Juliet Ashby: Okay, I think we're good to go. So, good morning, everyone. And a big welcome to today's webinar. My name is Juliet. I'm one of the Business Development Managers here at LV=, and it's my absolute pleasure to be hosting this morning’s session, which is focused on the often forgotten tax wrapper, an onshore bond.

Juliet Ashby: Shortly I will run you through the agenda that we have planned but just a few housekeeping bits to begin.

Juliet Ashby: This webinar is eligible for CPD, and you'll see the learning objectives on your screen momentarily.

Juliet Ashby: Your certificates will be issued in due course to the email address you registered with, and we will also include a copy of the slides and a recording of the webinar.

Juliet Ashby: The session itself will take around 45 minutes. It's unlikely there will be time for questions, I'm afraid, but if anyone does have any post-meeting queries, then please do feel free to reach out, and our team will gladly follow up with you after the session.

Juliet Ashby: So on to the agenda and an introduction to our speakers.

Juliet Ashby: First of all, we have Ben Brice, who is another Business Development Manager here at LV=. He will explore how bonds can be used as an effective tax planning vehicle for various clientele, including corporate clients, trustees, and of course, mass affluent investors.

Juliet Ashby: Next, we have Stuart Irwin, Head of Investment Strategy, who will give us a performance update on the Smoothed Managed Funds. And there is certainly reason for optimism there.

Juliet Ashby: And finally, we have Charles Burton, who is an Investment Proposition Manager here at LV=, and he will give you a recap on our smoothing mechanism, and also the recent enhancements that we made to our charging structure. So I do encourage you to watch until the end, because for those who aren't aware, we have made some reductions across our Smoothed Managed Fund range, and the bond particularly is proving particularly cost effective.

Juliet Ashby: So I'll just give you a couple of moments to case your eyes over the learning objectives, for today.

Juliet Ashby: I'm delighted to hand over to our first speaker, Ben Brice.

Ben Brice: Thank you very much, Juliet.

Ben Brice: Hi, everyone. As Juliet says. I'm one of the BDMs here at LV= and I'm going to run you through some of the benefits of bonds and look at trust in a little bit more detail.

Ben Brice: So what we're going to cover in this part of the webinar is, why use bonds? What's changed?

Ben Brice: And that obviously will refer to mainly the tax benefits.

Ben Brice: Why choose the LV= Smoothed Bond?

Ben Brice: We'll look at some case studies and then we'll look a little bit more at trusts.

Ben Brice: So first of all, why use bonds? Well, we're going to have a look at some of these in a little bit more detail.

Ben Brice: The 5% deferred income. Again, many of you that have used bonds before will know that this is available and is really beneficial when creating efficient tax planning and efficient income sources for your clients.

Ben Brice: Top slicing. Again, we've got a slide on how that compares for shorthand methods versus the longhand method.

Ben Brice:: Assignation of segments of bonds.

Ben Brice: Trust and estate planning.

Ben Brice: Simplified trust, reporting and administration.

Ben Brice: Remembering that there's no CGT on a bond.

Ben Brice: And remembering that a policy within an onshore bond can continue beyond policyholder’s lifespan.

Ben Brice: And I'll just touch on that last one just because I'm not sure we cover this in any more detail on the slides.

Ben Brice: But essentially, if you set up a bond, one of the common mistakes that we see is the bond holder becomes a life assured.

Ben Brice: And that doesn't necessarily have to be the case with LV=. And actually we do allow for other life assureds to be added to the bond rather than the policy holder. What this means is, if you have an older client, you can add in younger children or grandchildren, I often recommend using the youngest child in the family, as a life assured, which means that even if your bondholder unfortunately passes away, the bond can continue moving forwards, and they do not have to cash out of the bond.

Ben Brice: It's always worth remembering that, because we don't see that used often enough.

Ben Brice:So, we know there's a number of investment options available within the marketplace and for a number of years now, the GIA market has kind of been the go-to place.

Ben Brice: But, as you can see, sometimes when you're looking at bonds, you can get other benefits in regards to you're not going to have any income tax. You're not going to have any CGT. You could have chargeable events depending on how it's set up and what you use, and we'll have a look at that in a bit more detail. And you've got great growth potential. Now, the one that's been quite commonplace over the last couple of years has been cash.

Ben Brice: Now we will look at the performance later on of the Smoothed Managed Funds that are used within the bond, but cash has obviously been a favour of a lot of clients.

Ben Brice: Now, interest rates will reduce over the next couple of years, as it would be expected.

Ben Brice: And what we then need to look at is, how do clients move out of cash and back into investments?

Ben Brice:The answer to that normally is to do it while they've still got good rates, and the rates haven't gone down, and the investment amounts so when you're buying back into a market, haven't gone up significantly.

Ben Brice: It's a really good time to be looking at this in more detail, especially with the fact that there could be more tax changes coming over the next month.

Ben Brice: So, what are the bond tax efficiencies? Well, again, if you haven't really been using bonds very much recently, you may have used bonds in the past a lot of times that I've seen advisers using bonds, it's been for IHT.

Ben Brice: But there's a lot of other reasons why you can use bonds and a lot of other reasons why they can be tax efficient for your clients.

