Fraser Kerr: Hello, welcome to Wealth Wise, the new financial planning podcast from abrdn. My name is Fraser Kerr, Regional Director at abrdn, and in this series, we're looking to bring you the conversations and collective insights that will help you achieve more every day.
Fraser Kerr: Global events continue to show that the only constant in life is change, in today's episode, we're looking to discuss the impact of investments for our clients in the context of an ever changing and very different landscape to that of five years ago, the macro challenges of the war in Ukraine, high inflation, the collapse of banks, and ultimately the lasting effects of COVID. We're looking to examine what we're doing at abrdn to limit the impact on individual investors, going behind the scenes to uncover how the team are managing uncertainty and ultimately get the best for our clients. Throughout this series, we'll also look to bring to life client stories and the role that proactive financial planning can play as you meet changes and challenges that are closer to home and individual to your own unique set of circumstances. Today, I'm absolutely delighted to be joined by Lizzy Galbraith abrdn’s very own political economist.
Lizzy Galbraith: Hi, Fraser, good to be here.
Fraser Kerr: Thanks, Lizzy, and also our financial planning director in Scotland, Derek Blaik,
Derek Blaik: Hi Fraser it's really nice to be here.
Fraser Kerr: Great. Thanks for taking the time to come along, guys for our inaugural financial planning podcast Wealth Wise. So I think that everyone in the room can agree that it has been an incredibly challenging time. A lot of uncertainty, a lot of unknowns. And I think really, it's time for financial planners to really prove the value that can be added, not just with regards to the technical knowhow, but it really is that focus on supporting clients in terms of that ongoing visibility and being there to almost hold hands. I mean, Lizzy, this must be gold for you, as a political economist with all the change that's going on, and all the uncertainty.
Lizzy Galbraith: Yeah, although to be honest, it's not really stopped. I mean, we sort of rolled straight from Brexit, which was obviously a very drawn out very uncertain periods, straight into a general election then got hit with two years of COVID and came out the other side into a war in Ukraine, and things haven't really settled down since. And next year, we're obviously going to see the US and the UK hold elections as well. So it's not really stopped now for quite some time that the uncertainty does just keep on coming.
Fraser Kerr: It's amazing when you're mentioning all that. And Lizz Trust’s and Kwasi Kwarteng’s short flash in the pan seems like a lifetime ago as well. But even the uncertainty of that over that few months period, you know, sent shockwaves through the sort of economic system, didn't it?
Lizzy Galbraith: Yeah, and the legacy of that sort of really has lived on both in terms of the minds of voters, we've not really seen, the conservative poll ratings recover from that. And it also has had a legacy impact on I think the UK’s reputation as well, in the minds of investors, the you know, our reputation for being a pretty stable, very, very, in the minds of some I think of a pretty boring country politically, has taken a bit of a hit when you kind of take into account Brexit, and then that very short, but very sharp period of financial turbulence, that mini-budget caused.
Fraser Kerr: Seems to be kind of the case that we're still feeling those impacts resonate, or even when we're compared to other European countries, you know, with regards to inflation, how the cost of living crisis has hit the UK does seem to be at the forefront in terms of almost from a negative perspective and sort of a benchmark that no one quite wants to reach in terms of being a comparator, isn't it?
Lizzy Galbraith: Yeah, I mean, the UK still does have the highest inflation in the g7. It's obviously come down in the last couple of months, which is positive, but we're still we're still a bit of a lag a laggard in terms of the g7 nations. And really, what we're seeing is that the UK has been hit with twin challenges. So you've had a supply side shock, our Labour markets really tight. And we also have suffered from the energy crisis and the food inflation issues that the rest of Europe has. So we're dealing with multiple challenges. And that's not something that's affecting Europe or the US in the same way.
Fraser Kerr: Yeah, just relentless, really, for our clients as well. And I mean, Derek, you really are at the forefront of that. And your day job does revolve around really being on the frontline supporting clients and you must have seen that firsthand in terms of clients having to come to you and plans evolving and changing and their personal circumstances evolving and changing as well. I mean, it must be relentless for you as well.
