Issues IFAs may face – Standard Life

Issues IFAs may face – Standard Life

Standard Life, This document has been writtten in publication and is for investment professionals only. An excellent article on the issues Financial Advisers may face and where Gilt Edge can support you.

Over the more than 100 years since the start of the last century, most risk assets have reliably outperformed inflation, providing investors with attractive excess real returns. The apparent dependability of many asset classes to deliver such long-term returns encouraged a sustained shift by investors towards passive investment with the belief that these market returns could be captured at low cost.

However, this underlying assumption needs to be challenged. Much of the growth in investment returns has been driven by rates of economic growth, sustained by consistent global productivity growth. However, in recent years the pace of productivity growth has been declining, with likely negative implications for economic growth and subsequently for investment returns.

In this paper, we will demonstrate that this backdrop has significant implications for investors and the levels of return they both seek and require. Specifically, we will suggest that lower return potential from many asset classes should prompt investors to question whether they are being sufficiently rewarded for the risk they are assuming.

For example, if equity and bond markets deliver lower returns overall than historically has
been the case, the value of an active approach comes sharply into focus, given that any additional returns generated above market levels are likely to form a larger component of
an investor’s total return.

In this paper, we examine how and why these excess returns can be captured across different asset classes, and the benefit accruing to investors.

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