Ben Brice: Again, the first one here is, you know, they're not liable for CGT as I touched on before. And the reason for that is because we're deemed to have paid the basic rate tax on the fund.

Ben Brice:: So LV= is basically paying that tax for the client. So there's no additional CGT to be paid by your clients.

Ben Brice:Gifting can be really beneficial with a bond, and that can be assignment of segments, that could be gifting of the actual bond itself. And again, remember that they are exempt after seven years from IHT.

Ben Brice: You can take up to 5% from a bond annually.

Ben Brice: And that mitigates income tax. Now, that doesn't mean that there isn't any tax. It means that tax is deferred down the line and normally, with good tax planning, the client doesn't actually pay any additional tax charges. The one thing to remember with this and something that we see far too often, is with the 5%, if the client takes income at 5%, remember that your charges, not our charges, but your charges as an adviser or as a firm, normally come out of that 5%.

Ben Brice: So there needs to be a little bit of management beforehand to make sure that either they pay you ad hoc, or they know that that's going to come out of the 5% because you could end up creating new chargeable events without even knowing about it.

Ben Brice: And that's something that we do see quite often. So again, if that's something that you do want to talk about in more detail, then your BDM can help you with that.

Ben Brice: We can also mitigate income tax over the 5% with segmentation. And essentially, when we set up a bond is set up with a number of individual policies. Here, it's normally 50.

Ben Brice:What this means is, you've got flexibility within the withdrawals in terms of how much gain you've had within a certain segment.

Ben Brice: But it also means that you can gift some of those segments away as well, without any additional chat tax charges. And again, we can help with that, and talk about that in a bit more detail when you're looking to set up bonds to make sure that you've got that done correctly.

Ben Brice: And the last one. If we look at top slicing relief, really beneficial for clients who have been taking money out over a number of years, or have had gains over a number of years. We are going to look at this in a little bit more detail. We're going to look at the shorthand method versus a longhand method, but it is worth remembering that that is available within the bond structure as well.

Ben Brice: Oh, just missed one there.

Ben Brice:So what's changed? Well, as you'll hopefully will be aware, the allowances have reduced significantly over the last few years.

Ben Brice: If you look at the capital gains allowance, I mean in 2022 that was £12,300. That was a significant amount, okay? And allowed for a lot more flexible investments in other areas, because you're only paying tax on the gain. You're not paying tax on the investment itself.

Ben Brice: So that meant that you could have quite a good hefty investment with quite a hefty gain without having to worry about tax charges.

Ben Brice: Now that that's at £3,000 and could potentially fall further, we don't know yet, but it could.

Ben Brice:That doesn't look quite as beneficial as it used to or isn't attractive as it used to for a number of clients looking to invest in other areas. And it's a very, very similar story when you look at the dividend allowance. Now, the dividend allowance hasn't always been huge.

Ben Brice:But it has allowed for a good amount of flexibility for clients who are taking income from different investment streams.

Ben Brice: Now, at the moment 500,000 individuals are going to be affected by this, and trusts, sorry, individuals and trusts. Now, that is going to go up again to 570,000 this tax year, and could go up even further as we move forwards.

Ben Brice: So what we're really saying with this slide is, the time is now for clients to be looking at this when you're looking at things like GIAs and collectives, if you're looking to make those as tax efficient as possible and potentially move those into bonds, remember that you are going to have a disposal of assets.

Ben Brice:Now, disposal of assets would make more sense while you have tax allowance than it potentially would if you didn't.

Ben Brice: So it's definitely something to be looking at with clients when you are looking at reviews to make this as tax efficient as possible.

Ben Brice: So what sort of clients are going to be most affected? Well, it's worth remembering that this isn't just about the individual investors, and could be about trustees as well.

Ben Brice: So things like CGT, for example, if you're a trustee, you only have half the normal CGT allowance that you would have as an individual. You don't have dividend allowance.

Ben Brice: You don't have tax investment wrappers like ISAs.

Ben Brice:So essentially when trustees are holding on to monies, bonds can become very beneficial because they aren't getting the benefits that they would get from other areas of the marketplace.

Ben Brice: And again, they really do help lower risk and can give a potentially above inflation returns. And if you're looking at this as a long-term investment, that should always be the case, although it can't be guaranteed.

Ben Brice: When you're looking at investors or individual investors, you're looking at lump sum investors who are looking to use multi-tax wrapper approaches. I've already said you're looking to utilise every investment option that's available, and all of the tax benefits that are available.

Ben Brice: At the moment, I believe, off the top of my head, there is a way to get a client just under £50,000 without paying any tax, using all of the multiple wrappers.

Ben Brice: And again, that's something that we should be able to offer a bit more support on moving forwards.

Ben Brice: And we're also looking at investors here that would potentially pay higher CGT and returns on other investments. As we've already spoken about, collectives is a great example of that and the disposal of those assets.

Ben Brice: They're looking to balance of portfolio. You know, they've got a healthy risk appetite, but they're looking to make sure that it's balanced and doesn't have lots and lots of ups and downs.

Ben Brice: And they're potentially looking to preserve wealth as they approach retirement.

