Wealth

As well as COVID, the world must now contend with renewed tensions between the world’s two superpowers and the aftermath of the horrific murder of George Floyd. Conditions are febrile, but it is often in moments of maximum uncertainty and duress that lasting, positive change is made. Policymakers are forced to act in the national interest and interventions such as the furlough and the various COVID loan schemes in the U.K. deserve recognition. Nonetheless, few would have predicted a few months ago that 2020 would prove to be such a seismic event, notwithstanding that it’s US election year. Decisions made now will reverberate for years, if not decades to come. We will stay in our lane here and look at how FinTech can support better outcomes as we come out the other side.

Several months into the COVID-19 outbreak, it would be foolish not to expect significant and lasting change to both our economies and our societies in general. What does this all mean for our retirement plans? For those of us who’s jobs and livelihoods are directly imperilled by the crisis, a brass-tacks evaluation of the likely path for our specific roles and industries will, of course, be imperative. For example, those working in the service sector and in the cultural economy, existential concerns are likely to be paramount and pension planning is likely to be a second-order priority. For those of us fortunate enough to come out of the other side (relatively) unscathed we should directly assess the impact of COVID on our retirement plans – such will be its direct impact. As individuals, we frame our retirement by our age and where we consider ourselves to be in our life journey at that moment in time. We need to generalise here so let’s consider the three broadly accepted stages in turn; accumulation, at-retirement and decumulation.

Economic Scenario Generators (ESGs) are fundamental to the analysis of ALM problems. Oversimplifying, they are software tools that facilitate simulated analysis of economic variables and risk factors. 6 months ago, no one in the West could have predicted what we are now experiencing. Nonetheless, we are truly now in un-navigated economic territory globally. Stress-testing and scenario analysis comes in a variety of formats and styles. Many are formulated by benchmarking variability on previous events and crises. None of these would have offered any forewarning of the impending magnitude of Covid-19.  Specific predictions vary and are challenging to make, but we can be confident in seeing a record single quarter decline in global GDP. ESGs are not crystal balls and would not, ceteris paribus, have provided any direct mitigation to these challenges. However, as we prepare to make our first tentative steps into the ‘new normal’ we must surely re-evaluate the role that enhanced analytics can provide for asset allocators.

A multitude of factors can drive paradigm change. Technological innovation, improved methods and changes in demand are all common instigators of change. While all the latter means would be described as evolutionary, the impact of Covid-19 is revolutionising how we live and interact. Out of necessity, we are now deeply engaged with digital services that we hadn’t even heard of a few weeks ago. This digital awakening creates highly fertile ground for the next paradigm in wealth and financial advice. While the first wave of robo-advisory solutions aimed at promoting greater inclusion, the next wave will focus on digitally transforming the products serving traditional channels.