Steady as she goes

12 February 2010 8:00 am

Advisers are no strangers to choppy waters and I suspect the new decade is unlikely to offer much in the way of respite.

General election years are always tough. The markets hate uncertainty above all else and that, coupled with radical new tax and spending proposals from whatever ruling party, inevitably leads to a lot of sitting on hands.

This year there is the added dimension of a stilted recovery from the UK’s longest recession since the Second World War, and one that had its roots in the very sector that provides lifeblood to the market itself. This, together with a record Government deficit, are two more headaches for IFAs, particularly when the strategy adopted to deal with the shortfall, namely quantitative easing, is so unfathomably difficult to quantify or monitor and could as easily stoke up a period of high inflation as not. This, of course, is one way of reducing the real value of the debt, but we will see.

That is why I think many new model advisers will be falling back on the tried and tested discipline of financial planning.

The very ethos of financial planning is to ensure clients are suitably diversified across asset classes designed to suffer whatever slings and arrows fortune can throw at them.

There is a long-termism about true financial planning - a sense that it is impossible to get every call right so better to plan for the downs as well as the ups.

Most financial plans are generic in nature and while the products are important, they are typically a means to an end. A good, well structured financial plan that is regularly reviewed will outperform one that is not, regardless of the products used.

The advantage we have as IFAs is that we can improve the odds of success by selecting from the whole market and adjusting when necessary if some providers fall short. The challenges of 2010 are no different to those of the 1999 boom. As Kipling put it, we must deal with triumph and disaster and treat those two impostors the same.

In many ways the industry is naturally moving towards a long-term view. Reductions in initial commissions can be replaced by annual fees for a steady hand on the tiller, as clients appreciate why review and rebalancing are more important than performance charts on the day of investment.

I hope there is some certainty following the general election and that we can start to chart our clients’ course for the new decade. If not, like all good navigators we must trust to our experience, check the charts once more and await a fair wind.

Steve Buttercase is a financial planner at Sense Financial Solutions

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