Don't fear the reaper

by Doug Brodie

In this blog:

Dying more quickly - the bad news and the good news
Be careful what you wish for, it might bite
Financial advice by chatGPT

Dying more quickly - the bad news and the good news

The Institute of Actuaries has an ongoing study called the Continuous Mortality Investigation that tracks mortality / longevity in the UK. The bad news is that UK blokes are dying two years earlier than they did ten years ago.

The write up in the FT failed to offer any reason for this, however obesity and covid are quite likely to be factors. Compared to 2021 though, longevity in 2022 was a full six months shorter so we all probably need to carpe diem.

The upside is that the pensions now stand a lower risk of depletion than two years ago 9though income-based drawdown pretty much removes all such risk). The reason for the pink ’uns story though is nothing to do with you and me though, as ever it’s about final salary schemes as the actuaries can reduce overall likely liabilities for these schemes, which as a knock on means there is a lower call on funding from employers.

For us, we still take 82+ as the target: the longevity stats include those who have health, environment, education, economic and other social factors that are destructive to longevity, so if one looks at the healthier end of the scale the counterbalance leads us to know there are higher ages present. Indeed, back in 2021 our two oldest clients both died at 102, and we currently have a wonderful number of very cheery 90 year olds in our fiduciary care.

Be careful what you wish for, it might bite

This is Spangle, a Tibetan terrier as a pup.

When we bought her from her breeder, for our 7 year old son, she literally fitted in the palm of my hand. Later Spangle developed diabetes and her character changed such that one had to ask her politely to move over on the sofa, or to please get off the foot of the bed – otherwise she would snap and bite any hand unwise enough to attempt an unannounced canine re-placement.

I’ve spoken about this trust before, I think it’s probably great for its intended institutional market however it is just a fabulous example of where the headlines can turn and bite the unwary, uninformed retail investor, seduced by the siren call of giant income. Chenavari Toro Income Fund has a net target return of 9 – 11% per year and it is quoted at a current yield of 16.71%. However, this is what its share price and net asset value look like over the past five years:

Ouch, that’s a big fall in 2020 from which it hasn’t recovered, and to climb back to £1 from a price of 65p needs a rise of 53.84%, and I’m unsure what economic picture is needed to do just that. More, it outlines this as its investment strategy:

The beauty of debt based investment is that you get paid a fixed income, guaranteed by the issuer, so as long as you can buy that income for the right price you’ll get a great yield. It’s all ab-fab … until it’s not. Normally when you see something like this that appears too good to be true we tell clients that if it really was, the banks would keep it themselves. Goldman Sachs and JP Morgan partners don’t get $multi-million pay packets by helping Joe Public get wealthy, no sirree, it’s the other way round. So always ask yourself why the banks are offering to let you buy it.

Earlier this week I was asked by a Times journalist I know if I would mark the ‘exam paper’ of chatGPT being asked questions about financial advice. He (the journalist) had asked the system a dozen or so questions and wanted to know if the answers were technically correct.

This output I was shown was pretty much in line with other studies I have read about, reported in the FT and the Economist. Here’s an example:

I've inherited £25k and don't need the money now: Should I use a fixed term savings deal paying 4.6% over five years or risk it on the stock market?
The choice between a fixed term savings deal and investing in the stock market depends on your personal circumstances and investment goals1. A savings account is essentially risk-free, although it has a much lower return rate than stocks, which offer high returns with increased risk1.
Fixed rate savings accounts offer higher interest than you get with most instant access accounts and a guaranteed rate – making it less risky than investing in the stock market or in an account with a variable interest rate2. However, stocks tend to cater towards more long-term goals, while a savings account has much more fluidity, ranging from short to long-term goals1.
You should consider factors such as your investment goals, risk tolerance, liquidity needs, and time horizon13. If you are looking for a low-risk investment option with guaranteed returns over a fixed period of time, then a fixed term savings deal may be suitable for you2. However, if you are willing to take on more risk for potentially higher returns over the long term, then investing in the stock market may be an option1.

What we have seen elsewhere is that chatGPT (and Bard, I’m sure) is adept at grammar and articulation, using both to string together information it has found on the web, however it cannot / does not provide subjective answers. It can’t, if it tried it would be wrong almost all of the time because financial advice is highly, highly subjective, and a correct answer requires all the relevant facts to be input.

Where this will work is providing guidance – but not advice – and this will be a very valuable tool for those with ‘small pots’ coming out of company pension schemes. The reason it can’t do advice is it cannot currently cope with the UK social benefits system, like pension credit, adult disability payments, housing benefits and an individual’s own tax position. We are a long way from that kind of inter-connected world – so I’m not about to be made redundant quite yet. Phew!

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