Aamina Zafar examines why one annual review is good enough for most clients, even in the current climate
The current economic turbulence does not warrant most clients needing additional reviews of their finances, according to one experienced IFA. However, it is also vital that advisers provide reassurance and clear communication during the ongoing cost-of-living crisis.
IFA Tim Morris says the usual annual review is sufficient for most clients despite the fast pace of economic change and it is important that clients avoid constantly checking the value of their investments.
Morris, from Surrey-based Russell & Co Financial Advisers, says: “An annual review is sufficient for most clients – even in the current environment. Some will demand more attention. In an age where the value of our pensions and investments is available 24/7 on our phones, there’s a constant temptation to keep checking the values. This encourages short-term thinking and behaviours. I found this myself when trying to buy the dip with my own share portfolio earlier this year. Generally, those clients closer to retirement will have more reason for being concerned about market volatility.”
However, Morris adds that IFAs must communicate clearly with clients during times of crisis to avoid any panic and to manage their expectations.
“Communication is the key is to managing expectations,” he says. “In addition to a review meeting, other touchpoints are important. Partly to explain what is happening and why in an easily understandable manner. The information will differ from one client to another.”
His comments come as the UK is plunged deeper into a cost-of-living crisis with spiralling inflation and sharp hikes in interest rates.
Reassurance
Steph Willcox, head of actuarial implementation at Dynamic Planner, says the Consumer Duty from the Financial Conduct Authority (FCA) means advisers need to constantly assess their clients’ individual needs and should therefore be thinking about if an annual review is suitable for each client. However, she adds that although they are unlikely to require a full review of their finances, they may want reassurance during times of market turbulence.
She says: “Clients need reassurance during times of economic change and, although they are unlikely to require a full review of their finances and lifetime cashflow plans, they will certainly want some contact with their financial adviser to ensure that they are making the right choices with their money, and that any recommendations that have previously been made are both still appropriate and actioned.
“Some clients may require much more frequent contact during times of economic turmoil, particularly if the value of their investment holdings is dramatically affected, even if the contact is only to explain that their lifetime cashflow planning is still on track, this is an expected moment in an investment cycle and is within their risk tolerance range of expected returns.”
Interestingly, the FCA’s Financial Lives Survey analysed the impact that Covid-19 had on the financial markets and found that 10% of people moved all their investments to cash and 28% of people paid more attention to the value of their investments.
However, Willcox argues that if those 10% had been in contact with a financial adviser, she would expect them to have taken a different approach. She adds: “If those 10% had been in contact with a financial adviser, I would hope that they would not have taken this course of action and therefore would have benefited once the markets stabilised and investments regained their value.
“A good understanding of your clients and how they will react in tumultuous situations will help here.”
It is important for advisers to know how their clients are going to react to changes in the markets
Point of contact
Lessons learnt during the pandemic will naturally impact the way advisers now behave with their clients. As such, some financial planners may consider changing their communication approach, given the current pace of markets. However, Willcox believes that the client’s risk appetite will often dictate the amount an IFA needs to contact them.
She says: “It is important for advisers to know how their clients are going to react to changes in the markets. If they know they have risk-averse clients who will check their balances daily and worry about the falling values, they need to be contacting them much more frequently to reassure them of the market movements and to ensure that they don’t take any drastic action with their finances. Reassurance is the name of the game here.”
Interestingly, Chartered financial planner Haresh Raghwani says his Berkshire-based firm Craufurd Hale Wealth has been actively educating clients on the average span of a recession and how emotions can impact decision-making when investing.
He adds: “We are educating clients using aids to show the average recession (bear market) or how emotions can impact decision-making when investing.
“There are a lot of useful client-friendly aids that can be used to explain cycles, the history of UK stock markets and why you should stay invested. Some key messages are to tune out the market noise – try not check your investment everyday, do not make unnecessary changes or hasty decisions – and timing the market is not important, it’s time in the market.”
Interestingly, he says it is important to assess when clients need more or less communication.
“Communication in times of market falls should be far greater than usual,” says Raghwani. “But most of the time, weekly communications are an overkill. We had great feedback when we started doing this during lockdown. Instead of the usual market commentary – about asset allocation, etc – we produced a one-page summary of the general views and provided educational content to reassure clients. I did check-ins to make sure clients were ok and encouraged them to call to discuss anything on their mind. We didn’t look at the financial plan or even the investments.
“But I think this time is different – we are not in a lockdown, so some of the communication needs to be tailored to specific clients.”
Aamina Zafar is a freelance journalist
