Why should I use a financial adviser?

I was reading an article in the technical press earlier this week by Hannah Goldsmith, another IFA, which I quote verbatim.  She writes:

“I have met many investors with a very negative view of the financial services industry. They may have read articles in the national media about advisers ripping off investors, experienced poor financial advice themselves, or simply believe they can do the job just as well, without having to pay a fee.

I feel the same way about dentists. I find it very difficult to pay a large sum of money on a regular basis to a professional who says ‘Yes, everything is fine’ year on year… until something happens. As there is nothing worse than toothache, I am then more than happy to pay that professional to fix it, service my teeth and make sure it never hurts again, regardless of cost.

Investors now have toothache, and this is a great opportunity to highlight the benefit of professional advice.

Worldwide, clever financial professionals are all trying to compete against each other to grow the wealth of their clients, and there are thousands of funds to choose from. If you are not working in the financial services industry, what access do you have to information that gives you an advantage over all these professional global market makers?

On the other hand, many investors have been lucky with stock picking over the past decade and feel strongly that they do not need to pay for financial advice. I have lost count of the number of times I have been told ‘We are very happy with the returns we are making.’ My answer is simply “Compared to what?” When stockmarkets are rising like they have over the past decade, everyone makes money.

I met an investor in July 2019 who had a large sum invested with Hargreaves Lansdown. She studied the stockmarkets and was very comfortable with her fund selections and the return she was getting on her money. However, she asked me for a portfolio review.

My findings suggested that, while the fees were well controlled, she had chosen funds from best-buy lists, recommendations from financial publications and articles promoting individual star fund managers, generally based on performance. No thought had gone into a risk strategy, diversification of global funds or how many stocks each fund held, or whether these stocks were duplicated in other funds. Why would she even be aware of these issues?

After I sent my report, she decided to take her own advice. As the total cost of the industry fees was going to increase by £743 per annum (albeit with advice), she concluded she was in a financially better position using the DIY method she had used over the past decade.

Feeling regret

Now the markets have fallen, what has been the impact on her portfolios? Mrs Investor had £522,637 last July. Her fund continued to lag in performance until the Covid-19 market fall and is now valued at £408,110 – down by £114,527 (or 22 per cent). Had she taken our advice, her fund value would have been £471,880 – a fall of £50,757 ( or 10 per cent). She would have been £64,123 better off. She now has a smaller fund value to compound as the market begins to recover, which will take longer to get back to parity. Remember, the additional overall cost of advice was only £743 per annum. A small price to pay for professional advice.”

Unfortunately, we all have stories like this. Maybe we should be highlighting to investors how to avoid future bouts of toothache!

Why risk shouldn’t be reactive

After 10 years of a record bull run, the recent market correction has come as a shock – even to those who have seen significant equity movements in the past. As a result, some have hit the panic button, and looked to de-risk their portfolios.  That said, I’m pleased to say that none of our clients did so.

Over the years, I have come to realise that if you are shopping for something, and it’s half price, you don’t wait until it’s back at full price before you buy. You might even stock up.

Whether that’s groceries or socks, it’s natural behaviour.

But when we see a price fall in investments, our instinct is to do the opposite. While this is understandable there are many pitfalls of turning that instinct into action.

When is a loss not a loss?

Virtually within a week, the FTSE All Share shed nearly 1500 points – around 34%.  But, and this is important, this loss was not locked in unless investors immediately sold their investments and withdrew the resulting cash from the market.  In doing so, they would have missed the market rebound over 17% in the following 3 weeks, and crystallised a larger loss than if they had remained in the market.

Opportunity knocks

Imagine instead, that the investor was savvy enough to sell before they suffered the full pain of the market drop and exited the market round about the end of February. At that point, the FTSE All Share had fallen just 11.48%. By March 23rd, they might have been feeling quite pleased…but with the market now trending up, what will they do?  When do they decide to buy back in?

From what we read, it would appear that Active managers show they are broadly very excited about the opportunities now present. They are in no hurry, but there are businesses they have wanted to buy into for some time that now look to be priced attractively.  Investors out of the market stand to miss out on significant growth when these businesses bounce back.

Price is what you pay, value is what you get

In recent years, the debate of active versus passive fund management has been lively. A rising tide lifts all ships, so passive vehicles have held their own in a decade-long bull market.

If the tide has turned, now is the time for Active managers to prove their worth. They have the scope to be selective.  This means they can position themselves to avoid the worst hit areas if we see a recession, or conversely, maximise the benefit when we emerge.

Risk as part of a holistic financial plan

The most important thing to remember in all of this is that risk is an integral part of a clients’ financial plan.    Their Risk Rating is not an arbitrary number, subject to market conditions. It is arrived at through a personal assessment of their risk appetite, their need to take risk to achieve their stated objectives, and their capacity for loss – an objective view of how much loss the client can afford to bear.

This has all been factored in to get them to where they are today.  As part of that advice journey, it was agreed that the clients’ investments were suitable for them, over the period of time they have to invest – even encompassing shorter term market falls.

And the value of good advice is becoming clear. You will no doubt have been aware of the wartime rhetoric has been used to rally the nation during this unprecedented time.  The poster of Lord Kitchener is well recognised, but maybe not the name,   The caption is of course is emblazoned on mugs, tee shirts and all manner of merchandise.   

The sentiment too is recognisable – “Keep Calm and Carry On”.

With thanks to Parmenion Capital Partners

Panic equity selling or panic raising of precautionary cash?