Ben Brice: These clients, you know these are ideal. If these are ticking boxes in your head as you're going through them, then your clients are probably the right clients to be looking at bonds with and there's a lot of help and support that we can offer in those areas as well to make sure that you're able to have the right conversations and open up those questions for you to be able to have those conversations successfully with your clients.

Ben Brice:So I said we're going to look at top slicing relief in a bit more detail. And I'm sorry this is a really really dry subject, I guess, is probably the right way to put it. But the reason we've put this in there is because we see a lot of advisers in the marketplace who use the shorthand method for top slicing.

Ben Brice: Okay, now, as you know, you've got a tax. You've got a gain divided by the years, and then that's normally gain, divided by the years. And essentially, that's what a lot of people use for shorthands.

Ben Brice: Now, the Silver Judgement has meant that this is no longer realistic, and it should be done with a lot more care and attention. Now, I'm not going to go into it in detail now, because we'd be here for the rest of the day, and I'm sure none of you want that. So what I would say is from a technical perspective, we have a great technical sheet, which we will send out after the webinar, so that you can see exactly how these top slicing relief calculations should now be done.

Ben Brice: We don't give advice.

Ben Brice: We aren't here to give advice at LV=. But it's a guide, and it will help you make the right decisions for your clients moving forwards when it comes to top slicing.

Ben Brice: So what are the bond tax efficiencies for corporate investors? Well, this is an area of the market that again we don't see a huge amount of advisers asking us about. But essentially, what we're really looking at here is businesses that have potentially got surplus cash that sat in a bank account, or it's sat in an investment account or something like that within the bank. Well, actually, a bond could offer them potentially better tax efficiencies. Because, again, because we've already paid the 20% on the gain, it's not likely that the gain is going to have been 20% within the business, and therefore they can actually get tax credits which can be offset against other liability, such as corporation tax.

Ben Brice:So again, it could be really beneficial for businesses to be looking at corporate investment bonds where they do have surplus cash, which is just sat in an account somewhere. It can also, be really beneficial for estate planning, moving forwards and succession planning of a business. So if you are having those kinds of conversations with clients and businesses, then, again, please get in touch with us, because we can offer a little bit more in terms of what those benefits would look like and how clients and businesses will be able to access that moving forwards.

Ben Brice: Because, remember, normally, when you're looking at long term deposit accounts, you'll get a good rate of interest, but there's penalties for coming out for early access, whether it's 1%, 2%, 10%, there's normally penalties for that. With this you're not going to have the same sort of penalties for accessing that. But it should also be remembered that this is a medium to long term investment and should be considered as one.

Ben Brice: So we're going to have a look at some trusts and case studies and how bonds kind of fit into this market. They normally go hand in hand, to be honest, when you're looking at trying to reduce liability within IHT.

Ben Brice: But what we'll do first of all is, we'll have a look at some discretion in absolute or Bare trusts in a bit more detail, and how they differ. Because again, something that we see quite often that gets kind of left behind is things like order of gifting.

Ben Brice: And again, we do have a number of documents on the order of gifting that can really help make sure that you understand, if a client does have a sizable estate, how you can maximise all of those benefits that are available through trusts.

Ben Brice:So, discretionary trust, as most of you will know, is essentially the more flexible option. But you are normally tied down to £325,000 in terms of the gift or the trust itself. Now there is also another thing to remember here. If another gift has been given within the last seven years, then you essentially could have a 14-year roll on then.

Ben Brice: And that's worth again looking at, and that's where the order of gifting again comes in and can really be beneficial. Again, speak to your account manager or BDM about that to make sure that you've got the right information on what that would look like.

Ben Brice: But the benefits of discretionary trusts can be really, really strong.

Ben Brice: Okay, so, you've got things like the trustees have discretion around who and when to pay capital and income from the trust.

Ben Brice: So, a great example of that, or a great way of looking at that is an expression of wish. When your clients are setting up a discretionary trust, if you top that with a with an expression of wish from the assigner, then, essentially, as long as that's dated, that can be changed moving forwards, and remember that it is just direction for the trustees.

Ben Brice:The trustees don't necessarily always have to follow that, but most of the time they will.

Ben Brice:But if you add that extra layer, then again, it can be superseded quite quickly, and we see that quite often where, maybe there's been a divorce, for example, where you know, the original expression of wish would have been to a husband or to the children.

Ben Brice: And then that changes over time. And because you've got a new date or a later date with a new expression of wish that means that the original expression of wish has now been superseded. So it makes it really easy. And it makes it a lot less complicated later on, if there was anything to go wrong or there were any legal challenges to the trust.

Ben Brice: Income and capital gains taxes would normally fall on the trustees rather than the beneficiaries, and we'll have a look at why that would be different with the absolute trust in a second.

Ben Brice: The things to remember, though, is it may attract a 10-year period periodic and exit tax charges. So again, it's always worth looking at that when you're looking at the 10-year periodic charges within the trust itself.

Ben Brice: Is there likely to be a charge with that? And will there be charges on exit? And again, you really have to kind of have a look at how much is going in in the first place, what else has been set up in the order of that to make sure you've got that correct. And the top one here is around, you know, it's classed as a chargeable lifetime transfer.

