A New Investment Dawn – A New Investment Age!Michael BeveridgeHead of Wholesale Sales, Standard Life Investments

Agenda

• Market Environment

• Industry Trends

• How can Standard Life Investments help you?

UK Wholesale DistributionRegulation

Retail Distribution Review (RDR) implements changes in Commission and, labelling and professional standards from Jan 1st 2013

Commission - No significant direct back book impact for SLI as true wholesalers

Education – Greater requirement for education of IFAs

Long term asset class trend away from UK equities continue

Asset Class Trend

Ongoing strong movements into bond funds

A sustained recovery in risk appetite

A focus on yield – various asset classes

Growing interest in tracker funds

Continued interest in Absolute return investing

Increasing sales in managed solutions

Whilst there has been evidence of a decade of decline in sales in UK Equity Funds, they still account for circa 20% of gross sales

How it’s changing?

UK Wholesale DistributionOutsourcing opportunities• Risk rated managed solutions (MyFolio)

• Increased discretionary fund management leads to opportunity to dedicate focused resource to DFMs

• Target ratings agencies/ research groups who are developing model portfolios

Execution only opportunities• Working with various partners to ensure well positioned

Future Opportunity

for SLI

Appropriate Distribution

Model

Recent FSA Consultation and Policy Papers• Distributor influenced funds

• Dear CEO letter

• Assessing Suitability - Establishing the risk a customer is willing and able to take and making a suitable investment selection

• RDR adviser charging - treatment of legacy assets

• Independent and Restricted Advice

• Replacement business and centralised investment propositions

• Retail conduct risk outlook

The Unanswered Questions

• Independent versus restricted

• Consumer education

• Segmentation - what do clients truly value?

• The articulation of services

• Advice gap and execution only

• Risk profiling tools and due diligence on fund selection

• Development of people talent within your organisation

UK Demographics – changing investors’ needs

Number of People Aged Over 60

0

5,000

10,000

15,000

20,000

25,000

1901

1951

1991

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

Po

pu

lati

on

(th

ou

san

ds)

No. of People Over 60

• During the period 1901 to 2010 the number of people aged over 60 has grown 544% - 2.8m in 1901 vs 18.5m in 2010

• The number of people in the >60 age bracket has grown from 7.5% of the total population in 1901 to 22.6% in 2010

• This trend will continue but moderate. By 2035 the number of people aged over 60 will hit 20.1m

• By 2035 people in the >60 bracket will account for 28.6% of the population, from 7.5% in 1901

Industry trends

Understanding your business challenges?• As the UK financial market evolves both in terms of client expectations and the changing regulatory landscape, firms have many different challenges to understand and overcome

• They now need to consider all of the following:

• Post-RDR qualification requirements and Gap-Fill• Improve technical knowledge of investments• Set client expectations about risk and market volatility• Align with the requirements in the FSA Retail Conduct Risk Outlook paper

Focus on investment advice and process

Keep up with the regulations

• Consistent investment advice process• Investment suitability for clients• Client portfolios are at the optimal risk/return level • Prove your product governance processes

• Increase resources to support investment decisions • Increase resources to meet governance required as by FSA• Allocate funding to cover the cost of people, technology and research

to manage investment processes in-house

Control costs

Adviser Concerns for 2012MAIN AREAS FOR CONCERN MOST IMPORTANT DRIVERS FOR CHANGE

• The fragile macro-economic environment is clearly a concern for advisers. The weak economic

• recovery, the sovereign debt crisis, inflation and the euro-zone crisis are all key concerns

• The most important drivers for change among advisers is unsurprisingly legislation/RDR.

“It is clear that investors are becoming increasingly aware that they have been

ripped by their fund managers for years.”

“The investment industry has been ripping

customers off for far too long.”

“After paying layers of fees investors don’t know

what they will get and when they will get it.”

“As an industry we’re now ranked as low as banks.”

Fidelity has become the first manager to back calls for a more comprehensive review of investment charges in an attempt to “restore trust.”

“Only greater transparency will allow fund managers to earn

clients respect.”

“The mutual fund model is flawed with few sale

recommendations, hidden charges, and no big switch to cash when

necessary.”

“The industry is suffering from a lack of trust and

consumers tell us.”

“More than a decade of poor returns and high fees have eaten into investors faith in mutual funds.”