Following yesterday’s unprecedented one day declines in global stock markets, there is a recovery under way today. Instead of the past day’s written update note we are today sending you a link to a short video (5 minutes) in which Lothar Mentel, Tatton’s Chief Investment Officer, briefly lays out what caused the severity of this market crash and why this ‘dash for cash’ can be seen as capital markets’ version of the panic toilet paper buying we have seen over recent days in the shops.

Click the Link below


What advisers are telling clients in latest market turmoil

The sharp falls engulfing global equity markets in recent days may have caused concern among investors, leaving advisers to contain the panic.

The FTSE 100 was down 7.7% yesterday, but opened 1 per cent higher this morning, while the FTSE 250 was down 18.7 per cent in the last month.

The Dow Jones Index of US shares is down 18.5 per cent in the past month, and the Nikkei index in Japan is down 16.9 per cent over the past month.

Student, Typing, Keyboard, Text, Startup

Alan Steel, chairman of Alan Steel Asset Management in Linlithgow, said he reassures his clients not to panic.

He said: “Having been through four [market crashes] since 1973, that’s why we built your portfolios with [defensive as well as aggressive assets] to protect you. And remind them that when utter and senseless panic is in the air, not to join in.

“The worst investment decisions, buying and selling are made when the inmates are temporarily running the asylum. Sit tight, and if you’ve got spare cash, drip it in monthly.”  

Similarly Philip Milton, who acts as both a financial adviser and a discretionary fund manager at PJ Milton and Co in Devon, has emailed all of his clients, asking them if they can defer withdrawing money “to ensure they do not take funds at a dangerous moment”.

He also wrote: “If you do force sales in the face of a market which is not enthusiastic to buy from you, you will sell holdings at lower prices than they should be valued and which you deserve. 

“Sometimes even the sale of a stock can be enough to push prices down more, as the good and the bad face the same reluctance from buyers to do much other than sit on hands. 

“Market makers are happier pushing prices lower even if in some holdings there is little activity.”

But Francis Klonowski, who runs advice firm Klonowski and Co in Leeds, said none of his clients have been in touch with him regarding the current market falls.

He added: “I don’t know if that is a function of what we always say to people, which is that we invest for the long-term. And to be honest, if someone did have any questions about the short-term I am not sure what I could tell them.

“I think if someone wants to exit the market because of current events, they probably shouldn’t have been investing anyway. One client came for a meeting this morning, and I showed him a graph showing the performance of his portfolio  since December, and the client just shrugged, he knew what these movements are.” 

For me, I would reinforce all that’s been said above. Until you actually encash something, you have lost out except on paper. Experience tells me that markets will bounce back. When I don’t know but I am sure they will.

Remember that in 1972, the FTSE 100 stood at around 460 and by 1974 it was around 340! As I write, the market stood at 6200.

Nevertheless, the last few days have been rather bruising. In peak to trough terms the sell off in the equity markets has not been all that impressive by historical measures but the speed and ferocity certainly has.

It is my belief that this has magnified the panic because the market doesn’t like uncertainty, and we have that by the bucket load right now.

Using ISAs to fund your retirement

Could ISAs overtake pensions as the UK’s retirement savings vehicle of choice? That’s the question posed by the Financial Times over the weekend. 

When they were launched back in 1999, few expected them to become a serious part of retirement portfolios, but times have changed over the last 20 years. 

Money, Coins, Currency, Finance, Euro, Cash, Banking

However, according to the article, as concerns over pensions and tax grows, ISAs become ever more popular. The 2017-18 tax year saw the £20,000 ISA allowance used in full by 61% of adult ISA investors earning more than £150,000, according to data from HM Revenue & Customs. 

That same group will have seen their pensions savings options whittled down by the tapered annual allowance, potentially restricting pensions savings to as little as £10,000 per year. 

7 Marketing Faux Pas, And How To Avoid Them

I was reading an interesting article in Forbes the other day and thought you might enjoy the concepts imparted.  This is the seventh week’s article.

Every business has to market their products and services and the way you market your business can mean the difference between failure and success. If done right, you can increase revenue, attract new customers, and retain your current customers. If done wrong, you’ll be left screaming, “Ugh, I’ve made a huge mistake!” and trying to pick up all the pieces.

The article in Forbes outlined what marketing mistakes you need to avoid at all costs and I thought you might be interested to read their comments. If you want to avoid some of the biggest marketing blunders of all time, you have to know what they are and how to steer clear of them. Here are seven marketing faux pas you need to watch out for in your business. 

I reproduce them all seven over a 7 week period, so keep coming back to see the next one.

7. Ignoring Your Competition

Sure, you might not like them. In fact, you probably despise them. After all, they’re going after your target audience and customers. Wait … who are we talking about again? That’s right: your competitors. 

Even though you can’t stand them sometimes, your competitors can sure teach you a lot. There is a ton of information (and business lessons) you can learn from scoping out your competition. Instead of ignoring them, pay attention to what they’re doing right and wrong. 

Keeping up with your competition can only help you in the long-run. Rather than steering clear of your competition altogether, conduct some research and dive deep into your competitors’ strengths and weaknesses. That’s right, folks. I want you to revisit the SWOT analysis. But this time around, use it to dissect your competition.

What are your competitors’ strengths? Do they have any threats in the market? How can you use your competitors’ weaknesses to benefit your business?

If you want to avoid this marketing mistake, stop letting your competition slide by and start doing your research now before it’s too late.