Advisers’ biggest competitor hobbled

Financial advisers will face plenty of challenges in the next decade but getting trumped by high interest rates on bank deposits won’t be one of them, according to Morningstar’s Chris Douglas.

Wednesday, August 1st 2012, 7:18AM 3 Comments

Douglas said low interest rates are likely to continue for some time and this will present challenges for advisers.

However, he said there could be a bright side: the value of financial advice is likely to become easier to promote in an environment where people can’t get strong returns by just slapping money into a bank account.

“The biggest competitor to financial advisers is the banks and term deposits, so it’s been a tough battle for advisers trying to fight against those. However, returns from cash are not going to be a problem any more.”

This met with the approval of advisers in attendance, including one who said he was happy at the prospect of no longer being “gazumped” by bank deposits.

Douglas also challenged the notion that diversification had somehow ‘failed’ during the global financial crisis.

He said despite the huge declines in stock markets globally during 2008, the New Zealand multi-sector conservative index rose by more than 3%.

Even the balanced fund index, which has a larger exposure to shares, fell only 10% during the year, he said.

“The basic out-take is diversification works; a balanced approach to investing works for the majority of people.”

Harbour Asset Management managing director Andrew Bascand said the next decade would be a “more exciting and more challenging” time for advisers.

The reason, he said, is due to changes in investment markets that will require them to be much more hands-on and creative in their investing approach: “The old set and forget method doesn’t work now.”

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Comments from our readers

On 1 August 2012 at 9:13 am Independent Observer said:

Wise words from both Chris & Andrew.

On 1 August 2012 at 1:14 pm Whoopie doo said:

And as the investing public we are supposed to be excited that we have lost yet another way to generate a reasonable return? Just because TD returns are expected to be rubbish doesn't mean that returns from other assets/investments are going to be any better. And this a day after the media were reporting a flight out of property and back to bank deposits. But hey, Advisers, be glad that your products are now just as crap as every other option.

On 2 August 2012 at 7:04 am Collin said:

My understanding is that some portion of 'emergency cash reserves' is a core part of a financial plan.So cash does not compete with other areas of a financial plan but exists alongside them. In the same breath Mr. Douglas promotes diversification. How is cash not part of diversification? The very multi-sector funds he talks about hold varying degrees of cash. So 'cash' is no good and by the way diversify into stuff that holds cash! I'm confused or maybe it is Mr. Douglas and Morningstar.

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