The industry is suffering from a lack of trust

Source: Standard Life Investments

The industry is experiencing a return to risk aversion

Industry Net Sales by Asset Class

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

Jan-1

1

Feb-1

1

Mar

-11

Apr-11

May

-11

Jun-1

1

Jul-1

1

Aug-11

Sep-1

1

Oct-1

1

Nov-11

Dec-1

1

Net

Sal

es ( £

m)

Equity Bond Absolute Return Balanced

•Investor sentiment is reflected in product choice. Equities have recorded net outflows in 5 out of 6 months in the second half of 2011, recording their highest outflow on record in November. Global, Emerging Market and Japanese Equities continue to record positive inflows

•In contrast, flows into bond funds have accelerated in H2 2011, hitting £634m in Dec-11, the highest since October 2010.

Source: IMA

Sector (Net Sales)

Sector Sales

£m

FoF Sales

£m

Cautious Managed £3,114m £1,880

m

Balanced Managed £2,043m £1,403

Active Managed £221m £237m

Growing demand for balanced/multi-asset funds

Source: IMA & Lipper FMI

• Relative demand for balanced/multi-asset funds has grown sharply in recent years

• On a gross basis, balanced funds now account for circa 13% of industry gross sales

• Demand has been largely been driven by strong sales into Fund of Funds

Balanced/Multi-Asset Funds Net Sales

-200

0

200

400

600

800

1,000

1,200

Jun-0

8

Aug-08

Oct-0

8

Dec-0

8

Feb-0

9

Apr-09

Jun-0

9

Aug-09

Oct-0

9

Dec-0

9

Feb-

10Apr-1

0

Jun-1

0

Aug-10

Oct-1

0

Dec-1

0

Feb-1

1

Apr-11

Jun-1

1

Aug-11

Oct-1

1

Dec-1

1

Net

Sa

les

(£

m)

0%

2%

4%

6%

8%

10%

12%

14%

16%

Mar

ket

Sh

are

of

Gro

ss S

ales

(%

)

Net Sales Market Share of Industry Gross Sales (%)

Source: IMA

Source: Cerulli Associates, FPA Principal Member Survey

What matters most to your clients

Increasing regulation

Managing risk

Reducing costs

Drivers for IFA outsourcing of

investment decisions

According to a recent report completed for Standard Life by NMG Consulting, there’s a growing trend for advisers to outsource aspects of their investment process

Investment Outsourcing

Source: Standard Life Investments

According to a recent report completed for Standard Life by NMG Consulting, there’s a growing trend for advisers to outsource aspects of their investment process

Investment Outsourcing

A few key findings: from NMG Research

•IFAs continue to migrate to more structured and consistent approaches for client portfolio delivery

•In 2006, 63% of advisers used discretion to create their clients’ portfolio construction – compared to just 27% in 2010

•The use of bespoke portfolios (such as Standard Life Wealth’s discretionary portfolios) by external specialists grew from 0% in 2006 to 7% in 2010

Source: Standard Life Investments

How can Standard Life Investments help you?

Focused on delivering superior performance

Learning Gateway

Working in partnership with our distributors

• Continuing Professional Development has always been important, but in the run up to RDR and beyond, it has become essential to all advisers - whether they are offering independent or restricted advice

• The regulatory requirement for ongoing training therefore encompasses banks, wealth managers, IFAs and stockbrokers

• Our research has shown that many of our clients do not have a solution as to how they will facilitate the increased burden on their in-house training from 2013

• It offers advisers free access to a comprehensive range of 136 investment, business and compliance related online courses*

• All tutorials are suitable for CPD purposes with a number of leading trade bodies including the CISI, PFS, CII and CFA

• We are partnering with Intuition, a leading and established provider of eLearning

