In this present investment environment, the average investor is faced with numerous day to day challenges. Some of these challenges are unique to the technological era we find ourselves in, and some are age-old problems.
What are some of these challenges and how do advisers assist their clients in meeting them?
Infobesity or information overload
"Information is a source of learning. But unless it is organized, processed and available to the right people in a format for decision-making, it is a burden, not a benefit." - William Pollard.
When investors receive too much information, they shut down. Because often investors find themselves stumbling through the labyrinth of information and end up even more confused than when they started. Having an enormous amount of choice and easy access to free resources is generally positive for the investment industry, but when investors are bombarded by information the most common decision is to make no decision at all.
Historically, advisers were considered bearers of information, and they were consulted because they had the knowledge, tools and access to resources. These days with the internet and a free flow of information, the modern advisers’ role has changed.
Advisers’ can assist clients by helping them to focus on clear objectives and also direct their clients towards reliable sources of information.
Unrealistic return expectations
As a result of one of the longest bull markets in recent history, investors have become accustomed to year on year double digit investment returns. Over the past six years, we have seen many conservative Multi-Asset Low Equity funds delivering the sort of returns you would expect from Equity portfolios without taking the same amount of risk.
Advisers’ need to manage client expectations so that they are realistic and achievable; it is crucial that investors’ return expectations take cognisance of the associated risks as well as the inflationary environment in which their portfolios are being managed.
Advisers looking to secure above average returns for their clients should not only diversify their clients’ portfolios between different asset classes, but they should also carefully consider the most suitable asset manager to whom their clients’ funds will be entrusted. With the advent of many competent and successful boutique managers with active investing strategies that have shown the ability to deliver top quartile results, advisers need to select wisely.
Extreme risk aversion
The stress that came with the 2008/09 recession, and also the recent failure of a number of unregulated investment schemes, have left many investors in a difficult position, the effects of which are still being felt. This has led many investors to become ultra-conservative choosing rather to leave their money in the bank and achieving zero growth in real terms - after inflation - instead of investing in high quality low or moderate funds with the ability to provide long-term growth.
It is important for advisers to mentor, educate and inform their clients of the effect of inflation on their portfolios, and also the risk of capital depletion. The importance of meeting regularly with clients to review their financial plans and investment strategies and re-balancing portfolios when necessary is a critical and necessary step to defeating some of the many challenges that investors face.
Being a financial adviser is all about developing trusted personal relationships and clearly understanding the financial needs of your clients. Products are becoming commoditised, and there is an overflow of available information on what these products offer. There is no time to waste as clients need clarity and direction.
The investment world is constantly changing, so too should expectations. Advisers can help clients overcome the day to day investment challenges by encouraging them to remain disciplined and to stick to their agreed financial plan and long-term goals, clients will go a long way in meeting their challenges with the assistance of advisers.
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