Derek Blaik: Yeah, absolutely Fraser, and as Lizzy said, we've not to look far for issues that have been, you know, over the last few years coming up for clients, your higher levels of inflation, higher interest rates are more challenging time for investments. And actually, there's not been a better time for clients to seek financial planning advice, and to review their plans to make sure that they're on track various
things that clients are worried about at the moment. Absolutely. But we can provide that reassurance and financial planning to always help clients.
Fraser Kerr: And is there something that you're seeing as a bit of a constant? Derek in terms of being a pressing concern for clients, is there something that's more consistent across the board? Or is it just a whole variety of issues depending on the client's position?
Derek Blaik: Yeah, very much depends on the client position, we have clients who are perhaps now worried about inflation, they've perhaps been taking a fixed income from investments over a number of years, have been retired a long time. And are really seeing inflation start to bite now under talking to us perhaps about increasing the amount that they take from investments. And we're always keen to look at cash flow modelling to make sure that such income is sustainable throughout time. And that gives clients a tremendous amount of peace of mind, on that side of things. Clients are concerned sometimes about interest rate rises, particularly those who have mortgages, and have seen their costs go up quite dramatically. They're looking to perhaps take advice on paying down a mortgage, rather than investing. So, advice on all those areas. What we have seen though Fraser with abrdn clients, there's not really been much panic, which is good. Clients are sticking to the plan they're having regular reviews with me as their planner, and a plan that is adaptable in the situation is so important,
Fraser Kerr: Certainly, as I mean, that's something that I would always want to stress is you know, there's always that proactive element to a financial plan. But at its core, it has to be able to be reactive as well and pivot dependent on what's going on. You know, I mean, Lizzy, quite comfortably rattled off a series of significant events there, that's enough to cause alarm bells for anyone. But I think it is just having to do that. And I think even when you just touched on that cash flow modelling piece, as well, two people could come to you with the exact same situation on paper in terms of their financial position, but the cash flow modelling really tailors it towards their individual position, what their aspirations are, what their financial planning timeline looks at. And that's a real key part of the whole conversation and narrative with a client, isn't it?
Derek Blaik: Yeah, absolutely Fraser, you’re right. Every client is different as well. So that kind of modelling can be very unique to that client. And everyone's expenses are different, their income has a different profile, they have different aspirations, different things that they want to do. So we can build that all into the plan. You know clients have, obviously been concerned about the number of things that Lizzy has mentioned there around inflation, investment markets have been challenging over the last couple of years, as everyone knows. So lots of clients want to just know that their financial plan is still on track to know what actions they need to take. And we can help with our experience and knowledge and with a backup of that cash flow, really to give reassurance that clients require and these really difficult times.
Fraser Kerr: Yeah, I think, even as a sort of hangover from COVID, you did actually see clients dipping into savings, pensions, and it was actually to support family members as well, because of the pressures put on them. And I think that that's such an important piece of the puzzle as well. It's not just a financial plan for an individual or a couple, you know, it actually extends to the whole family. And it's that almost intergenerational piece, where you're really seeing the impact on the family unit, and the fact that that can really have a profound impact on where we are going with, with what people are drawing down and the assets that they have, as well.
Derek Blaik: We saw that, particularly over COVID, where clients were, you know, worried about their health more than anything else. But you know, we're thinking about family and thinking about passing assets down the generations, perhaps quicker than they would in the past. So we saw a real increase in interest from clients wanting to make gifts to children over that period. And it was amazing with clients when we were able to advise them that they could afford to make gifts to their children, to help them…
Fraser Kerr: … Peace of mind that it brought them…
Derek Blaik: … absolutely, to perhaps pay off mortgages with interest rates going up and to help them and to actually see their children enjoy the money. And spending it gave them a lot of satisfaction. And then we’re able, again, to help clients with thought through advice and cash flow modelling.
Fraser Kerr: Derek's mentioned a few times the pressures that interest rates have put on mortgages, how that's impacted clients expenditure, and loved ones expenditure and trying to support them as well. I mean, we're really seeing quite unprecedented pressure placed on banks by the central government in terms of passing interest rates savings on to clients, that must be quite unprecedented as well in terms of where we are from that political involvement that they've got there.