* See Appendix for list of launch content

Login Page Accessed at

www.standardlifeinvestments.com/training

Introduces the Learning Gateway

Sign in & Registration buttons

Links to Intuition Support for technical queries

20

Sample content available at launchRisk ManagementRisk Management - an introductionRisk - Measurement & ManagementInterest rate risk - Identification & MeasurementInterest rate risk - ManagementMarket Risk - Identification & MeasurementMarket Risk - Management & RegulationLiquidity Risk - Identification & MeasurementLiquidity Risk - Management & RegulationCredit Risk - Identification & MeasurementCredit Risk - Management & RegulationOperational Risk - Identification & MeasurementOperational Risk - Management & RegulationVaRVAR - an introductionVAR - Variance-Covariance approachVAR - Monte Carlo simulationVAR - Historical Simulation & other IssuesCustodyRole of a CustodianRole of a Custodian in Trade Processing & SettlementCorporate Actions - An introductionCorporate Actions - Major TypesRegistrar & TransferIslamic Banking & FinanceKey principlesDeposit & Financing InstrumentsIntroduction to MacroeconomicsGross Domestic ProductInflationUnemploymentBalance of PaymentsFiscal PolicyMonetary PolicyEconomic & Technical AnalysisEconomic Indicators - an introduction Economic Indicators - National AccountsEconomic Indicators - Business CyclesEconomic Indicators - Inflation & EmploymentTechnical Analysis - An OverviewTechnical Analysis - ChartingTechnical Analysis - Tools & Techniques

Collective Investment SchemesCIS (UK)Investment Trusts (UK)Unit Trusts (UK)Open Ended Investment Companies (UK)Alternative AssetsAlternative Assets - An introductionHedge Funds - an introductionHedge Funds - InvestingHedge Funds- StylesPrivate Equity – Part IPrivate Equity – Part 2Real Estate - an introduction Real Estate - InvestingETFsCorporate GovernanceCorporate Governance - An introductionCorporate Social Responsibility - an introductionSocially Responsible InvestingSRI - an introduction Green InvestingRegulationFinancial Crime (Europe)Market Abuse (Europe)Bribery Act (UK)UK Anti-Money LaunderingData Protection UK Data Protection Data Protection (Ireland)Portfolio TheoryPerformance Measurement ModelsPassive & Active StrategiesAsset Allocation Asset Management - An introductionAsset Allocation - An introduction Asset Classes - Part IAsset Classes - Part IIStrategic Asset Allocation Tactical Asset Allocation Deriving the Optimal PortfolioPlus various Business Skills tutorials eg. Effective Time Management, Cost Management, Effective Objective Setting

Fixed incomeBonds - an introductionBonds- Primary & Secondary MarketsBond Prices & YieldsFixed Income - Credit RiskBond FuturesZero Coupon BondsHigh Yield DebtBond Hedging with OptionsBond Hedging with SwapsRelative value trading - an introductionRelative value trading - strategies & riskEquitiesEquities - an introductionEstimating VolatilityCorrelation & Regression AnalysisUK Equity MarketUS Equity MarketEuropean Equity MarketsJapanese Equity MarketHong Kong Equity MarketDerivativesInflation SwapsCredit Default SwapsInterest Rate SwapsFuturesOptionsInflation Linked InstrumentsInflation Linked Instruments - an introductionInflation Linked instruments - pricingSecuritizationSecuritization - an introductionSecuritization - mortgage backed securitiesSecuritization - Commercial mortgage-backed securitiesSecuritization - Asset Backed SecuritiesSecuritization - CDOs – an introduction Portfolio Theory

Mutual Fund MatrixStrategic

(Investment Solutions)

Single Strategy Funds Single Strategy Funds

GARS

MyFolio

MyFolio Income

Global Smaller Companies

Global Index Linked Bond

Global Equity Unconstrained

Global Equity Income

European Equity Income

UK Equity High Income

UK Equity Income Unconstrained

UK Equity Unconstrained

UK Smaller Companies

UK Property

Select Property

Strategic Bond

Japanese Equity Growth

AAA Income

Corporate Bond

Higher Income

UK Equity Recovery

UK Equity High Income

MyFolio Funds

Establishing a quantitative and qualitative decision framework

Selectasset

classes

Strategic asset

Allocationframework

Tactical asset

allocation

Fund selection

Portfolio construction

Rebalancing &

ongoing review

The MyFolio Fund Range

Enabling advisers control of risk, investment style and cost

Three ‘styles’ of funds – Each available at five risk levels – 25 funds in total

MyFolio

Multi-Manager Income

MyFolio

Multi-Manager Fund

Income Options

Risk level

V

Growth Options

Risk level

II

Risk level

IV

Risk level

III

Risk level

I

MyFolio

Managed Income

MyFolio

Managed Fund

MyFolio

Market Fund

A New Investment Dawn – A New Investment Age!Investment Paths To Retirement

Ronnie BinnieHead of Business Development, Standard Life Wealth

Insight

At Retirement Customers

• At or reaching retirement in the next 10 years (age 50 – 70)

