Time for advisors to get proactive – Imara

Financial advisors have a unique opportunity to cement relationships with retail investment clients by becoming proactive and demonstrating their closeness to market dynamics.

The insight comes from Chris Botha; Director Fund Management at Imara Asset Management South Africa, an Illovo-based firm with a growing base of business in the retail field. 

The opportunity is the result of two factors … growing consensus that a rate rise is in prospect by year-end or early in 2016 and widespread perceptions the JSE has become expensive. 

Says Botha: “Responsible, client-focused advisors are very conscious that the profession should avoid any hint it contributes to high churn rates, as unwarranted investment switching depletes values. 

“However, the coincidence of global and local factors creates potential for a market contraction that might have considerable impact of personal investment portfolios that have been ‘gathering dust’ for several years. 

“It is important to guard against capital loss and help clients toward a better understanding of current market dynamics. The proactive, professionally qualified financial advisor is best placed to do this.”

 Botha says the US Federal Reserve has pointed out that rates cannot remain at record lows indefinitely – suggesting an increase is on the way. 

A US rate hike could trigger a wave of interest rate increases in many emerging markets. 

“In fact,” says Botha, “South Africa is almost bound to follow suit. 

“Rate rises are often negative for corporate earnings and as company profits dip so do share prices.” 

What’s more, he says, the JSE is already regarded as expensive by many investment professionals. 

On the JSE, the average, 20-year price-earnings ratio is a little below 15x. Currently, Alsi P/Es are at 19x. 

Botha notes: “A correction is therefore a distinct possibility and may be triggered by any Fed announcement about rates. 

“In these circumstances, advisors can demonstrate their value-add by suggesting a portfolio review. This may be urgent in cases where asset allocations have not changed in years. 

“Clients may be quite happy with historical performance and may have made sizeable gains if they have been heavy equity investors for some time. Even so, I’m sure they will appreciate a call from their advisor.” 

He believes balanced funds may now have increased attraction. Others with heavy exposure to equities may be inclined to limit this commitment while beefing up their cash position. 

Botha adds: “Many retail investors typically let things ride for too long and only make changes after a correction; in effect, locking in losses. 

“Therefore, advisors who advise timely changes before a market slide will definitely cement relationships.”