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Action stations

On the economic front it looks like being a difficult year, according to most commentators. We certainly seem set for a tough time. Does this mean, for financial advisers and product providers, that it is not worth trying because nobody will have the confidence to transact financial services business? Certainly not.

Encouraging your clients to take action will undoubtedly be harder but, while investment conditions may be tough, it does not mean that the basic need to provide for one&#39s future financial independence is in any way diminished. The truth is that the need to self-provide has substantially increased. Financial paralysis is not an option.

Advisers will need to ensure their clients have sufficient anxiety about this most important of financial issues – providing for their financial future – to take action.

They are getting plenty of help in this quest for anxiety creation from the press but this may still not be enough to spur individuals and businesses to take action. Specific oneto-one communication is necessary. If that communication comes from a trusted source and is in the context of a valued relationship, the message is more likely to have an impact but you need to take the initiative.

As well as being inspirational, your messages will need to be carefully crafted, based on fact and speak to the specific needs of the particular person or group of persons they are communicating with, if they are to have impact. Careful segmentation of your clients and the selection of key messages that reflect the particular needs, aspirations and attitudes of clients stand the greatest chance of delivering the right results for you.

Especially in times like these, the investment message is a particularly difficult and complex one to communicate so that action is taken. You should perhaps concentrate on ensuring that clients are best positioned for the upturn (whenever that may be).

Perhaps by focusing on minimising tax as a means of improving returns, the adviser has a chance to play to his or her strengths. “Oh yes,” I hear you say, “I knew it would not be long before tax came up.” Well, yes, of course. Seriously, though, where the most suitable investment portfolio for a particular client or segment of clients is relatively unadventurous or where the investment is guaranteed, securing the most favourable tax outcome through careful choice of a wrapper may be the most important means by which to secure those extra percentage points on the bottom-line return.

After all, if one wrapper produces taxable benefits and another does not, then, assuming the returns and charges are identical, your client will be better off with the latter. It stands to reason, doesn&#39t it?

The value of advice in this process is paramount and the ability to give good advice will come from the adviser&#39s knowledge and understanding of the tax consequences of the investment wrappers available.

These will include approved and unapproved pensions, collectives (onshore and offshore), Isas, insurance products (onshore and offshore) and portfolio management/wrap services. Understanding the tax consequences of all these is essential to being able to make the right choices for the client.

My point is that if market conditions are dictating that significant numbers of investors are choosing particular (and ultimately similar) investment portfolios where the emphasis is substantially on risk minimisation, then the choice of a wrapper to maximise the bottom-line benefit by minimising tax can be a significant differentiator.

This is not to say that there will be no value to be gained from the choice of investment portfolio or that there is no choice – there is. It is just that, if the general caution that abounds effectively limits the scope of choice of underlying investment, it may pay advisers to concentrate on adding value through tax planning. After all, an additional £1 of net return is an additional £1 of net return, regardless of whether it comes from superior investment returns or tax saving. In this context, the use of trusts may also come into play as an effective means of adding value and improving returns.

Another obvious area for an adviser to add value in a way that is not sensitive to investment conditions is in assessing the need for and then putting in place “catastrophe” funds to meet the basic financial needs of individuals, their families and their businesses.

Life insurance has a unique role to play here but the choice of the right policy/policy mix and, where appropriate, the right trust is another area where trusted expertise is essential.

So, here are two reasons to be cheerful for advisers in what promises to be a hard year.

First, focus on having an understanding of tax as a means of differentiating the effectiveness of financial solutions.

Second, go back to basics and ensure that all your clients have at least their fundamental financial needs covered for events such as death and critical illness. That is – or should be – essentially the bedrock of financial planning for most individuals and businesses.

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