Ben Brice: And there could be a tax charge of 20% at the beginning. Now, that's normally, if the original amount is over £325,000.

Ben Brice: But it is worth bearing that in mind, because again, it's trying to create something that is as effective as possible, but isn't going over the £325,000, if you can avoid it. Now, some clients or some advisers will go well over the £325,000 with a discretionary trust, because the clients happy to pay the 20% to keep control and discretion moving forwards.

Ben Brice: But what we normally see is when it's over £325,000, it moves into the absolute trust territory.

Ben Brice: Okay, so if we look at some of these areas here.

Ben Brice: I think the key ones here are the trust proceeds that form part of the beneficiary's estate rather than the trustees. So remember that if the beneficiary, let's say they were married, and then there was a divorce.

Ben Brice: Then the divorcee could actually claim half of the benefits of that trust.

Ben Brice: Because essentially it's part of the beneficiary's estate rather than the trustees.

Ben Brice:And that's a really key point when you're looking at absolute trusts. Remember that beneficiaries are chosen at outset and cannot be changed.

Ben Brice: But over £325,000 is normally okay. This can become a problem as well, because with an absolute trust, if they, if your assigner passes away, then the money has to be paid out to the beneficiary, and once beneficiary is 18, they could get a lot of money.

Ben Brice: And that might not be what was planned in the first place, or what they wanted to happen in the first place. So discretionary trust can really help with that.

Ben Brice:So I'm just going start rushing through a few of these because I've not got long left. Sorry I've delayed a little bit.

Ben Brice: So, we're going to have a little look here at an option, basically, where some money was left within a trust, and how a bond can potentially help these clients. So £750,000 has been left into beneficiaries, who are Kyle and Lauren as trustees. So that money's in a trust. Okay?

Ben Brice: What they would like to do is, they'd like to be able to withdraw £15,000 each per year to enhance their lifestyle and keep the remainder in the fund, but keep it again to stop another IHT charge for them is, keep it within a trust. So what we do is we set up £30,000 a year withdrawals, which is easy, because they fall easily within the 5% cumulative allowances.

Ben Brice: In due course, the withdrawals from the bond will be added back into calculate taxable, chargeable. However, top slicing is going to be available, so it shouldn't be an issue.

Ben Brice: Segmentation allows for the whole policies to be assigned to one of Kyle and Lauren’s children immediately before any chargeable gain is incurred, so they can start gifting this from the outset to reduce it down.

Ben Brice: And if there are a nil or basic rate taxpayer, they're not going to have any additional tax to pay, so it can be really beneficial to start gifting some of these segments across.

Ben Brice: So again, it's trying to remind people that trustees can invest in bonds and it can be really useful for the trustees to invest in bonds. It doesn't just need to be individuals into trust. It can be trustees as well that use this and benefit from this.

Ben Brice:So, loan trusts. This is something that we don't see used all of the time, but it's something that here at LV= we do help advisers with an awful lot.

Ben Brice: The benefits of this is, there's no gift made outset, so there's no £325,000 to worry about.

Ben Brice: Any growth is outside of the taxable estate.

Ben Brice: Access to capital still available for the assigners.

Ben Brice: It can be tax efficient and flexible for income. So basically, you can make changes as you move forwards.

Ben Brice: You can invest in more than the nil rate band as I've already said over the £325,000 and there's no underwriting needed, so we aren't looking at DDTs here, where you need underwriting and doctor's notes and everything like that. This could be really beneficial. I've got a couple of examples of how this works in more detail. But I'm just going to show you this one for time. Essentially, the light blue line is the amount that originally went in, the dark blue line is the growth on the original investment.

Ben Brice: That's already outside of the estate, but, as you can see, the assigner is taking income each year of £12,500 for the first 5 years, they're also gifting their IHT allowance of £3,000 each year to family members.

Ben Brice: They then reduce their income for a number of years, and then it goes back up to £25,000 and then goes back down to £5,000.

Ben Brice: So essentially, the key message here is, if the assigner is going to take the money like this, they have to spend it because they are bringing it back into the estate. So they do need to use this as some sort of income revenue stream. They can't just take the money back in and keep it because they're then creating a new potential IHT charge.

Ben Brice:And again, there's a couple of examples that we'll send out to you afterwards on exactly how that works in more detail.

Ben Brice: So what does the LV= Smoothed Bond do for you? Well, essentially, we've got smooth funds that you can use within the LV= Bond.

Ben Brice: We can protect your clients from CGT.

Ben Brice: We've got lower risk fund targeting available, but with above inflation returns, which is obviously fantastic.

Ben Brice: The funds are protected by the financial services compensation scheme. Again, not a huge concern, because here at LV=, our capital asset ratio is around 203% at the moment. I think it's slightly higher than that. Which means that we could actually pay out 203% of all of the investments that we've had in we could pay back out. So your client isn't going to have to be too concerned about things like FSCS moving forwards.

Ben Brice: They're really easy to set up. They're really easy to put into trust, and we can offer a lot of support around that. Also, remember that LV= is a mutual. So, you do get additional mutual bonuses which can help reduce the cost and you also get additional benefits by being part of a mutual.

Ben Brice: And again, we will send something out to show you what that looks like.

