Time to brace clients for end of golden returns

Are you talking to your clients about how to handle a possible market correction?

Tuesday, August 18th 2015, 6:00AM 1 Comment

by Susan Edmunds

SiFA chairman Robert Oddy says the next big issue for a lot of New Zealand financial advisers will be how well they have warned their clients that a change in market prices is likely, as a result of slowing growth and global conditions.

He said it was an issue that needed more publicity so investors did not panic and sell unwisely.

"That's where the value of a financial adviser comes in. It is frequently more about talking to people about risks than sales, looking long-term, not short-term," he said.

"If they read something in the newspaper saying that there has been a [market] change, advice can help them through that feeling of insecurity."

Ben Brinkerhoff, of Consilium, said it was something advisers needed to take action on early, and warn clients that they could expect five or six significant market corrections over a 30-year investing relationship.

"They're never fun but our success together will depend in a large way on whether we act appropriately in those times," he said.

That investor education might mean running a "lifeboat drill" with clients to model what might happen and how they might react, he said. "If you are going on a cruise, you don't go through the lifeboat drill at sea, you do it in the harbour because it is no good when the ship is sinking."

Brinkerhoff said advisers would need to ensure their clients understood the long-term implications of any short-term action.

Adviser Alistair Bean said the key was to know when to do nothing.

He had dealt with 11 major market downturns in his career. “Had you moved in reaction to what is going on you could have cost clients a lot of money by panicking and exiting because within a couple of weeks it was back to the way it was. To me that’s more the norm than reacting. However, you’ve got to make an assessment: Has a nuclear bomb gone off or is it just another storm?”

Tags: financial advisers investment