Markets
It has been another really interesting (probably too interesting?) year for us with markets, economies and invested assets being challenged again throughout 2023.
Although it has been a very bad year for conflicts globally and the ongoing human cost, this has not been the main focus for investors. Central bank’s policies globally has been the focus for investors. We continue to watch and interpret the data around inflation, interest rates, productivity and employment in particular. Keeping a close eye on wage inflation.
The good news is that central banks such as the Fed, the Bank of England and the European Central Bank (ECB), look like they may have stopped increasing interest rates. Interest rates may have plateaued. Markets are now looking at when interest rates might fall, and this could be as early as the second quarter of 2024 for the UK perhaps? And the second half of 2024 for the Fed and the ECB?
When interest rates do fall, we should see an improvement in investments. In J P Morgan’s view (Long Term Capital Markets Assumptions Report and webinar launch 30/10/2023), we are in a better position for investment returns than we have been for a few years, in a more normalised market.
J P Morgan state the need for a well diversified portfolio given the current outlook, with both ‘active’ and ‘tactical’ fund management.
This appears to be the broad consensus view, although as ever, we have both Bears and Bulls. A few fund managers are sitting on the fence and making provision for either outcome.
However, over the long term, history has proven that invested assets significantly outperform cash. You just need to remain invested and focus on your long-term objectives.
Business Update
We have had a busy year again here at P and B IFA. Our focus remains on servicing our existing clients and keeping them up to date with what is going on in our world and anything that might have an impact on our clients’ plans.
This year we have had significant legislative change for pensions in the Spring Budget with further clarification in the Autumn Statement and in the detail in the Autumn Finance Bill. These changes are generally good news for our clients but not without complexity.
However, from a tax point of view we continue to see reductions in allowances and stealth taxes as some allowances and tax thresholds remain frozen, and other thresholds lowered. This all results in a bigger tax take for the State.
Being tax efficient and using your allowances is more important than ever.
In addition regulatory change moves at a pace with the implementation of Consumer Duty regulations at the end of July. These changes are as ever about protecting our clients, this time they come with significant time cost to the business.
Thankfully, the use of digital technology for meetings, cutting out a lot of travel time, has allowed me to deal with the legislative and regulatory changes without working 24/7, although I don’t think I’ve ever worked harder.
We continue to work on the business and I’ve taken input from several external consultants over the year as we continually strive to offer a great service to our clients. This is to the benefit of our clients and our staff. I’ll keep you posted on any developments.
Consumer Duty regulations apply more broadly than to just IFAs like ourselves. The good news here is that we hope that the new regulations will help us receive a better service from providers, life offices and platforms etc. Now we spend too much time as the buffer working on behalf of our clients. This year we have had to educate the staff at life offices and platforms about the new pension legislation changes, so that they can understand our instructions on behalf of our clients.
It was worthwhile in the end. From a pension legislation point of view, we are in a better place than at the start of 2023.
Summary
It has been a busy year for all of us, but I think we are in a better place now. Things have moved on for economies, markets and invested assets and I feel like we are making progress, although risks remain, and volatility could continue for a while.
We have improved pension legislation too, that is good news and should help us keep our pension funding at the right level as for most of us it is extremely tax efficient.
Compared to this time last year, I’m feeling more positive about the new year. It won’t be straight forward, but I think we are starting to see improvements to the outlook.
Politically it will be an interesting year, hopefully with a normal democratic process, particularly in the US.
Wishing you and yours a healthy, happy and prosperous New Year. I’d love to see an outbreak of peace and goodwill globally.
All the best!
Steve Speed
29/12/2023