Ben Brice: So why use a Smoothed Bond? Tax efficiencies are fantastic. You're targeting above the inflation returns. You've got low volatility thanks to the LV= Smoothed Funds.

Ben Brice: You've got the widest risk range available in the market when you're looking at investments. You've got optional capital guarantee available at outset on the cautious investments. So what that means is over 10 years, you can actually guarantee your client at least gets back what they put in, which can be fantastic.

Ben Brice: Where that comes into play, a lot is actually trustee investment bonds where solicitors, for example, are the trustees. They really like that, because there doesn't feel like there's a risk necessarily within the investment if they've got the capital guarantee as well.

Ben Brice:And it's available to corporate investors.

Ben Brice: You've got the additional benefits that you get through being a mutual.

Ben Brice: Maximum age of a life assured is 89. That doesn't mean that you can't do one over 89. It just means you can't be a life assured over 89. You can add additional lives assured if you need to, if the client is over that, but they can't be a life assured on the bond itself. And again, our fees at the moment are competitive is probably the wrong word. We are one of the strongest in the market, if not the strongest in terms of our rates at the moment.

Ben Brice: And as you're going to see next, our funds are doing fantastically well. So I'm going to pass you over to our next speaker.

Ben Brice: It's clicked off to Stuart. Sorry it's all a little bit over the place here. I'm going to pass you over to Stuart. Thank you very much for listening.

Stuart Irwin: Great thanks very much, Ben. Morning all, and thanks again for joining us today. So in this section I will be taking a look at Smoothed Managed Fund performance, our outlook, and how we are currently positioning our portfolios given the market backdrop.

Stuart Irwin:Firstly, I think, to help put performance into some kind of context, I'll start by looking at the market backdrop.

Stuart Irwin: And I guess the good news is that 2024 continues to be a really strong year for equity markets, and that positive momentum has continued into the third quarter.

Stuart Irwin: However, those strong returns probably don't tell the full story. In particular, markets were hit with a high level of turbulence in early August, which I'm sure many of you would have experienced with the market narrative really switching away from concerns around inflation, but instead to concerns over the strength of the US economy and the US labour market in particular.

Stuart Irwin: To give you a sense of the level of turbulence, this chart plots stock market volatility, as measured by the Vix Index, which is sometimes referred to as the fear index. You can see that in early August the Vix spiked to its highest level since the early pandemic, and this coincided with a significant drawdown in equity markets.

Stuart Irwin: Now, given this fall was caused by some poor but by no means terrible jobs numbers out of the US, and a mere 15 bps rate hike in Japan, you could be forgiven in thinking that this was a bit of an overreaction by markets.

Stuart Irwin: Pleasingly, though the diversification between bonds and equities really reinserted itself over this period with bonds rallying really strongly, providing good protection for those well diversified portfolios.

Stuart Irwin: in terms of equity performance, it really was those markets who had been performing the strongest to date that suffered the most. And to give you a sense of the magnitude of some of the biggest fallers, the US equity market was down around 9% from peak to trough over that period and within the US market, the Magnificent 7 tech stocks alone were responsible for 19% downturn over that period.

Stuart Irwin: The biggest casualty over that period was actually Japan. Down around 25% peak to trough over, you know, a reasonably short time period.

Stuart Irwin: Thankfully, though markets composed themselves pretty quickly, retracing some of those losses throughout the rest of August.

Stuart Irwin:: I know some have blamed, you know, lower levels of liquidity in these kind of markets over the summer for these drawdowns. But I do think August’s experience does point to some underlying fragility under the surface in markets, and I think we can probably expect further bouts of volatility to happen over the short term.

Stuart Irwin: in terms of what caused that turbulence, difficult to know exactly what. But if we look at the sequencing of those events as they unfolded, first, we had 2 negative pieces of employment data out of the US. Payrolls data were well below expectations, for example.

Stuart Irwin: And then that was quickly followed by the unemployment rate rising to 4.3 million, triggering the so-called Sahm rule which, to be honest, I hadn't heard of before, but is, you know, very much in the headlines over recent times.

Stuart Irwin: Now the Sahm rule states that when the three-month moving average of the unemployment rate moves above a certain threshold, we are heading for a recession.

Stuart Irwin: And this rule has been really good and really strong at predicting historic recessions.

Stuart Irwin:This all followed the FED, holding rates steady in July, really adding to a narrative that the FED was behind the curve in terms of supporting growth.

Stuart Irwin: At a really similar time, we then had, adding to this perfect storm of bad news, the Bank of Japan announcing a surprise 15 bps interest rate hike in a bid to protect the Yen, which has fallen kind of really rather dramatically over recent times.

Stuart Irwin: This, in turn, put pretty significant pressure on the so-called Yen-Dollar carry trade, forcing investors to close a number of their positions and adding further fuel to the fire in terms of the risk off mood that was prevailing over this period.

Stuart Irwin: The market recovery though, through the rest of August, was nearly as dramatic as the fall. Again, a little bit difficult to pinpoint the exact catalyst for why.

Stuart Irwin: But subsequent economic indicators, released during that month, were slightly more encouraging and more consistent with a slowing rather than a negative growth outlook.

