins from Aviva Investors as strategic partners manager and has previously held positions at Old Mutual Global Investors.

Spring Capital Partners

The funds distribution partner has appointed Dani Hristova and Will Nott as non-executive directors.

Hristova began her career at Legal & General Investment Management in 2015, and has since worked at Schroders Investment Management and Nordea Asset Management. She was recently appointed chief executive of Independent Investment Management Initiative (IIMI).

Nott brings four decades worth of asset management experience. He spent 34 years with M&G, where he was the chief executive of M&G Securities for 17 years. He was the President of the European Fund and Asset Management Association (EFAMA) from 2017 to 2019, and is currently chairman of Door Ventures, the digital RFP platform.

Mirabaud Wealth Management

The investment service has appointed Jonathan Unwin as head of portfolio management for the UK.

Unwin brings over 16 years’ experience managing client wealth. He has worked at Credit Suisse and in 2015, was the deputy head of asset management at Banque Havilland, a Luxembourg-based private bank.

Chartered Institute for Securities & Investment (CISI)

The professional body has hired Emma Black as president of the CISI North East Committee.

Black co-founded the wealth management company called Tier One Capital and built a compare-the-market savings tool called Cascade Cash Management. She also co-founded the new bank – GB Bank – in 2017 and has lectured across undergraduate and post-graduate levels at Durham University, Newcastle University and Leeds University.

This comes as the initial offer has reached 50% capacity, suggesting VCTs will be in strong demand this tax season.

This follows from the positive announcement in the Autumn Statement that the sunset clause on VCTs will be extended to 2035, removing uncertainty for investors of the previous 2025 deadline.

The Early Bird discount offers a 1% reduction on the initial fee for all completed applications received before 31 December 2023.

In its sixth year, the Triple Point Venture VCT gives investors access to a diversified portfolio of more than 45 B2B startups across 20 different sectors.

To read more on this topic, visit: Tax-efficient investing – a calendar for advisers

Seb Wallace investment director at Triple Point, said: “By extending the sunset clause on VCTs the UK has seized the opportunity to cement its position as Europe’s incubator of innovation and entrepreneurship, ensuring it continues to be a beacon for aspiring entrepreneurs, and remains at the forefront of global innovation, for years to come.”

Diana French retail strategy director, added: “Financial advisers are increasingly valuing VCTs for their diverse range of products with proven track records, a greater variety than ever before. This is particularly true for VCTs focused on early-stage B2B investing, which are garnering significant interest.

“One key reason is Beauhurst’s research, showing B2B exits have doubled those of B2C in the past decade. This trend, alongside the variety and success of VCTs, aligns well with the evolving strategies of advisers, meeting the varied needs of UK investors.”

Penny, who joined TAM Asset Management in 2014 and previously worked at UBS AG, explains why the firm has launched its own money market portfolio, how such products can strengthen the adviser-client relationships and how interest rates could move over the coming year.

Why should financial advisers be interested in money market funds?

A money market fund is what it says on the tin really – an investment portfolio that does very well when interest rates are high. The one thing all such funds have in common is they have very little risk. It is about the same risk as owning cash in the bank.

TAM released our own money market fund because a lot of banks were being very slow to match the interest rates set by the Bank of England. So what we did was create a portfolio that could immediately give investors that same style of savings account, but through a portfolio.

Advisers are keen to use money market funds because it means their clients do not have to take their money out of investments and put it into a bank account. So, rather than losing those clients to a savings account, these funds enable advisers to maintain a relationship with their clients.

Do the benefits outweigh the risks of money market portfolios?

I would like to think so. The risks are as low as we can possibly make them. The alternative to using this portfolio is investing into a savings account, where the only risk is if the bank you have deposited your money with goes bust – and even then you are still covered by the government.

So, we have tried to make this portfolio as low-risk as possible. The difference between a money market fund and a savings account, however, is you are tracking the Bank of England rate. Although some banks are starting to offer 5% as an interest rate, many are still offering below that. So, money market funds remain an attractive portfolio.

Ultimately, though, this portfolio will be most attractive to clients when interest rates are high. When interest rates are not as high, obviously it will be less so.

What type of client would be interested in this portfolio?

There is definitely a type of client who should be investing into this if they want to put their money to work without any risk. The most interested clients should be those with a very low level of risk tolerance.

You will also find, however, that a subset of clients are happy to take extra risk, then sell out of an equity portfolio, say, and move temporarily into a money market fund. This would be done with the intention of timing the market so that as and when riskier assets do start to bounce back, they quickly move out again.

Looking ahead, what trends do you expect to see in the market?

Over the last 15 to 20 years, we have not needed money market funds because interest rates have been at 1% or 2% or even lower. As a result, there has been no impetus to own these funds.

So 2020 to 2023 has been the first time for a while that we have seen this as an attractive asset class. What people have historically done is just invested normally – so how long money market funds remain attractive depends on people’s anticipation of rate cuts.

In a recession, you start to see central banks attempting to stimulate the economy with a drop in rates. So, a recession could be something that makes the bond market rally. Still, people could do very well if they put their money in a money market fund through a recession, given equity market tends to set off quite a bit.

All things being equal, though, you should start to see interest rates coming down over the coming year and this would naturally affect people’s interest in this product.