Flexible solutions for the big changes we all face Investments that are greater than the sum of their parts Ross Mackinnon, Head of UK Intermediary Business Development - Strategic Accounts, Sales Paradigm - October 2019 For professional investors only. Not for retail clients
Greater than the sum of its parts… 2015 2019 Moeen Ali Stuart Broad Eoin Morgan (capt) Moeen Ali Liam Dawson Jason Roy James Anderson Jos Buttler (wk) Joe Root Jofra Archer Eoin Morgan (capt) Ben Stokes Gary Balance Steven Finn James Taylor Jonny Bairstow Liam Plunkett James Vince Ian Bell Alex Hales James Tredwell Jos Buttler (wk) Adil Rashid Chris Woakes Ravi Bopara Chris Jordan Chris Woakes Tom Curran Joe Root Mark Wood Source: Getty Images, BBC, 9 May 2019. BBC.com 2015 ‘And so, on the day the Tigers roared, England went out with the faintest of miaows . ‘ 1
Learning Objectives WIIFM At the end of this presentation, attendees will be able to: Describe the inescapable investment truths that will define the decade ahead Big changes in your world that may influence how you meet client requirements Understand how these can be combined in solutions that offer more than the sum of their parts 2
Big changes in the big wide world
The investment background for the next decade Inescapable truths, not short term predictions Low risk-free Low interest rates inflation A growing role Ageing for China populations Poor productivity growth Slower growth And… in the global labour force Source: Schroders. 4 4
Disruption Disruption Disturbance or problems which interrupt an event, activity or process 1 Source: Schroders, as at 31 March 2019. 1 Oxford dictionary. 2 Clayton M Christiansen/The Innovator’s Dilemma. 5
In the Food industry… Burger robot start- up Creator opens first fully automated restaurant… Source Schroders, as at 31 March 2019. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell. 6
In Healthcare… 3d Printed Heart Source: Schroders, as at 31 March 2019. Securities shown are for illustrative purposes only and should not be viewed as a recommendation to buy or sell. 7
Disruptive innovation It’s not linear: Disruption of £100bn financial services revenue by 2030… The acceleration of general-purpose technologies 12 10 8 6 4 2 0 9000 – 7000 BC 4000 BC 3000 BC 0 to 16th century 18/19th century 20/21st century Source: HSBC, Richard G Lipsey, Economic transformations: general purpose technologies and long term economic growth. PwC, Harnessing the Power of Disruption, 2019. 8
How long to reach 50 million users Electricity Television Internet Facebook Pokémon Go 46 years 22 years 7 years 4 years 19 days 9
Disruptive Technology… Exponential growth, but it’s not simply driven by technological innovation… Kurzweil’s 'Law of Accelerating Returns' IoT Robotics Artificial Technology convergence creating the Intelligence conditions for expanded Moore’s Law Blockchain Quantum Computing Artificial Intelligence to drive 'run- away reaction' of self-improvement cycles Platforms Social Media Internet PC 'Singularity' (Artificial super-intelligence > 1980 1990 2000 2010 2020 2025 Sum of human intelligence) by 2045 Exponential Growth of Technology Source: Accenture, IOT Internet of Things, 2019, PwC, Harnessing the Power of Disruption, 2019, “real opportunities will be f oun d where the enablers of disruption collide”, with 5 main financial services enablers being technology, regulation, funding, ease of switching and talent. 10
Disruption heat map? It’s everywhere, across all sectors Global industry group Global industry group Global industry group Global industry group Keywords Keywords Keywords Keywords High Real estate Telecom services Utilities Renewables, energy mix, regulation Fixed/mobile substitution, fibre/cable, 5G networks eCommerce vs. physical, online hospitality, demographics Transportation Software and services Insurance Data Logistics, automation, AI Cloud, CRM/ERP, automation, data Household and personal products Technology hardware Retailing Online retailing, advertising, logistics eCommerce, fragmentation Smartphones, connectivity Commercial and professional services Pharmaceuticals and biotech Semis and semi equipment Automation/AI, digitalisation Processor power, memory capacity, speed, yield Drug discovery, biosimilers Media Materials Streaming, cord-cutting, digitalisation Substitution, environmental/regulation Consumer durables and apparel Food, beverage and tobacco eCommerce, online retail, data