Nirvana or Armageddon?

As the end of 2012 beckons I am excited by the number of activities now happening as we approach 1st January 2013 and the implementation of the RDR (Retail Distribution Review).

The Sunday Times on 26th August published a review of the implications of the RDR and estimated that one in eight advisers would be gone by the New Year. One Training company announced last week that it was not taking any more registrations because 4 months was not enough time to meet the RDR requirements and that if you were not already registered they assumed that come 1st January  you would be no longer advising.

Fund Managers and Financial Product Providers are updating their systems and some are frantically grappling with their old legacy systems and struggling to cope. My forecast for 2013 is that many of them will merge or stop taking new business.

For those advisers like me (and thankfully there are many) who have prepared for and promoted the positive reasons why the RDR should take place, we are looking forward to the next stage in the development of the profession of financial advice. Clients will get a much better deal and will benefit from the openness and clarity of what they are getting and how much they are paying.

There will be losers and in the short term the clients of the “one in eight” will find that they have to look elsewhere for financial advice. With the myth of ‘free advice’ consigned to the dustbin there will be clients who will no longer pay for professional advice and will make their own way with the potential of making expensive mistakes. I am concerned at the increasing costs of the requirements of financial regulation and I hope that the new FCA (The Financial Conduct Authority) which replaces the FSA, works to ensure that advice does not become so expensive that it is only available to the wealthy.

So will it be Nirvana or Armageddon? It depends on which side of the fence that you sit and for those advisers and product providers who are struggling their comments are as you might expect: – they are the forecasters of doom. Their tales of Armageddon would depress even the best of us so my recommendation is that you don’t listen – they will soon become extinct in any case.

Nirvana is an ideal to be strived for but never reached so the implementation of the RDR won’t result in Nirvana either. It is the journey towards the ideal that matters and the RDR is a huge step in the right direction. I look forward to 2013 and beyond with some excitement.

On the practical side the updates in our software that are taking place this month mean that some services will be unavailable. Our CRM (client relationship management) software from Avelo is being upgraded so that the new RDR requirements can be accommodated. This means that some of the valuation feeds to our on-line Client Portal will not be up to date for a few weeks. Frustratingly after announcing last month that our DMS (document management system) from Watermark was available on line as “PaperCloud” it has been taken down for upgrading. Your patience while these changes are taking place would be appreciated.

Over the last 8 months I have been discussing “The 7 Secrets of Money” and I have received wonderful positive feedback as well as a request for more.  As a result for the next few months I am going to look at Ric Edelman’s “Rescue Your Money” which will follow the same theme from someone on the other side of the Atlantic.

Ric Edelman’s “Rescue Your Money”

I can do no better than use Ric’s opening quotation from Benjamin Franklin because it illustrates exactly what I am trying to do with my blogs: –

“An investment in knowledge always pays the best interest.”

I was a teacher for 16 years and even though I chose the profession of advising clients over 22 years ago my wife, Tricia, says that I have never stopped being a teacher. I passionately believe that if my clients leave our meetings knowing a little more than when they come in my mission has been accomplished.

1  Your Major Goal

Many investors make the mistake of thinking that investment is about “beating the market”. They spend an inordinate amount of time comparing their returns with one index or another with the mistaken belief that this is the purpose of investing. Let us get rid of this misunderstanding immediately – the purpose of investing is not about “beating the market”.

Ric describes this goal as “a disastrous goal” which “sets you up for failure” and he gives a great example: In 2008 the S&P 500 lost 38.5% – if you lost only 30% congratulations you beat the market! You would probably not say that you had great success that year.

There is in fact only one thing that matters when it comes to investing and that is achieving financial security. Your one major financial goal is achieving financial security.

The purpose of investing is to help you to achieve your goals. This assumes that you have clearly defined your goals to start with but that is a discussion for another day. You invest so that you can retire comfortably, help your children to University or buy their first house; help aging parents; travel; help or sponsor your chosen charities; and so on. It’s financial security that matters, not some benchmark that has no relevance to your personal life.

“People who focus on the market are missing the point. You need to emphasise your goals.”

Understanding this is so important that this is enough for this month. Over coming months I will discuss obstacles to achieving your financial security and as in The 7 Secrets – why market timing does not work. Ric shows, from a USA perspective, why you should ignore the media (ignore the “financial pornography” as discussed in The 7 Secrets).

It’s interesting that Ric uses “The Secret” as the title to chapter 5 which as you might expect is very similar to the secrets that we have been following over the last few months. We can only hope that “The Secret” will no longer be a secret for you who have taken the time to follow this series. And to encourage you along please refer back to the quote from Benjamin Franklin – an investment in knowledge … your time digesting these ideas will reward you well.

If you would like to follow Ric Edelman why not subscribe to Ric’s email “The Truth about money” by clicking this link?

 

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