For adviser use only – not approved for use with clients. It’s Not About The Answer; It’s More About The Question! Business Development Manager (Investments)

Building a bridge allegory

Learning outcomes  Understand the different characteristics of risk  Understand how different funds can work alongside a risk assessment process  Understand the post R-day development of adviser models  Understand why volatility is not a proxy for risk  Understand how to select tactics to support your strategy  Understand how to add value to your investment client relationships  Understand how Prudential’s fund range works in conjunction with the Verbatim Investment process

Dynamic Planner mapping All tax wrappers and platforms Additionally for Pru Pensions/Onshore Bonds Additionally for International Prudence Bond Adventurous Portfolio Balanced Portfolio Cautious Growth Portfolio Cautious Portfolio Defensive Portfolio Cautious Managed Growth Managed Defensive PruFund 0-30 PruFund PruFund PruFund PruFund Growth PruFund Protected Growth PruFund Cautious PruFund Protected Cautious PruFund Growth PruFund Protected Growth PruFund Cautious PruFund Protected Cautious

DIY – retain all investment responsibility and construct own portfolios Outsource some process using “model portfolios” – investment responsibility retained, but use of 3 rd party fund selection Outsource all of the process to bespoke or managed DFM service Outsource some process using Multi-Manager/Multi- Asset - retain fund selection, but use 3 rd party research What is your investment strategy? Asset allocation Fund selection Less More Less More VI tier 1 and 2 VI tier 5 VI tier 3 VI tier 4

Adviser service differences 74% 18% 63% 44% © GfK 2012 I RDR survey 2013 I November 2013

Time spent on servicing clients © GfK 2012 I RDR survey 2013 I November 2013

Assessing suitability Firms should ensure:  they have a robust process for assessing the risk a customer is willing and able to take - including appropriately interpreting customer responses to questions and not attributing inappropriate weight……  tools, where used, are fit for purpose and any limitations recognised and mitigated;  they have a robust and flexible process for ensuring investment selections are suitable given all aspects of a customer’s investment objectives and financial situation……” Source: FSA, March 2011 Assessing suitability: Establishing the risk a customer is willing & able to take and making a suitable investment selection

Assessing Suitability – FCA update Source: Comments by Rory Percival, Technical Specialist at Financial Conduct Authority, at Defaqto DFM conference in October 2013 Asset Allocation Tools Advisers need to understand how they work and when to use them….and remember they have limitations and will not give you the right answer in every circumstance Asset Allocation Tools Advisers need to understand how they work and when to use them….and remember they have limitations and will not give you the right answer in every circumstance Defining Risk “concerned" about clients having a number as the only definition of their risk tolerance. …… Defining Risk “concerned" about clients having a number as the only definition of their risk tolerance. ……

True diversification? Civil servant with low tolerance for risk score Entrepreneur with high tolerance for risk score Investment portfolio dominated by asset classes such as bonds Investment portfolio dominated by asset classes such as equities

Investing in human capital Hypothetical example purely for illustration purposes

Investing in human capital Hypothetical example purely for illustration purposes

Investing in human capital Hypothetical example purely for illustration purposes

True diversification? Civil servant with low tolerance for risk score Entrepreneur with high tolerance for risk score Investment portfolio dominated by asset classes such as bonds Investment portfolio dominated by asset classes such as equities

Risk is not just a (vol) number  Investment term and purpose  e.g. Pension vs ISA  Funding specific need e.g. Mortgage / Education  Risk goes beyond numbers and volatility  Capital loss, circumstance change, interest rates, inflation, counterparty, longevity, timeframe, fund characteristics etc.  Volatility’s not necessarily a bad thing  Selling good assets at the wrong price could be a bad outcome  Objectives, constraints and beliefs are key in managing risk

Volatility gives no clear signal for losses

Spread ShapeSharpe Evaluating risk: Managed solutions

PerformanceAnn Volatility AAdventurous Portfolio P Acc BBalanced Portfolio P Acc CCautious Growth P Acc DIMA Mixed Investment 40%-85% Shares EIMA Flexible Investment FCautious Portfolio P Acc GIMA Mixed Investment 20%-60% Shares HDefensive Portfolio P Acc IIMA Mixed Investment 0%-35% Shares Source: FE Analytics. Bid-bid performance vs volatility scatter chart over 48 months from 31 May 2010 to 31 May 2014 from IMA universe. Volatility scatter: Spread & Shape

Sharpe ReturnSharpeVolatility IMA Mixed Investment 0%-35% Defensive Portfolio IMA Mixed Investment 20%-60% Cautious Portfolio Cautious Growth Portfolio IMA Mixed Investment 40%-85% Balanced Portfolio IMA Flexible Investment Adventurous Portfolio Source: FE Analytics. Ratios table over 48 months from 31 May 2010 to 31 May 2014 from IMA universe.

Building a bridge allegory

PruFund EGRs LifePensions PruFund 0-30 FundPruFund 0-30 Pension Fund 5.60%6.90% PruFund FundPruFund Pension Fund 6.00%7.30% PruFund FundPruFund Pension Fund 6.20%7.60% PruFund FundPruFund Pension Fund 6.50%7.90% PruFund Cautious FundPruFund Cautious Pension Fund 5.80%7.20% PruFund Growth FundPruFund Growth Pension Fund 6.40%7.70%

Learning outcomes  Understand the different characteristics of risk  Understand how different funds can work alongside a risk assessment process  Understand the post R-day development of adviser models  Understand why volatility is not a proxy for risk  Understand how to select tactics to support your strategy  Understand how to add value to your investment client relationships  Understand how Prudential’s fund range works in conjunction with the Verbatim Investment process

PruFund Growth & Cautious

PruFunds Performance & Volatility Mean performance of Mean Ann Volatility of 4.12 A B C D E F PerformanceAnn Volatility AABI UK All Companies BPruFund Growth CPruFund Cautious DABI Mixed Investment 20%-60% Shares EABI Mixed Investment 0%-35% Shares FBank of England Base Rate Source: FE Analytics. Bid-bid performance vs volatility scatter chart over 48 months from 31 May 2010 to 31 May 2014 from UK ABI Insurance universe.

Dynamic Planner & Prudential Source: Distribution Technology Report Q1 2014

Building a bridge allegory

Three key Prudential points  Uniquely placed in terms of number of funds across relevant Verbatim risk profile scores  Our risk managed solutions incorporate:  Strategic asset allocation  Tactical asset allocation  Behavioural finance  PruFunds offer unique availability of smoothed returns and lower volatility

Learning outcomes  Understand the different characteristics of risk  Understand how different funds can work alongside a risk assessment process  Understand the post R-day development of adviser models  Understand why volatility is not a proxy for risk  Understand how to select tactics to support your strategy  Understand how to add value to your investment client relationships  Understand how Prudential’s fund range works in conjunction with the Verbatim Investment process

Important information This presentation contains some forward thinking statements which should not be taken as fact. Information given is based on our current understanding, as at May 2014, of current taxation, legislation and HMRC practice, all of which are liable to change. No reproduction, copy, transmission or amendment of this presentation maybe made without the written permission from Prudential. “Prudential" is a trading name of The Prudential Assurance Company Limited, of Prudential Annuities Limited and of Prudential Retirement Income Limited. This name is also used by other companies within the Prudential Group, which between them provide a range of financial products including life assurance, pensions, savings and investment products. The Prudential Assurance Company Limited and Prudential Annuities Limited are registered in England and Wales. Registered Office at Laurence Pountney Hill, London, EC4R 0HH. Registered numbers and respectively. Prudential Retirement Income Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SCO Authorised and regulated by the Financial Conduct Authority.