Getting Your Investment Right

Like it or loathe it the UK is going to leave the EU and as a consequence economic growth in the UK has already slowed and it is likely to stay that way. We have done some extensive research and we believe that our model portfolios need less UK emphasis and a more international approach. The next 5 years of the economy is not like a scientific experiment where you can do a re-run, so who knows what might or might not have been or what is going to happen. We have to do the research, listen to the experts, put that together with our knowledge and experience, and make a judgement. A responsible financial adviser cannot ignore the potential changes because the consequences could be significant. For example: if before the EU referendum was announced UK growth was going to be 5% a year and it is now going to be perhaps 2%, the UK is unlikely to produce as much growth as elsewhere. Whereas 3% may not sound much on its own the effect of compounding becomes significant – 3% every year for 5 years – do the sums – even simple interest gives us a 15% reduction.

I am in good company because many financial sources and institutions have come to the same conclusion. In addition, I reviewed the model portfolios of about ten of my colleagues recently and they have already shifted the emphasis of their clients’ portfolios to be more global in composition with less emphasis on the UK. I have made the decision to wait until after the election on June the 8th and then complete our review and recommend changes afterwards.

Please notice that I used the word ‘recommend’ because I cannot make changes to your investment portfolios without your acceptance and approval.

If you want to stay exactly as you are that will be your choice. There are some IFA firms who are able to make changes and notify you afterwards. They have what is known as ‘discretionary management’ which requires special authorisation from the FCA. Firms who have this discretion have to go though many more layers of regulation and increase their capital adequacy so that they tend to be bigger firms who manage portfolios of large clients who might have portfolios of a million plus. In any case I did a straw poll of some of my clients and they preferred to have the final say on any changes that are made to their portfolios. I can do the research and make recommendations but you have to provide your written authority before any changes actually occur. There is no need to enquire further at this stage just expect to hear from us within the next month.

I was explaining our investment philosophy to a client recently and I used the analogy that we are farmers and not gold diggers. Time and time again it has been shown that while sometimes the gold diggers may get a lucky strike these are few and far between and it is the farmers who become wealthier. My client immediately got it and he said: “it’s the people who sell the picks and shovels that get richer and not the gold diggers.” Our approach may miss the occasional lucky strike but we are not gamblers, we sow, and we reap. Our strategy has been shown to work for decades, throughout the world, it is has been backed up by academic research, and it is not going to change any time soon. We spread our seed widely and reap the results so where does this fit into our proposed changes? Some of the UK fields are going to remain fallow for a while and we will plant and reap elsewhere.

I am helping a new client who has come to me after his adviser went into liquidation and he has received what any reasonable adviser would consider to be dubious advice. My client has about 30% of his investment placed in ‘non-regulated’ assets. He now wants to retire and draw income from his investments but after extensive investigation we have found that these assets are “non-saleable” so they can’t produce an income. I can’t understand why any so-called adviser would invest client assets in ‘dodgy’ funds. Digging deeper I discovered that the salesperson (I won’t credit him with the term ‘adviser’) took almost twice what we regard as the normal fee for investing and setting up the investment with no ongoing service fee because it appears that no on-going service was intended.

I make no apology for being very cautious with my clients’ investments and investments are always placed where they can be accessed within a few days. In addition, I always insist on including an ongoing fee because I know that ongoing service will be needed. Amongst many other things that we provide for this ongoing fee this fee has funded my current research into your model portfolios. I’ll let you know how things work out for my poor client but things are not looking good. My compliance officer has confirmed that because the firm has been liquidated the case has to go to the FSCS and if the claim is approved the maximum pay-out is £50,000 so whatever happens the client has lost a considerable sum of money. Thank goodness that I can sleep at night knowing that my clients’ funds are in a safe place.

Please get in touch if there is anything that you wish to discuss.