Most of the clients I see are reasonably sophisticated. They have basic knowledge of financial matters, even if they do not have a great personal interest. One gets into a certain rhythm and a certain way of saying things that you know they will understand.
So it was quite refreshing and, indeed, testing to receive a brief from a married couple who were unsophisticated in terms of financial matters.
It is certainly true that IFAs are moving into advice for wealthier individuals but there are individuals who do not expect to be wealthy and suddenly are.
These particular clients had received an unexpected legacy and needed advice on how to invest it prudently for the long term. They also wanted an immediate income. Neither of them was working and they were paying minimal income tax and no capital gains tax.
The amounts involved were quite substantial, so when the sums hit their bank account, they had a call from a friendly bank person. They had taken advice from the bank last autumn and effected some investments before coming to see me.
I will not pass much comment on the advice they received, except to say it was disappointing, particularly as it was given by the independent arm of a major bank.
As any adviser worth their salt will know, more consideration has to be given when you are building around investments that clients already have. There was nothing I could do about the advice they had already received, as the penalties for undoing advice are severe, particularly in the early years.
This left me in a situation where I had to construct my advice and recommendations round an imperfect situation I inherited. Also, I had to be very aware of how I was communicating with the clients and make the language simple. Two major challenges for one set of clients.
In terms of building round the advice already received, the steps I took meant that the portfolio I recommended had a combination of investments that were very cautious, including high elements of cash, and other investments that were reasonably adventurous.
This was because the bank advice had fallen very firmly into the middle to low-risk area, with high weightings in individual funds. Over time, I can make the portfolio more cohesive but this was not possible because of the investment penalties at this particular juncture.
Another area which I had to consider for these clients was the tax allowances that they were not already using.
Sadly, the bank had recommended contracts that made use neither of capital gains nor personal income tax allowances although, thankfully, it had advised on two decent Isa funds for the last tax year. Once again, my advice stepped into this void and created a portfolio that took advantage of these tax allowances. I anticipate that the returns for the client will be enhanced in this way.
It is always good to step into a lay person’s shoes in terms of reading a report and communicating with clients. My instructions to my able researcher/paraplanner were to make the language as simple as possible.
When he had done this, I went in and further simplified the language as far as I was able. It was not perfect but it did produce a report that carried more explanations and simpler language than would normally have been the case.
I must have managed to achieve this because the clients were pleased with the report, did not need much verbal explanation and were happy to proceed, I am pleased to say.
The real work will begin once I hold a review with the clients and continue to make sure their portfolio meets their changing needs and that we use their tax allowances in the future.
At least I know that the advice they had from the bank will be subject to ongoing reviews, as I have now taken full control over the agencies, something which the bank had not committed to do, even for such a sizeable amount of money.
Amanda Davidson is a director of Baigrie Davies