Stuart Irwin: The FED also came out very strongly, having now got inflation under control, they would be moving into a period of policy easing to support the economy.

Stuart Irwin: The yellow dotted line on the right-hand side of this chart shows the change in rate expectations at end of August versus end of June, which is represented by the blue dotted line on this chart.

Stuart Irwin:So you can see a pretty significant change or shift in expectations here, and the FED went on to deliver that bump of 50 bps rate cut in September, again stimulating markets.

Stuart Irwin: The other main driver over this period has been corporate earnings which have continued to look, you know, super strong and pleasingly, have started to filter down into other sectors rather than just being a big tech story.

Stuart Irwin: The momentum in corporate earnings, we think, you know, just does not seem consistent with an economy moving into a recession, and therefore the market falls in August, we think, probably slightly overdone.

Stuart Irwin: So how has SMF held up over this period? So this chart plots one year performance journey of the SMF Balanced Fund against underlying performance and the relevant ABI sector average.

Stuart Irwin: Pleasingly, SMF has managed to navigate this period of exceptional volatility really well, you can also see on this chart that the underlying return is currently higher than the smoothed return.

Stuart Irwin: This will pull the smoothed return higher through time, assuming no significant change in markets as those underlying returns get digested by our smoothing mechanism.

Stuart Irwin: The underlying return also compares really well to the ABI sector average over this period.

Stuart Irwin: The main driver here, we think, is the more globally diversified nature of SMF relative to its peers.

Stuart Irwin: Peers, we believe, tend to have a more kind of UK centric portfolio, and therefore haven't benefited from some of the kind of bigger opportunity sets and global themes, particularly the stellar returns that have come out of the US and Japan over the last few years.

Stuart Irwin: As you can see from these tables, performance also stacks up well over longer time periods.

Stuart Irwin:And we expect that one-year smoothed return to strengthen relative to its ABI peer group, as that underlying return feeds through and gets digested.

Stuart Irwin: What these numbers probably don't capture, though, and there is no escaping it, we did have a difficult 2022 performance wise.

Stuart Irwin: But performance has stabilised in 2023, and has so far been really strong in 2024, touch wood.

Stuart Irwin:And I think this demonstrates the success of our transition to BlackRock. We are really excited, you know, to have their investment engine powering the portfolios forward from here, and their general know-how and investment knowledge more broadly.

Stuart Irwin: So, wrapping up with our outlook, and how we're thinking about positioning. In a nutshell, we, and BlackRock for that matter, remain slightly overweight riskier assets like equities.

Stuart Irwin: Within equities, we have a preference for the US market, given its proximity to that AI boom and a supportive policy backdrop as FED embarks on what looks to be a fairly aggressive rate cutting cycle from here.

Stuart Irwin: I think it's clear we are seeing a slight cooling in economic data. But in our view, as I said earlier, this just isn't consistent with a negative growth outlook and we think we're probably trending more to a slightly below trend growth outlook more generally.

Stuart Irwin: US unemployment is clearly deteriorating. But those concerns, as I said, perhaps slightly overdone.

Stuart Irwin: The recent rises in the unemployment rate probably can be explained in part by the increase in labour market, the increase in labour supply that we've seen in the US labour market, and that unemployment rate is coming off a historically low base, so perhaps overdoing it in terms of the percentage increase.

Stuart Irwin: Also, things like personal consumption. Corporate balance sheets remain super strong. Corporate earnings also look to have really strong momentum from here, at least in the kind of shorter term. So these factors, balanced together certainly aren't consistent with a kind of recessionary outlook in our view.

Stuart Irwin: Outside of the US, we have upgraded our view on Europe to neutral. Several large countries, probably most notably Germany, who have suffered mild recessions earlier this year, are now starting to rebound.

Stuart Irwin: Valuations in Europe also look a lot more competitive relative to other regions, and there is further support in terms of a more dovish ECB monetary policy going forward.

Stuart Irwin: The obvious elephant in the room in terms of what could go against our view is the US election.

Stuart Irwin: Both candidates appear intent on keeping fiscal purse strings reasonably open.

Stuart Irwin: Which on balance should be supported for riskier assets, like equities, but perhaps not so good news for treasuries and bonds more generally given that longer term increase in the debt burden on what is already a pretty high debt burden.

Stuart Irwin: Other policies like Trump's promise to raise tariffs, and Harris’s promise to increase corporate tax rates and kind of her antitrust rhetoric more generally, probably not so supportive for equity markets.

Stuart Irwin: Difficult to know exactly what is going to happen here, and a lot will depend on the makeup of Congress in terms of the candidates’ ability to push some of these reforms through as well as who becomes president. At the moment, you know, polls look like this is going to be a very close race, and we prefer to be positioned in a robust way, and not take a view on either candidate winning this particular election.

Stuart Irwin: I think what August did show us is that we are likely to see higher levels of volatility over the next year, particularly when you overlay these geopolitical risks.

Stuart Irwin: And I guess we would say this, but we really do think that smoothed funds are a very well-placed fund for this backdrop.

Stuart Irwin: Obviously they can smooth out that fall, but they are also invested in a well-diversified and resilient way that can capture the upside.

Stuart Irwin: And you now have access to one of the biggest asset managers in the world in BlackRock. So a really good story, we think.