Lizzy Galbraith: Yeah, so the government's very aware that the cost of living crisis in the impact of these rising rates is creating challenges for consumers and there was a lot of pressure earlier in the summer as we saw those mortgage rates go up for the government to act on both trying to address those mortgage rate rises, but also to try and make sure that banks were passing on the interest rates rises to consumers as well. Crucially, what we've seen the government do is they've not spent any money in these initiatives, what we've seen is them pressure banks to do what they feel they should already be doing so fulfilling their obligations to consumers, what we're very unlikely to see is the government actually provide any fiscal support to consumers, principally, because there's actually no headroom, the government doesn't have much wiggle room in its current spending plans. And that really gives it very little room for manoeuvre when it comes to this. So we're going to see them still be very keen to make sure that banks are passing on interest rate rises to consumers, we've seen them pressure regulators to make sure that supermarkets are passing on falling food prices to consumers, we're going to see them make regulatory efforts, but we're very unlikely to see them actually produce any fiscal support because of this overriding concern about getting inflation to fall. So they're very concerned about avoiding counteracting anything the Bank of England is doing in trying to get inflation to fall.
Fraser Kerr: And that's probably a million miles away from where we were after the financial crisis where it was heavy involvement, heavy financial support through the form of quantitative easing, and as a financial planner, who came into the industry following that, I'm sure you won't mind me saying, Derek, I'm sure you remember pre financial crisis as well…
Derek Blaik: … Now, now, Fraser…
Fraser Kerr: But you know, absolutely, that world of high interest rates and getting 5% returns on bank accounts, you know, that was something that was completely foreign to me in my professional career in terms of where I am, as well. But it's something that we're really seeing more and more of now, it's particularly pertinent for, for more cautious and defensive investors as well. So from my perspective, it almost seems like you're having people chasing higher returns by going up the risk scale, in terms of looking for more returns, but you're also seeing people come down the risk scale in order to take advantage of these interest rates on offer as well. Would you say that's fair, Derek, in terms of where we are just now, and how clients are reacting.
Derek Blaik: I think that change that you mentioned, from you know back in 2008, where we had effectively zero interest rates for a long, long period of time, you know, over 10 years, and very, very low levels of inflation. We're now in a completely different environment with higher interest rates, and of course, higher inflation. One of the positive things for our clients is that for clients who have cash, it's been useful to take account of higher interest rates and to take advantage of those, you know, with cash that's just like laying in the bank. So investors who have been saving with cash over the last number of years have been losing, because of low interest rates and low inflation, but now, there's a bit better return to be had markedly so. But one as Lizzy said, you have to take account of inflation, on such savings rates as well, but no doubt that has given a different conversation to clients around cash, and this ability to perhaps de-risk in some ways for cash that's required over the short term, and achieve a good return on that, albeit with inflation still high. And I think, you know, over the piece Fraser, thinking about the longer term, you mentioned, risk profiles there. I'm always kind of weary in asking clients about the long-term risk approach, and if that has changed, and if it's not, then there's no real need for clients to change direction when they've still got an eye on the longer term. And sometimes, you know, they'll cash rates are attractive and quite right for ready cash and short-term needs. It's really important for clients to think about the long term, if your attitude to risk is still the same, and to continue on a steady course. Because we can't take account of short-term movements too much when we've got a long-term view of investments.
Fraser Kerr: Kind of circles back to that financial planning cash flow modelling piece as well, doesn't it? Where you're trying to remember clients about that long-term, and that you've factored in periods of negative growth as well and the challenges with the investment landscape too. And is trying to come back to that aspirational and I suppose, it's, probably a responsibility that none of us take lightly in terms of in the industry, you know, I know firsthand, it's something that, you know, you feel a real care for your clients, specifically in your career Derek that you've dealt with the same families for years. Now. When you're helping people with such significant life events, you're helping them with planning, you know, in a lot of instances, you're almost the first port of call for people. So it is just such a significant responsibility that I know everyone in the team really feels, the people who support us behind the scenes as well from para planning and support as well. It's just an incredible responsibility that we have and you're almost on a bit of a journey with these clients, aren't you in terms of navigating them through these choppy waters, challenging times that we're in just now but also hoping to kind of celebrate the good times and see the quality of life that a good solid financial plan can bring them as well.