• Accumulated a £100k plus pension pot

• Require an income from their fund

• Want/require more flexibility than is available through an annuity

• 11.9 million individuals currently in retirement with £1.1 trillion of assets

• a further 9.7 million individuals approaching retirement with £700 billion

• 500,000 retired people p.a. for the last ten years

• over 800,000 p.a. will be retiring over the next ten years (impact of Baby Boomers)

Insight

Client Characteristics

• These customers need ongoing advice

• A client segment that is well aligned to many IFAs business model

• This is wealth management, not product provision

• Regulations strongly suggest that SIPP Drawdown is an advised sale

• In 2010, 40% of IFA clients were secured at the point of retirement

• Changes to IFA business models as a result of RDR favour relationship based solutions

5. Control

4. Flexibility

3. Death benefits

2. Access to additional income

1. Sustainable retirement income

Source: Scott Porter, Customers at retirement, February 2012

28

An Annuity provides sustainability, but none of the other requirements

“Delivering greater sustainability in drawdown is the objective”

Focus on customer

Client Priorities

29

Portfolio performance over 30 years

30 years

Portfolio A6.1% return

p.a.

Portfolio B5.0% return

p.a.

Performance is illustrative only

Volatility vs. performance

30

Portfolio performance over 30 years

30 years

Portfolio A6.1% return

p.a.

Portfolio B5.0% return

p.a.

Performance is illustrative only

Portfolio values after 30 years of annual drawdown*

£500,000 initial portfolio value,£29,000 annual withdrawals

Volatility vs. performance

31

Portfolio performance over 30 years

30 years

Portfolio A6.1% return

p.a.

Portfolio B5.0% return

p.a.Performance is illustrative only

Portfolio values after 30 years of annual drawdown*

£500,000 initial portfolio value,£29,000 annual withdrawals

Portfolio A = £0 !!!Portfolio B = £281,000In drawdown, your ability to ‘bounce back’ from a market fall is considerably reduced

Volatility vs. performanceIn drawdown, volatility is as important as performance

32

Data is illustrative only – examples starts at age 65 and assumes 9% income is drawn per year and the portfolios have a repeating three year return sequence as shown above.

Sequencing of returns“Ruin age” analysis of portfolios with same volatility

Portfolio I Portfolio II

Return sequence 27%, 7%, -13% … -12%, 8%, 28% …

Average return 6% p.a. 7% p.a.

Volatility 20% 20%

Ruin age ? ?

Source: Moshe Milevsky

Is the solution purely lower portfolio volatility?

33

Data is illustrative only – examples starts at age 65 and assumes 9% income is drawn per year and the portfolios have a repeating three year return sequence as shown above.

Sequencing of returns“Ruin age” analysis of portfolios with same volatility

Portfolio I Portfolio II

Return sequence 27%, 7%, -13% … -12%, 8%, 28% …

Average return 6% p.a. 7% p.a.

Volatility 20% 20%

Ruin age 94 84

Source: Moshe Milevsky

Retirement clients have specific requirements

34

Defining difference

The impact of Market Volatility

Accumulation clients may have the choice to ‘wait out’ market volatility

whereas,

Drawdown clients cannot afford to ‘take a hit’ arising from market volatility

‘Path dependency’:

The ‘retirement investment journey’ is as important as the total return earned over the period.

The impact of short term losses can devastate the portfolio value.

Focus should be on finding an investment solution that:

exhibits low volatility,

avoids short term losses,

while still generating sufficient growth.

