In the movie Jerry Maguire, the main character, a sports agent played by Tom Cruise has an epiphany in the middle of the night and writes a mission statement called “The Things we Think and Do Not say” in which he exposes his industry’s greed and lack of sensitivity and calls for more focus on client’s needs.
The financial advice profession is (mostly) not like sports agencies these days.
Every so often however we planners would benefit from a reality check. Where we sit down and run through some brutally honest truths with clients which are not always in our interests to do so.
So here goes.
1. With mortgage rates above 5% you may well be better off paying down your mortgage rather than investing the money
There are caveats to this for example if you are close to retirement, you may want to maximise the tax reliefs available on your pension and also you need cash available for short term needs. If we are assuming a 4-5% return for your investments in your financial plan, and you can guarantee a 5% return by paying down the mortgage then this is a compelling strategy.
2. Similarly some of you should stop investing for 12 months to pay off your other debts
Recommending debt reduction would be the No 1 financial priority for people who have high household debt levels, and certainly for debts that carry higher interest rates. Recommending debt reduction is a money-loser for wealth managers but it delivers guaranteed financial benefits and relieves one of the biggest sources of stress in people’s lives.
3. Our profession has no answers for years like 2022
You know how your adviser told you that prudent portfolio diversification is the path to long-term investing success? Funny story. Those government bonds and bond funds included in your portfolio for stability dropped like a rock last year. In fact they had their worst ever year since records began (over 100 years).
Sorry about that guys. Investing means getting punched in the face every now and then, even as you keep progressing towards meeting your long-term financial goals.
4. Forget Investments; the value of what we do is in the planning.
It’s doubtful anything we recommend will consistently outperform a portfolio of low cost index funds , allocated according to your risk profile , due diligenced every year and quarterly rebalanced (the Thera portfolio range). Forgive some of us for pretending otherwise because our business is still very much built on the outdated idea that financial success is about picking the right investments or foreseeing the short term. In fact our time is most effectively spent is in finding out your financial goals and then getting you there through a mix of planning and continuous coaching. Try selling that in a newspaper ad.
5. Keep as much as cash on hand as you feel you need and you are comfortable with
I have come across people who have only ever held cash. Long term obviously this is not a great strategy for achieving your financial goals as inflation erodes its value over time. But if someone who has £500,000 cash and has never invested before, comes around to investing £200,000 of it this willl lead to a better outcome than doing nothing.
Holding cash makes the investment decision easier, helps you during scary markets and of course covers any short term capital needs.
6. Our industry loves overcomplicating for profit.
Expensive investments ? Absolute return, multi asset, hedged ,convertible arbitrage, private market UCITS compliant mutual funds with 5% entry fees and 2.5% ongoing charges and 20% performance charges? Yeah some advisers have been known to use those. Faddish new products to capitalise on short term trends where the easy money has already been made? Selling your fabulous expertise in timing the markets, currencies, value versus growth, whether now is the time to buy wheat and lumber and sell pork bellies? . Discretionary managers called Tarquin with swanky offices in Mayfair who claim they have some kind of special edge? Absolutely.
There’s a show business aspect to the investment advice business. Keep the clients amused and our pockets full.
7. We are good at talking at investors, not to them
You say you’re losing money, we say the markets are volatile. You say your bonds are down 10% we say fixed income is facing challenges. Talking in platitudes and jargon helps us gloss over the chaotic aspect of investing and makes it seem like we have a handle on things in the short term. We don’t- we try to for the long term and that’s what financial planning is for.
For some straight talking, book an initial call with us.
A pension is a long-term investment, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation
The value of investments may go down as well as up and you may get back less than you invest.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances
