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Five New Year resolution ideas for financial advisers

Five New Year resolution ideas for financial advisers

James Horniman, Partner, Portfolio Manager

It was a year of surprises – of Brexit, Trump and Leicester City. At least one of those made us smile. And for James Hambro & Partners 2016 also saw the arrival of Glenn Hawksbee, our head of sales for intermediaries, who has spent two decades supporting financial adviser businesses.

Our investment managers marked the festive season with a light-hearted look at the cost of delivering the 12 days of Christmas. Now Glenn, along with portfolio manager James Horniman, brings in the New Year by reflecting on resolutions that advisers might consider for 2017.

James Horniman, Portfolio Manager

James Horniman, Portfolio Manager

Review client exposure to gilts

James: “In recent weeks gilt yields have risen significantly and this may continue if interest rates and inflation rise. The corollary of rising yields is falling capital values, and reversion to mean could mean this continues and leads to quite painful falls in portfolio values for clients who thought they were safe. Most at risk, perhaps, are those in fixed allocation – often passive – portfolios.”

Review your approach to risk profiling

Glenn Hawksbee

Glenn Hawksbee, Head of Intermediary Sales

Glenn: “I think gilts issues raise another question: do you have a risk-profile tool that kicks out an asset allocation recommendation that may have been appropriate five or 10 years ago but isn’t necessarily appropriate now, after a long period of record low interest rates and quantitative easing?

“You could also ask if it is capable of generating a consistent response from your clients or whether it depends on what side of bed they got out of that day! Equally, you might ask whether you are keeping your client risk profiles up to date. Finally, if you have a very traditional model of risk profiling, you might ask if you are allowing attitude to risk to play too dominant a role in the advice process.”

James: “Longevity and the death of final salary pension schemes mean many people may have to take on more investment risk than they might be intuitively comfortable with. However, taken through all the options of saving more, working longer and retiring with less, they might reach a compromise they are happy with in the end.”

Ask whether you are too passive

James: “A lot of advisers have moved to low-cost passive investment solutions for clients, but the world is changing. We include passive ingredients in the investment portfolio mix where we see little likelihood of active managers outperforming, but generally we believe we can find active managers with the expertise to outperform and more than justify extra costs.

“I believe 2017 will be a year when investors need to be very selective over stocks and nimble in their asset allocation – so they will need dynamic investment management. It is fine if you are still committed to passive management, but be careful not to talk yourself into a corner with clients in case you need to change your mind at some point.”

Demand transparency and focus on value

Glenn: “The active/passive issue brings up a broader point about the temptation to focus on price rather than value. Sometimes this can lead to receiving an inferior service; often it can end up costing more, because of missed opportunities.

“Hidden costs can be an issue as well – certainly when outsourcing investment management. I would suggest advisers resolve to demand greater transparency from their investment manager. Make sure clients are not paying unnecessarily for services that should be included in the AMC. Watch for performance fees, charges for the safe custody of assets and the collection of interest and dividends, as well as commission charges on trading. If the manager uses their own funds, check out the costs – sometimes these can be surprisingly high and could be a way to ramp up fees unobtrusively.

“Try to be as transparent with your own clients and be confident about your charges. Get your clients to understand value, too, ­by explaining your services in terms of benefits delivered. It can be hard in a world that is so focused on price, but we believe the need for expert investment management and good financial planning advice is as great as ever and that it is worth paying good people fairly to deliver them.”

Don’t stand for poor performance from your chosen investment manager

Glenn: “You should expect your clients to hold you to account at all times, and you should bear that in mind when choosing a specialist partner. If you have decided it is in a client’s interests for the investment management function to be delivered by a specialist partner, for example, you should choose well. It is not an easy decision, and sometimes things can change. Personnel can move on; investment performance can go off the boil; administration can suddenly begin to go wrong; you can start to feel you and your clients are not valued so much. Don’t stand for it. Your clients will understand if you have to change manager. It is a hassle, but it can be better in the long run.

“It might be the case that you run the investment process in-house. If the regulatory and expertise burden is becoming too great – and if you are worried about maintaining performance – get in touch. Look for a partner that can make any transition or change as smooth as possible.”

James: “Your job as an adviser is to help your clients to sleep easy at night. Our job is to ensure you do, too. Happy New Year!”

Published 28 December 2016

You should not act on this content without taking professional advice. Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made of given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions.

The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. Fluctuations in interest rates may affect the value of your investment. The levels of taxations and tax reliefs depend on individual circumstances and may change. You should be aware that past performance is no guarantee of future performance.