Capital Markets Corporate

November 8, 2019

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Not-so-ethical investments

Fears that ethical savers looking for green investment opportunities might have been misled have prompted Fidelity International, one of the world’s biggest fund managers, to shut down parts of its website. It is suggested that ethical investors might have accidentally been putting their cash into tobacco, arms and alcohol businesses due to a faulty search option on its website. As a result, some have suggested Fidelity should contact the affected investors and inform them of this misstep. (From The Times, 3 November 2019)

Unlimited holidays and flexible working luring financial recruits

The competitiveness of the insurance market has led to the City of London’s newest insurance broker, McGill and Partners, banning fixed working hours and offering unlimited holidays in a bid to attract new recruits. While unlimited holidays are not a new development – Netflix is among those companies offering similar policies – this is the first time such an initiative has been taken up in the financial services sector. More and more firms are starting to offer additional support to their employees, with Goldman Sachs leading the way in allowing new parents at least 20 weeks of paid parenting leave. (From Financial Times, 3 November 2019 and Financial News, 4 November 2019).

‘Wake-up’ pension packs to hit over-50s

As pressure mounts on middle-aged workers to start thinking more about retirement, over-50s will now start receiving ‘wake up’ packs from the Government to alert them to pension planning. While the packs were previously sent out just before workers retired, people with personal and workplace pensions will now receive the packs every five years from the age of 50 onwards, in a bid to provide everyone with a snapshot of their pension status and encourage action to grow their retirement pots. (From This is Money, 3 November 2019)

Active manager scandals push passive funds’ popularity

Passive funds are growing in popularity, with consumers increasingly lacking in faith in active management as cost pressures mount. A new report showed that in the three months to September, two major passive fund providers — Legal & General IM and BlackRock – were the most popular investment providers. Some suggest the fallout from the Neil Woodford saga might have been a contributing factor in making investors more risk averse and, in turn, given further cause to boost the popularity of passive funds. (From FT Adviser, 5 November 2019)

Wealth managers forced to say no to more business

As the growing cost of regulation and compliance issues start to bite in the wealth management industry, managers are being forced to turn away clients because they lack sufficient assets to meet minimum service thresholds. New research from fintech Nucoro has shown that the average wealth manager turns away 71 clients every year. However, increased digitisation and integration of technology is thought to be helping wealth managers reduce their costs and potentially take on more clients. (From Private Banker International, 5 November 2019)

Generation Rent becomes the norm

The dream of owning a big house appears to be over, as new research reveals that almost half of Brits expect they will never own their home, and nearly a third of renters believe it is normal for people to do so for life.

Younger generations are only slightly more optimistic, with just over half believing they will one day purchase their own home. Previous research conducted by The Resolution Foundation think tank suggests that roughly half of 18 to 36-year-olds live in rented properties, with one in seven 18 to 24-year-olds believing this to be the new norm.

This may well be the case, as homeownership has seen a steady decline across Britain since its peak of 58 per cent of families in 2003. Four times as many 30-year-old millennials live in rented homes compared to when baby boomers were the same age, with older generations having faced fewer barriers as first time buyers and significantly lower housing prices and deposits (amounting to as little as 11% of a buyer’s salary).

Today’s high house prices have millennials paying record portions of their salaries on rented properties, damaging their homeownership prospects in the long-term. There is also a persistent lack of affordable housing available to this generation, with housing charity Shelter revealing only 23% of the 184,000 new properties built in 2018 were classified as affordable. Worse still, a separate report suggests millennials who fail to get on the housing ladder risk homelessness upon retirement.

These housing figures are part of what’s been referred to as a “full-blown crisis” by senior policy analysts at The Resolution Foundation. Recent tax changes did lead to fewer homes being bought by landlords, but second-home ownership is still increasing wealth and income equalities.

One in six baby boomers own a second home, despite the declining number of homeowners in Britain. The number of second-home owners has increased by 53% since 2001 to 5.5 million adults – a majority of which are older, richer southern England natives. The report also found that millennials make up only 7% of second-property owners, which is indicative of the rising property wealth concentration among older people and a wealthy minority among younger people.

This generational shift from home ownership to ‘Generation Rent’ may not mean all hope is lost. Germany has among the highest proportion of renters in Europe, with only 41% of the population owning property, as the country’s steep mortgage requirements and favourable rental regulations have dissuaded people from buying their own home. Despite this high percentage of renters, Germans still manage to save much more of their income than their European neighbours.

If renting is to become the new norm, then the financial services sector must adapt its thinking and ensure its products are open to the growing number of millennials who don’t – and may never have – a mortgage.  This impacts not only mortgage lenders, but other providers whose products and services tend to be associated with the purchase of a home, such as insurance and financial advice.

As part of this, financial services communications must also be cognisant of the distinct financial pressures facing Generation Rent, and adapt to this reality, rather than focusing on trying to wind the clock back to a time that may have passed.

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