Your IndustryJan 14 2021

Lessons from 2020 and their impact on the year ahead

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Lessons from 2020 and their impact on the year ahead
Photo: Gantas Vaičiulėnas via Pexels

This was the overarching message from commentators representing the retail investment, pensions, protection and mortgages sectors, who spoke to us for the FTAdviser special end-of-year podcast. 

The panellists were still mindful of the panic that hit their sectors when the pandemic first caused the UK to grind to a standstill in March. Mortgage lending contracted, with nearly all the 95 per cent loan-to-value products being pulled from the shelves.

Protection providers stopped offering cover for unemployment, and imposed Covid-19 as an exclusion on income protection policies.

Investment and pension portfolios dropped, in many cases, by double-digit percentage points, as global markets effectively dived off a cliff. That has not been forgotten by investors despite the strong recovery seen since the March downturn. 

This level of panic hammered home the need for advisers to communicate a message of calmness and keep repeating that well into 2021.

Keith Ashworth-Lord, founder of Sanford DeLand Asset Management, said: "In March this year it seemed the world had turned on its head. 

"In a physical sense, the problem was really with income and dividend deferrals or cancellations as companies sought to ride out this period of lockdown.

"But in a metaphysical sense, people's risk-averse nature really got the better of them this year, and we saw an awful lot of panic, people heading for the hills and getting out at the wrong moment and getting back in at the wrong moment.

"What you have to get over [to people] is that it is not timing the market that matters, but time in the market that matters. You need to have an attitude that says 'I'm not going to panic or be panicked' but it is difficult to get this over to clients."

Keep calm and carry on. Pensions are a long-term game. Do not get spooked by short-term challenges. Helen Morrissey

According to Helen Morrissey, pensions specialist at Royal London, pensions policyholders also felt the market turbulence was "crazy". While pensions might seem to be a long-term investment, the short-term market crashes sent shockwaves through both those approaching decumulation and those in accumulation.

For those entering drawdown, she noted there were "big challenges" such as people having to step back from making immediate decisions.

Moreover, she said people in the accumulation stage, in their 20s, 30s and 40s, were "looking at their pensions and seeing them decrease and they were really panicking.

"We were getting into lots of conversations with people on Twitter with people asking ... How has this happened? Do I need to change my investments? 

"It brought up interesting issues around people's understanding of what a pension is, what it does and what these are invested in."

She said the main message of 2020 was to "stay calm" and remember that pensions are a long-term savings structure.

Coping with changes

For Andrew Montlake, managing director of Coreco Mortgages, the need to cope with sudden changes in 2020 has been a good lesson to learn for the year ahead.

He said: "The lenders were inundated with 25,000 calls a day around payment deferral schemes, questions of stamp duty and so on and it seemed everything stopped. 

"We all wondered if we would have businesses to go back to when lockdown ended, but the communication has been brilliant and everyone [in the mortgage industry] has tried to help each other."

Kathryn Knowles, managing director at Cura Financial Services, said the insurance specialist advisory firm had experienced a similar amount of panic-induced calls from people seeking to protect their incomes in the event of sickness.

However, with the rush to get cover happening in February and early March, insurers started to get the jitters also, meaning many people who would have been able to get cover in January were no longer able to get the cover they needed in March.

As an example, Ms Cura said: "We had an experience with one client. We had spoken with him in the morning and, in the space of two to three hours of being able to get him income protection, the cover was changed to income protection with a Covid exclusion.

"A few hours had completely changed the possibility for this person, and he was a front-line worker and he did end up having Covid.

"In fact, he has long Covid and he is on eight months now experiencing this, having just lost that opportunity to get the income protection. The protection market absolutely changed."

Communication is key

When it comes to learning from this and reshaping financial services in 2021 to help clients and prospective clients better withstand any similar scenarios in the future, the panellists said education and proactive communication would go a long way to helping them meet any unexpected challenges.

Ms Knowles said she hoped more people - especially for those with disabilities - would be able to get much-needed protection in 2021 after seeing a lot of providers pull back somewhat as Covid-19 hit.

She said: "People had a quick, perhaps extreme, reaction to what was going on in 2020 but we are coming out of the other side of this and things are starting to improve."

Ms Knowles added: "I know people might see protection as a bit of an add-on or not essential, so I would say to them to bear in mind why they took it out in the first place. That protection need is probably still there. 

"I think this applies to anyone - do not make rushed decisions. Speak with someone and see if there is something that could be done."

She also expressed a wish "to develop ways to adapt insurance offerings, so that access to insurance stops being restricted".

It won't be a walk in the park next year but I think 2021 could actually be a pretty decent year for everyone. -- Andrew Montlake

On an economic level, the panel said it was important for policymakers to focus on getting the UK past the 'Brexit hurdle', as trade talks drew to a close at the time of the podcast. The over-riding focus was on meeting potential challenges with a positive attitude.

"Keep calm and carry on. Pensions are a long-term game. Do not get spooked by short-term challenges", said Ms Morrissey. "These things do happen but pensions are a long-term game."

Mr Ashworth-Lord agreed: "What happens with the Brexit deal and the transition doesn't really concern me - most companies that have got any sense have prepared for all eventualities.

"But the [coronavirus] vaccine is great news. And while the policy response to the crisis does not bode well for us getting back to normality, the UK is a wonderful place to do business.

"We have the time zone in our favour, the entrepreneurial skills and the accounting standards - everything is great for business in the UK, so let's get back on with it."

According to Mr Montlake: "As a mortgage industry we have worked together to get through this and learned so much. It won't be a walk in the park next year -  for example, it will all be about the stamp duty holiday in the first quarter and the stresses and strains around that. I hope there is some kind of stretching or tapering to avoid a cliff-edge.

"But with a sense of determination and, first and foremost, remembering it is all about the customer journey and promoting the idea that advice in our market is absolutely essential, then I think 2021 could actually be a pretty decent year for everyone."

The twitterati talks

Taking the debate from the podcast and onto Twitter, advisers expressed their own wishes to help restore faith in the financial services industry as it emerges post-Covid (and post-Brexit).

Many of these focused on the regulation that has been accused of hindering many advice businesses during this Covid year, rather than helping them ride the storm and deliver the best possible service to clients.

Alan Steel, founder of Alan Steel Asset Management, said he hoped for: "The FCA [to] finally realise it should actually go out and visit experienced IFAs and listen to how to be proactive, and work with us, to properly regulate the industry for the benefit of savers and investors, instead of theorising and making the same mistakes."

Independent financial planner Paul Moat tweeted that his 2021 wish would be "for the regulators and professional bodies to invest more in advertising/ educate the benefit of using an adviser rather than highlighting problems and bad practices".

Darren Cooke, chartered financial planner at Red Circle Financial Planning, urged "someone to finally sort out PI (professional indemnity insurance) and the Financial Services Compensation Scheme, while Al Rush, principal of Echelon Wealth, stated his wish for the financial advice industry in 2021 would be: "That the whole darned thing is completely erased and rewritten from scratch.

"I’m done with pasting over the cracks. Oh, and fast-track the locking up of white collar crime financial services villains."

Let's see what 2021 has to offer. 

simoney.kyriakou@ft.com