How the super-diversified approach can support retirement investment strategies

Through the active management of investment risks, Standard Life Wealth, MPS and the Dynamic Drawdown Funds aim to provide:

a positive return over a rolling 12 month period

the target return over a rolling 3 year period

35

Drawdown Investment SolutionsApproach has delivered strong performance, low volatility and minimised portfolio losses

36

SLW Medium Risk Portfolio

UK Equities (total return)

SLW Medium Risk Portfolio Performance

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

31/0

7/2

008

30/0

9/2

008

30/1

1/2

008

31/0

1/2

009

31/0

3/2

009

31/0

5/2

009

31/0

7/2

009

30/0

9/2

009

30/1

1/2

009

31/0

1/2

010

31/0

3/2

010

31/0

5/2

010

31/0

7/2

010

30/0

9/2

010

30/1

1/2

010

31/0

1/2

011

31/0

3/2

011

31/0

5/2

011

31/0

7/2

011

30/0

9/2

011

30/1

1/2

011

31/0

1/2

012

31/0

3/2

012

31/0

5/2

012

31/0

7/2

012

Date

Cu

mm

ula

tive

SLW Medium Risk Portfolio

APCIMS Balanced Return

FTSE All Share Return

The data in the illustration shows the representative performance of a SLW medium risk portfolio targeting a Libor +3% return after fees and charges.The index is the APCIMS Balanced Total Return Index and the data shown is for the same periods as the SLW data.The APCIMS and FTSE® All Share index returns do not include fees. Past performance is not a guide to future performance.

Source: SLW, Bloomberg, BBH, TDW (31/07/2008 to 31/07/2012)

37

Past performance is not a guide to future performance

•Cumulative returns #

•SLW 3 31.4% (after fees)

•FTSE® All-Share (TR) 23.2% (no fees)

•Volatility *

•SLW Portfolios 5.5%

•FTSE® All-Share (TR) 18.3%

•

Source: Standard Life Wealth# 31/7/08 to 31/07/12

* Standard deviation of monthly returns, annualised

Drawdown Investment SolutionsApproach has delivered strong performance, low volatility and minimised portfolio losses

0

2

4

6

8

10

12

14

Nu

mb

er o

f M

on

ths

-15%

to -

14%

-12%

to -

11%

-9%

to -

8%

-6%

to -

5%

-3%

to -

2%

0% to

1%

3% to

4%

6% to

7%

9% to

10%

12%

to 1

3%Distribution of returns

Frequency of Monthly Returns August '08 to July '12

SLW Model Portfolio FTSE All-Share (TR)

5. Control

4. Flexibility

3. Death benefits

2. Access to additional income

1. Sustainable retirement income

Source: Scott Porter, Customers at retirement, February 2012

38

Helping retirement client achievemore of their priorities through:

• the provision of ongoing monitoring and financial advice

combined with

• a more sustainable drawdown investment strategy.

Focus on customerClient Priorities

39

Investor Risks Past performance is not a guide to future performance. As with any investment, the value of your client's fund can go down as well as up and may be worth less than they invested.

The SIA Fund

The SIA Fund is designed to be used as part of a strategic approach to individual client wealth objectives and should not be considered as a stand-alone investment.

The SIA Fund is only suitable for those investors who require a separate asset allocation fund to be used in conjunction with their existing investments, primarily global equities, to achieve an overall objective of a total return.

The fund is designed to generate an absolute return when viewed with other assets in the client’s portfolio. As a result, if other assets in the portfolio are performing well, this fund may not produce a positive return.

The use of derivatives in the fund may result in increased volatility in the fund’s price.

Due to the leveraged nature of derivatives, gains and losses can be greater than associated with traditional investment instruments.

The fund will have the ability to hold short derivative positions. This means that the fund will not necessarily follow market trends i.e. if stock markets rise the fund may not do so at the same rate, or at all.

*"FTSE" is a trademark of the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited ("FTSE") under licence. Standard Life Wealth is licensed by FTSE to redistribute the FTSE All Share and FTSE 100. All rights in and to the FTSE All Share and FTSE 100 vest in FTSE and/or its licensors. All information is provided for reference only. Neither FTSE nor its licensors shall be responsible for any error or omission in the FTSE All Share and FTSE 100.

Standard Life Wealth Limited, registered in Scotland (SC317950) at 1 George Street, Edinburgh EH2 2LL is the discretionary investment manager and Standard Life Savings Limited, registered in Scotland (SC180203) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH is the ISA plan manager. Both companies are authorised and regulated by the Financial Services Authority. www.standardlifewealth.com

2012 © Standard Life, images reproduced under licence

Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised and regulated by the Financial Services Authority. www.standardlife.co.uk

2012 © Standard Life, images reproduced under licence