Advisers warned: volatility ‘permanent’

Financial advisers need to not only get used to volatility in markets but embrace it if their businesses are to prosper, a financial commentator says.

Monday, July 16th 2012, 10:00AM

by Niko Kloeten

Rod Oram, a business journalist with more than 30 years' experience, will be speaking at this week's Institute of Financial Advisers conference about business trends looking ahead to 2020.

His message, he said, is that the current market volatility is not just a moment of turbulence that the world's economy will pass through; instead, he believes it is a permanent feature.

"The scale and pace of change in the world economy, financial systems, technology, consumer markets and the rest is accelerating very rapidly... volatility is increasing and is now a permanent condition," he said.

However, Oram said this volatility would provide financial advisers with new opportunities as well as new challenges.

"We've got to learn some very different things about how we realise those opportunities and deal with that volatility; I'll be bringing that through to investment themes and real practicalities for financial advisers."

He said one of the particular challenges for advisers would be around managing client expectations and explaining what was going on in markets that fluctuate wildly from month to month.

"Explaining well what's going on in the world has never been more important. Financial advisers are going to have to develop very good sources to make sense of the world to explain it better to clients."

Oram said financial advisers could either accept that returns were going to be volatile, or they could take the more challenging approach of using products to try to mitigate that volatility.

"This opens up a great deal of complexity for financial advisers... as we've seen over the last five years it opens you up to the risk that these sophisticated tools will blow up in your face."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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