Stuart Irwin: And with that I am going to finish my session and hand over to Charles, who, I think's got some good news on fees.

Charles Burton: Good morning. So I'm going to go through our smoothing mechanism, how that acts with the volatility and our latest charges.

Charles Burton: So which clients could benefit from a smoother journey? So our funds are attractive for investors who are unsettled by volatile investment journeys, who are more concerned about possible losses than probable gains.

Charles Burton: Those who are uncomfortable with the ups and downs of investing, looking to avoid cliff edge drops in fund performance, or are concerned about exposing the capital to undue risk.

Charles Burton: I think it'd be fair to say smoothed investments are a sector in their own right.

Charles Burton: With the retirement income, thematic review and consumer duty now here, it's a solution that should be considered as part of an adviser's toolkit for the right clients.

Charles Burton: We also like to think of smoothed funds as an asset class. If you think about it in that way, it does offer a different perspective.

Charles Burton: Most people will be aware of Prufund, but Aviva and Wesleyan also offer smoothed funds, and Standard Life recently introduced a brand-new smoothed fund to the market. So it is a growing area.

Charles Burton: Now, an investor's composure is so important.

Charles Burton: There is a natural tendency to ride the high through optimism, excitement, exuberance, and finally invest, without realising it's the top of the market.

Charles Burton: An undisciplined investor will buy high and sell low, potentially putting them off future investment.

Charles Burton: And that is such an important part of the adviser's job, providing reassurance and discipline.

Charles Burton: I'm sure many of you will have had numerous phone calls from clients nervous about remaining invested as they watched markets fall.

Charles Burton: I've certainly encountered clients myself who log on and see the value of their investment on a daily basis.

Charles Burton: The Smoothed Managed Funds do not have sharp rises and falls in value every day - the smoothing irons out the bumps, providing a far less volatile experience.

Charles Burton: For nervous investors who maybe lack some composure when markets are choppy, as they may well continue to be, our funds are ideal investments.

Charles Burton: So I think many of us will be familiar with the concept of loss aversion.

Charles Burton: It’s a natural tendency to prioritise avoiding loss over earning gains.

Charles Burton: The pain of loss is felt more strongly than the pleasure of an equivalent gain.

Charles Burton: This can lead to portfolios that are overly conservative.

Charles Burton: And that can have consequences.

Charles Burton: On the right, we've got a 10-year chart for an investment of £250,000.

Charles Burton: The typical balance managed portfolio in the 40 to 85% share sector has grown by over £100,000 more than the defensive portfolio.

Charles Burton: Despite improved returns from cash recently, the returns there are clearly even further behind.

Charles Burton: Now I've seen some research from Barclays which reveals that separating emotions from investments is hard, no matter what it is that investors are feeling.

Charles Burton: Just shy of half (47%) of investors admitted they often feel anxious about their investments.

Charles Burton: 16% admitted to making an impulsive investment decision out of fear.

Charles Burton: Anxiety and excitement can also lead to other bad investment habits, with 62% feeling the need to constantly monitor their investments to succeed, meaning they could be prone to react to short-term fluctuations in the market.

Charles Burton: So each of the different smoothed solutions on the market will have a different smoothing mechanism with varying complexity. There is no right or wrong method here.

Charles Burton: An important differentiator is that our competitors’ smoothing methods are all forward looking, based upon expectations and long-term predictions of asset class performance.

Charles Burton: But an easy way to think about the LV= method is that our smoothing is a simple, rolling average that looks backwards rather than forwards.

Charles Burton: So, in fact, in a way, you know what to expect with our smoothing.

Charles Burton: It’s a relatively transparent and predictable mechanism.

Charles Burton: Our smoothing is a simple rolling average of the underlying unit price.

Charles Burton: Think of the underlying unit price as the unit price of a standard multi-asset fund underneath.

Charles Burton: Because that's what this is. This may be a with profits investment, but underneath the bonnet this is a simple, multi-asset unitised fund.

Charles Burton: The smoothed price simply sits on top and is calculated using an average of the underlying unit prices.

Charles Burton: So on day one the investment is made at the underlying unit price. On day two, underlying prices for days one and two are added together and divided by two.

Charles Burton: On day three, the prices for days one, two and three are added together and divided by three.

Charles Burton: The gradual averaging process continues for six months.

Charles Burton: After which time the investment value will be a rolling six-month average of daily underlying fund prices.

Charles Burton: The chart here illustrates how quickly the averaging process starts, bringing down volatility.

Charles Burton: The gradual averaging in the first six months, as shown by the navy line, has a near instant impact in smoothing the investor journey.

Charles Burton: By the time six months comes around, the smoothed journey is already well established, and protecting nervous investors from the peaks and troughs of market volatility while still providing them with a growth potential of market exposure.

Charles Burton: So what does that look like in practice?

Charles Burton: This long-term chart, showing the last 14 years of our growth fund in the bond shows that nice smooth line compared to your average unsmoothed fund.

Charles Burton: It does what it says on the tin and is nice and smooth, and doesn't sacrifice that growth potential.

Charles Burton: It’s tracking, and in the long run outperforming the average fund in the sector, but with significantly less volatility.

