Widening the scope of actuarial influence in non-traditional areas will provide better solutions for the public, says Philip Scott
A question for you Why should actuaries be interested in investment returns? My answer is that for those working in the traditional areas of life and pensions, investment returns are fundamental to producing benefits for the investor. Within general insurance, investment returns are integral for determining the right level of premiums to charge.
Traditionally, we have been able to see some level of guarantee of investment return. This has been important in providing a smoothing effect in our product charges and the benefits provided.
The challenge in today's market is that the level of guaranteed investment return - over both short and long periods - is now very low. Consequently, it has never been harder to provide good returns from investments and we are still far from cracking the secret to predicting and achieving long-term investment growth.
As mentioned in previous articles, I have been visiting each of the practice executive committees (PECs) in the various practice areas, looking at how best we can promote their work among members, stakeholders and the public.
A few weeks ago, I met the finance and investment (F&I) PEC and would like to share some aspects of the committee's work and how this relates to the above challenges.
The F&I PEC is setting up research working parties to look at the impact of current events for long-term investors, such as pension funds and insurers. For instance, it will look at the consequences of monetary policy, such as quantitative easing, political and economic crises, and effects on liquidity. The PEC believes that much of the thinking and research on such issues is done outside the Profession so, unlike in other actuarial practice areas, its task is often to adapt and disseminate this thinking into useful material for members working in this field.
The F&I PEC is also actively considering public interest in what we do. In practice, this means influencing regulation to ensure that future financial catastrophes are avoided. For example, it aims to flag up some of the systemic risks we see being brought in by regulation across banking, insurance and pensions and consider how these might affect asset strategy or asset-liability modelling.
The Financial Services Authority's (FSA's) recent Retail Distribution Review (RDR) will have a significant impact on the actuarial profession. On a basic level, actuaries who provide retail planning advice will now need to familiarise themselves with the changes.
As part of the RDR, the FSA has introduced professionalism requirements for retail investment advisers, which must be complied with by the end of 2012. This includes the requirement to hold an appropriate qualification and to hold a Statement of Professional Standing (SPS) issued by a body accredited by the FSA.
As the Institute and Faculty of Actuaries has not applied to be an FSA-accredited body, members have to apply to one of the following for their SPS:
> the Institute of Chartered Accountants in England and Wales (ICAEW);
> the Pensions Management Institute (PMI);
> the Institute of Financial Services (IFS).
Beyond this narrow aspect, RDR will have a more far-reaching impact on many other actuaries who work in wider areas, for example anyone who is involved in designing and developing products that are sold via advisers and banks. Under the new regime, the cost of providing financial advice will become more transparent to the end-user and products will reflect:
> the ban on commission for all retail products;
> the introduction of charging for consultancy;
> the change in the sales channels and distribution model for many retail products
> the impact of increased regulation from the FSA and the Pensions Regulator.
The issues that the finance and investment community needs to consider seem to me to reach beyond the narrow confines of their discipline. By getting expertise from others who have skill in areas that cross over, such as regulation, pension and life assurance as well as some of the non-traditional roles, many ideas can be formulated to provide better solutions for some of the critical actuarial problems facing us.
For anyone who is able and interested, there are plenty of opportunities to volunteer in working parties, research and conferences.
With your innovative thinking, we can help to provide the education, framework, context and research to help members of the Profession to act in the public interest.