Advisers 'out of their depths'
AFA Brent Sheather wrote an opinion piece last week, in which he said many bond portfolios were lower quality than they should be. He said many financial advisers were recommending high yield/high risk bonds that were effectively junk, instead of sticking with lower-risk council, SOE and bank bonds.
Those junk bonds would act like shares at the first sign of trouble, he said, instead of going up when the stock market fell, which was a driver for many people including bonds in their portfolios.
“As is often the case the reasons for bad behaviour can be traced back to fees - if you are charging a 1% monitoring fee and another 0.5% in platform fees your client isn't going to generate a satisfactory return from low risk bonds yielding 4% to 5%,” he said. “This was the reason behind the popularity of finance company debentures and the same theme continues today with higher risk bonds.”
He told Good Returns that most people were compromised in one way or another. “Typically it’s that they have high fees so they have to buy higher-risk bonds.”
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