Charles Burton: So, as Stuart was referring to in August, there was significant volatility in the markets.

Charles Burton: The MSCI All Companies World Index fell 6% at one point.

Charles Burton: And even a balanced portfolio, as shown by the mixed investment sector average in blue here, was affected in a noticeable way.

Charles Burton: But look at the green line at the top.

Charles Burton: The LV= Smoothed Managed Fund was unaffected. Such short-term volatility, however sharp, does not impact our six-month rolling average.

Charles Burton: Markets recovered remarkably quickly. But in the meantime, how many clients of yours became very nervous all of a sudden?

Charles Burton: How many checked the value of their investments and panicked?

Charles Burton: So what I can say is, if you have a client who's a Smoothed Managed Fund investor, your message of reassurance would be more straightforward.

Charles Burton: So this next slide shows just how much our smoothing mechanism reduces volatility.

Charles Burton: This is a nice, straightforward way of understanding volatility.

Charles Burton: The FE risk score compares volatility against the FTSE 100, which has a fixed score of 100.

Charles Burton: So this is a relative score.

Charles Burton: Our funds are nearly always between 10 to 15 on this scale.

Charles Burton: If you're wondering why Prufund has a higher score, it's because their smoothing does include some unit price adjustments which introduce volatility every so often what is on an otherwise very smooth journey.

Charles Burton: So here's just a quick slide to remind you that whilst Liverpool Victoria was founded and back in 1843, our technology is now firmly in the 21st century.

Charles Burton:Our Adviser Portal allows you to view details of all your LV= clients. You can also quote, apply and track all new business applications.

Charles Burton: We have our very own platform now. You can access thousands of funds through the usual range of wrappers, including Pension, ISA and GIA.

Charles Burton: And this is the only platform you can access our Smoothed Managed Funds through.

Charles Burton: And finally, our LV= My LV= Portal allows your clients to value their plans and update essential account details too themselves.

Charles Burton: So now, onto charges.

Charles Burton: We recently reduced the charges on our Smoothed Managed Funds.

Charles Burton: Pension funds now start at 0.8% or 80 basis points, and the bond at 0.75% or 75 basis points per annum.

Charles Burton: The bond includes a special offer at the moment, and that applies for the life of any bonds that are investing right now.

Charles Burton: However, in reality, many of your clients won't be paying those charges.

Charles Burton: They’ll actually be paying less due to our range of fund size discounts.

Charles Burton: As soon as an investment exceeds £100,000, it starts benefiting from a discount.

Charles Burton: These discounts can reach 0.15% as soon as an investment hits £250,000.

Charles Burton: So for a bond investment made today of £250,000, the cost will only be 60 basis points a year, 0.6%.

Charles Burton: That is for an actively managed multi-asset fund, invested with BlackRock, the largest asset manager in the world, with a smoothing mechanism on top, which I think is excellent value.

Charles Burton: So it's important to remember that LV= is a mutual. We are owned by our members, and our members are entitled to a range of unique benefits.

Charles Burton: Take the mutual bonus. We have distributed over £70 million over the last three years to our members.

Charles Burton: This has recently been worth in the region of 15 to 20 basis points a year.

Charles Burton: So you could consider that as a further reduction in the annual management charge.

Charles Burton: So if a client is paying 0.6% on their bond, as though investing £250,000, they get an annual mutual bonus of, say, 0.2%. You could look at that as the equivalent of reducing the annual charge to 0.4%.

Charles Burton: That's the same price you pay for a lot of index multi asset funds.

Charles Burton: Of course the mutual bonus isn't guaranteed every year but we do have a strong track record there.

Charles Burton: How about access to doctor services.

Charles Burton: We all know how hard it is to get a GP appointment these days.

Charles Burton: The 8 o'clock phone call to book an appointment is painful.

Charles Burton: Members of LV= get automatic access to LV= Doctor Services and can often get in a video appointment with a GP the next day, or even the same day, if you're lucky.

Charles Burton: That's at no cost, and prescriptions are sent by email shortly after.

Charles Burton: If you do this privately, it's pretty costly. I did look up one this morning, and it's £49 per appointment.

Charles Burton: So this is a very undervalued benefit.

Charles Burton: We also have a Member Support Fund.

Charles Burton: Now, I'm aware of cases this year where we have made financial support payments to members in financial difficulty.

Charles Burton: So please do take a moment to consider these additional benefits when you're deciding on which provider to trust with your client recommendations.

Charles Burton: So with that, I'll pass back to Juliet.

Juliet Ashby: Thanks, Charlie, and thank you to all of our speakers. I think we can agree there was some really compelling insights there from the team.

Juliet Ashby: And if you'd like more insights like these, then do feel free to head to our technical hub by clicking the link on this slide at the top, and where you'll find bulletins and articles regularly posted by the team.

Juliet Ashby: So before I close, you can just see a recap here of our learning objectives.

Juliet Ashby: Your feedback, as always, is really important to us, and there will be a post session survey which is super quick. It takes under two minutes, and we'd really appreciate it if you could take the time to complete that.

Juliet Ashby: So that's it from us. Thank you ever so much for joining our session today, and we hope you enjoyed it.

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