Looking forward in order to learn from this crisis is essential for the survival of the industry. Over time, the parties mentioned above will draw different conclusions and the arrival at any useful assumptions may take years.
One thing is clear though, the financial services world has become too complicated. We have regulations and compliance, products and services, tax wrappers and administration, advice and sales, commission and fees, independent and tied advisors, execution-only and information-only sales, regulated and unregulated products, on- and offshore funds, wrapped and unwrapped investments, mutual funds, Sicavs and Oiecs, index trackers and active managers, trust and contract-based pensions, retail and institutional products, commissions and fees. The list goes on.
Just thinking about this is enough to give you a headache. How will this state of sophisticated confusion ever be sorted out? What good, apple pie advice can I give on these complex issues?
From my perspective as an ex-advisor, one lesson is clear – we need to go back to the basics of financial planning.
Let’s start by thinking about living within our means. For some time now governments, businesses and consumers have seen it as normal to borrow more and more and not worry about how loans will be repaid. One of the most important roles for financial advisers in the future will be to help clients live within their means; the old fashioned virtues of saving and budgeting need to return to the fore.
Secondly, we should retain a simple money management philosophy in all financial planning matters.
People should never put all their eggs in one basket and having a balance between cash, fixed income, equity, property and other assets is vital for investors who want to build up a savings and investment portfolio.
While differing risk tolerances will lead investors to flex the relative ratios between these asset classes, an allocation to all these asset classes is essential.
Thirdly, we must acknowledge that building up financial security is the product of a disciplined saving and investment plan.
People need to take responsibility for their financial futures whatever the government of the day promises. Some people may be strong enough to do this by themselves but the majority need help and an adviser plays a vital role in this process.
Getting into the habit of regular saving is a forgotten art. Putting aside a regular amount of money has numerous benefits: it can help people live within their means and allow them to become less dependant on credit for their way of life; saving becomes a habit once more; and when linked to investing in equities, investors can access the benefits of pound cost averaging taking away some of the volatility that is so uncomfortable to the average equity investor.
There are no miracle solutions, no perfect ‘get rich quick’ scheme. Whether it is equities, property, gold or commodities, nothing can defy gravity for too long.
Equally, the word ‘guarantee’ needs to be treated with caution. Whether it is with-profits, precipice bonds or structured products, there are no shortcut solutions.
In getting back to basics there is one key message: the industry needs a sufficient number of competent, professional financial advisors who can help clients establish their financial goals and objectives, understand their risk tolerances, and clearly explain their options in making savings and investment decisions.
Once these decisions are made there needs to be a regular monitoring and service programme to check progress and ensure objectives are met. We must leave the days of sell and forget behind.
Robert Noach is head of UK financial institutions at Schroders