Derek Blaik: It’s in times of uncertainty that clients need advice more and more. And we're here to provide that. And I think you mentioned, you know, we've got a big team here at abrdn. It's not just me, I'm at the front end providing the advice, it’s a really privileged role, and as you say, it's in times like this, where clients do need reassurance, they need help. And we're here to provide it. And as you say, with the depth of, you know, support that we have at abrdn, with the support I've got behind me in providing client service, it's a real team effort here, which we pride ourselves upon.
Fraser Kerr: No, absolutely. Some of the most difficult conversations I've had to have with clients, but ultimately, the most rewarding when you're seeing wealth pass between generations or supporting the loved ones when a family members passed away, and then helping them as well and facilitating that peace of mind and clarity for them that you're there as a confidant to help support and deliver for them as well. I mean, it's an incredibly complex part of financial planning. Lizzy. Again, that's just a political hotbed. Just know as well, isn't it?
Lizzy Galbraith: Yeah, I mean, inheritance tax sort of bubbles up every so often, we last saw a pledge to reform inheritance tax be made under David Cameron, he never actually got around to it. But now we're starting to see speculation that Sunak is considering making a pledge to abolish inheritance tax in the next conservative manifesto. Now, nothing's a done deal yet. And a lot of this is going to depend on the state of public finances going into next year. So the key question is going to be, yes, the government may want to make this pledge, but can they actually afford to do it? Now, some form of tax cut pledge is going to be very likely to turn up in the next conservative manifesto. And inheritance tax does seem to be under consideration. But we will need to wait until we actually see that manifesto to see whether they're going to actually be able to commit the money to doing something like that. Labour actually don't have a particularly well set out tax policy on anything at the moment yet. But I think it's safe to say that they're not likely to be supportive of fully abolishing inheritance tax. There have been some calls made by Labour and also independent voices as well, to reform inheritance tax. And there are a lot of different ideas around about how you could do something like that. So I think we are likely to see some form of debate around how inheritance tax should function going up to the next general election. But a lot of this is going to hinge on the state of public finances, and just how much money both parties would like to dedicate towards a reform or abolishment of a tax like that.
Fraser Kerr: Yeah, and I did read, I think it was just in July there, the Office for National Statistics release and figures saying that inheritance taxes generated around 7.2 billion in revenue for the government as well, which I really do just find incredulous. You know, there's all these quotes about it being a voluntary tax for people who prefer the Inland Revenue to their families, you know, again, that'd be a real value add in terms of a tangible this would have been what your inheritance tax liability was, you know, and we've been able to mitigate and offset that. And that's something that you're really proactively involved with your clients as well, Derek, and that forms a key linchpin of the financial planning piece.
Derek Blaik: Yeah, Fraser, you mentioned, intergenerational planning there, that's a big part of what I do every day. And we're getting involved with a lot of families of clients and the next generation, clients that are seeking to pass wealth down, as you talk about that big intergenerational change, and to be able to give advice to the younger generation is a big part of my job as well, they’re at a different phase, they're more trying to accumulate money in low tax efficiencies that they can, where as the parent clients are looking to perhaps give away tax efficiently. So you know as you know, we can give advice on inheritance tax planning, and do, we work with other professionals around giving such advice. And the key is to plan early there, there are lots of options available to clients to plan for that intergenerational wealth transfer. And we're a great place to offer advice to clients on all those different options. And it's always different for every client who have individual needs.