Fragmentation, demographics Medium Capital goods Food and staples retailing Automation, robotics Online retail, data, marketing Automobiles Energy Electric vehicles, autonomous driving, regulation Automation, renewables/substitution, regulation Diversified financials Digital platforms, data Consumer services (restaurants, hotels) OTA platforms, data Management Cash Digitalisation, blockchain Banks On-line banking Low but rising Healthcare equipment and services Automation, data Source: Schroders, as at 31 March 2019. PwC Harnessing the Power of Disruption, 2019: “The 2015 Pension Freedom Act and changes in distribution could enable 30% of revenue/£15.9bn in life and pensions to be disr upted by 2030 and 15%/£3.5bn in the mass market for savings and investment. 11
Probability of a job being automated in next 20 years? 40% and 30% of jobs at risk in the US and the UK, but with opportunity… Telemarketer Bank Loan Officer Bank Clerk Book Keeper Paralegal Accountant Insurance Agent Technical Writer Estate Agent Lorry Driver Market Researcher IT Programmer Economist Public Relation Graphic Designer Lawyer Architect Chief Executive Vicar Doctor 0 25 50 75 100 Source: The Future of Jobs – How Susceptible are Jobs to Computerisation? 2015. Service Automation: Robots and the Future of Work, Willcocks and Lacity, 2016. Only Humans Need Apply, Davenport and Kirby. Will Robots Steal Our Jobs? PwC, Schroders, September 2017. 12
Global climate change 6°C Implication for 5°C GHG emissions 4°C 3°C 80% 2°C reduction per capita by 2050 1°C eventually 0°C must reach zero 13
The scale of change: opportunity and urgency 6°C Implication for 5°C GHG emissions 4°C 3°C 80% 2°C reduction per capita by 2050 1°C eventually 0°C must reach zero 14
The scale of change: opportunity and urgency 6°C Implication for Buildings 5°C GHG emissions Agriculture, forestry and Transport land use 4°C 3°C 80% Radical transformation 2°C in every sector reduction per Industry capita by 2050 1°C Electricity eventually 0°C and heat production must reach Other energy zero Source: IPCC (2014). 15
Big changes in your world
Growing role in planning and delivering retirement income Not forgetting vulnerable clients, wealthier millennials and revenue disruption FCA – Latest trends in the retirement income market “Sales of drawdown products continue to grow at a faster rate compared to traditional annuity solutions” “During the financial year 2017/18 inflows into drawdown totalled £22.4 billion” “We found that 1 in 3 consumers who have gone into drawdown recently are unaware of where their money was invested. It was also found that some providers were ‘defaulting’ consumers into cash or cash- like assets.” Source: FCA 2018. PwC Harnessing the Power of Disruption, 2019: “The 2015 Pension Freedom Act and changes in distribution could enable 30% of revenue/£15.9bn in life and pensions to be disr upted by 2030. 17
More complex/changing needs require new ways of thinking Growth seeking Income seeking £500K £400K Optimising wealth Transition into retirement £300K Later life 49% £200K Building wealth £100K 45% Starting wealth £0K 3% 30 40 50 60 70 80 90 Age Source: Langcat, Spring 2019. Nucleus Census, 22 May 2019: 29% of advisory firms do not use client segments… 18
Remember the guidance for best practice..? Source: FSA, 2012. 19
Times have changed following PROD in 2018… …segmentation now mandatory 70% unsure if they are able to evidence the suitability of products and services by client segment Source: FCA January 2018, advisers are treated as distributors for PROD regulations. Independent adviser research conducted for financial technology business IRESS by financial consultancy, the lang cat 30 August 2018. 20
The implied task? Get to clients (sooner)… …and create some urgency for next generation business At what age do you tend to start talking about retirement income planning with your clients? Mean 39.98 Since 2015, years in 2018 it’s happening a decade earlier in Mean 48.69 the UK… years in 2015 Source: Cicero Research, Retirement Income, The Price of Freedom, Adviser and Consumer Research, April 2018. Nucleus Census, 22 May 2019: 21% in 2018 falling to 15% in 2019 of advisory clients spending >40% of time with clients, 11% in 2018 rising to 31% in 2019 of advisory clients spending >40% of time on administration and finally, 29% of advisory firms do not use client segments… 21
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