3) Embrace difficult conversations
Financial advice is at its absolute best in the hard times, especially when delivered face to face. Those are the periods when clients worry the most and advisers can add the greatest value. If markets do have a bad run, then advisers need to be on the front foot with clients having tough conversations about staying invested and sticking to their plans.
4) Equities are not the whole story
Equities are often given much of the focus in the media, and this can distort a client’s return perceptions. As equities have gone up and up, clients expect their portfolio to have done the same. This plainly isn’t the case for the vast majority, but there is a perception gap that needs to be addressed.
A recent example I saw was of a client in Vanguard LifeStrategy 40% who was disappointed because, in his mind, “markets have done well and my holdings are flat.” However, 60% of that client’s portfolio is in bonds, not equities, so should not track global stock markets. Client education remains key to ensure they stay invested over the long-term.
5) Block out the noise
As an industry we will often look at one or two days of market movements and turn this into some sort of coherent narrative. Human nature struggles with the idea that events are mostly random and unexplainable as it makes us feel small and powerless. Unfortunately for us, stock market movements are unpredictable and as such advisers need to focus on what is noise and what is real, concrete information that can be used to help with portfolio choices.
Understanding the bias or slant a portfolio has will often go a long way to explain its performance, good or bad. Funds that have performed well in strong markets and now suffering from a weaker period have not suddenly become the worst funds available. Dig a little deeper and you can provide clients with solid evidence to help put them at ease.
6) Cryptocurrency is never the answer
Cryptocurrency has surged in popularity but has all the hallmarks of a scam. Advisers mustn’t allow clients get tempted by the noise and instead look at the fundamentals – there aren’t any.
Debates around Bitcoin and Crypto often reference Hans Christian Andersen’s folktale “The Emperor’s New Clothes”. In the story the Emperor is left with no clothes on and with no one daring to point it out, a brave child steps in to make the observation. But the Crypto Emperor is wearing clothes. The problem is that he has stolen these clothes from other, real, asset classes. Tickers, charts, exchanges, derivatives, ETFs – all of these terms are now being ubiquitously used by digital tokens, but are features from the world of shares. Investors are unfortunately falling for it and we need to call out the danger the crypto industry presents to investors who rely on money to grow sensibly and sustainably for their retirement.