Fraser Kerr: There's almost like a timeline that clients progress through potentially in their 30s. You know, the most important thing is protecting what they have putting in place care for families, if they're starting family going on that journey, whatever that may look like. But then as they progress then becomes more of a shift on to the accumulation of assets looking to maybe progress on to retirement, then there's potentially the biggest change that someone will have when they enter the world of work is that transition then into retirement. But then, you know, you've got that decumulation strategy where you're then looking to structure so I mean, the financial plan, you know, it really does go through peaks and troughs in terms of what's important to the client, what their needs are and what their priorities are, in terms of your having to be very reactive to what's at the forefront of the client's mind at that time, given their agent stage.
Derek Blaik: At retirement advice is really interesting at the moment, and it's moved so dramatically over the last 10 years where, you know, maybe 15/20 years ago, a client would, you know, get to age 65, they would retire, they would hang up their boots and enjoy retirement, now, it's a much different landscape that we have, where clients are looking to perhaps phase into retirement a lot more, and take a different approach, maybe take a less taxing job with less pay. And importantly, from our point of view, they're looking to maybe draw down on their invested assets and a tax efficient way to supplement other sources of income. So the retirement journey now is completely different. And again, you know, we’re at hand to give advice, cash flow modelling, I know, we've mentioned it a lot, but that can play a really important part and helping a client to understand how their income will look, and going into retirement and making sure that they're on track, you know, for a long and happy financial retirement.
Fraser Kerr: Yeah, Derek’s kind of touched on it there Lizzy, I mean, the government has made some comments that have come under scrutiny, such as people getting a job for Deliveroo, or Just Eat or whatever it may be picking up these sort of gig based economy jobs, the overarching theme of the government being keen for people of a certain age and stage still being in the workplace, still having something to offer. I mean, that seems to be quite a consistent message from Rishi Sunak’s Government.
Lizzy Galbraith: Yeah, so what we've seen is that post COVID, the number of people in the workforce in the UK has dropped. And that's for a number of reasons, we've seen an increase in the number of people that are not working, because they now have long term illnesses, that's probably connected to the NHS backlog. But the other thing that we've seen is an increase in the number of people taking early retirement. So leaving the workforce early, either during the pandemic or leaving shortly afterwards. And because our Labour market is currently so tight, we're still seeing wages go up, that's still causing inflation to be really quite sticky. The government's very keen to persuade some of these early retirees to return to the workforce in some form, to try and address this Labour market shortage that we're currently suffering with. So we're going to very likely see this messaging continue from the government, they're going to be very keen to offer any incentives that they can to try and persuade people to come back into work where they've left. And that is principally because it's understood to be a driver of the current stickiness of our inflation.
Fraser Kerr: Right. And I suppose a direct consequence of that could see that action taken with regards to pension lifetime allowances and what the government is planning there.
Lizzy Galbraith: Exactly, they are thinking of as many things as possible, as many incentives as possible to try and persuade this sort of cohort of over 50s, who have either left the workforce entirely or have dropped back their hours significantly, to try and think again, about taking early retirement or cutting back on their hours to try and persuade them to come back into the workforce.
Fraser Kerr: Have you actually seen any of the things that Lizzy mentioned and talked about Derek? Having a direct impact on clients, even though none of its actually came into force as yet? Specifically thinking around inheritance tax and lifetime allowance? Have you seen clients actually changing their minds based on what noises they're hearing? Or sounds or are you seeing clients are fairly receptive to what you're saying?
Derek Blaik: Yeah, I mean, although on paper Fraser there's a lot more flexibility now in terms of the pension rules, and the ability to, you know, pay in more and this taking away of the lifetime allowance, on paper has given clients the opportunity to perhaps, you know, reconsider pensions and invest more, but clients have been naturally quite cautious given the political views of the different parties. Labour, as you said, have said that they might reverse the plans that have been introduced quite recently on pensions. So we're relatively cautious as well, you know, we're given advice within the rules, but we're aware that those rules could change relatively quickly. So again, it's a case by case point for clients in terms of advice. On the inheritance tax side, you know, we can obviously offer advice there on the different options that are available that are still there. But again, clients are generally you know, nervous about political change, and how quickly that could happen in terms of putting maybe dramatic plans in place now.
Fraser Kerr: There was something I've seen firsthand where we'd went down the route with a client where we were making a recommendation around a business property relief scheme, and, you know, very much driven from an inheritance tax perspective. And this was all being done, you know, and then simultaneously, the government announcements came over that there was a whisperings of abolishing inheritance tax. And it just absolutely meant that the client then wanted to cease all inheritance tax planning that they were undertaking, even though it was just in the final stages and just trying to deal in definitives and say, you know, we're just trying to to put in place a plan based on our understanding of where we are just now and what's going on. People can't help but have their minds and opinions shifted and swayed even though nothing's set out definitively. So people's personal finances, it's just such a hugely emotive subject, isn't it and just is obviously of paramount importance to people because of the significance it plays, and everybody's day to day lives.
Derek Blaik: Yeah, I think that's right Fraser. And the clients will have different views on paying inheritance tax, you know, some will, you know, be quite happy to pay it in a way others will want to try and mitigate the impact of it as much as possible.
Fraser Kerr: And that's it as well. Sometimes it's actually about reminding clients of the conversations, the narrative that you've had previously, that almost hand holding piece, but actually, sometimes it is about the most valuable thing you can do is telling a client to take no action. And that's sometimes a more challenging conversation to have. Because, you know, you're actually saying that, you know, holding fast is the best course of action
Derek Blaik: It can be the best advice, as you see there to tell a client not to do anything at this particular moment. And I think, again, going back to, you know, all the things that have happened over the last few years, you're with COVID, with market volatility, with the war in Ukraine with interest rates, inflation, all of those things. But if clients still have the same long-term objective, sometimes sticking the course and going along with the plan, is the best plan.
Fraser Kerr: And I think that's the key message that we want to convey, not just in this podcast, but you know, running as a constant theme throughout as that there is an incredible technical underpin to the industry that we operate in, and where we are, Lizzy is easily able to demonstrate that from that political economist side and how those are intertwined. Derek’s got such extensive knowledge, experience, qualifications, but first and foremost, you know, financial planning as an industry is a people business. First and foremost, you're dealing with people's emotions, you're dealing with what's important to them, you're trying to add clarity, you're trying to add peace of mind, things that are actually quite hard to quantify as well. And really, that is sort of a main focus for us as a team within abrdn and what we're hoping to add in terms of that value. But, you know, I think across the industry that's really at the core of what we're trying to do isn't it.
Derek Blaik: It is no doubt a people business, and clients will all have different aspirations, there'll be different things going on in the family, that that's important to them. And we're in a privileged position as financial planners to be able to get under the skin of clients to understand them really, really carefully, and to be able to adapt to their plans and objectives and their concerns. And I think, again, at this time of extreme volatility, having a sound financial plan is such a good thing to have, and to make sure that you're on track through these turbulent times.
Fraser Kerr: Absolutely. It is incredibly connected and intertwined. And you know, it really does take a village right away from the economist team, right the way through to support, para planning, or financial planners as well, it’s really an incredible effort from you all. And it's a privilege for me to be working alongside such professionals as yourself as well. So yeah, great to have you on the first episode of Wealth Wise. And also just want to thank our audience for listening as well.
So if you're wanting to find out any more about the topics that we've been discussing today, I really would encourage you to contact your planner in the first instance, we'd love to hear from you. And if you've got any questions or comments, maybe anything that's specific to the podcast itself. Any questions on anything that Lizzy's mentioned, anything that Derek’s mentioned, we've set up a mailbox, which is email@example.com.
So Wealth Wise is going to be available on all usual podcast platforms. So please like and subscribe wherever you do normally obtain these from, and we'll be sure to keep you updated on when the next one becomes available. So thanks again for everyone's time today. Great to have you on board. And look forward to speaking again soon.
Lizzy Galbraith: Thanks for having us.
Derek Blaik: Thanks, Fraser.
Fraser Kerr: Cheers, guys.
Tax rules can always change in the future. Your own circumstances and where you live in the UK could have an impact on tax treatment.
The value of investments can go down as well as up, and could be worth less than what was paid in.
The views in this podcast are those of the contributors at the time of publication.
The information is based on our understanding as at 22 August 2023.