Most people agree the financial markets will be in for a rough ride as we enter the final phase of Brexit negotiations and as the effects of Trumpian economics play out.
What can we do about it? I am not sure there are any easy answers. But, looking at the state of things, we need to at least address the question.
I tell my clients there is no need to panic if there is a fall in equity prices because that is the nature of the stockmarket. Also, if I have done a good job, their drawdown plans should be invested in line with their attitude to risk, and taking into account the need to manage the sequence of returns risk.
That said, many are still naturally concerned, especially those who have been cushioned from the effects of investment risk until now.
Generally speaking, while people accumulating pensions or savings may be aware of the ups and downs of the market, they probably do not appreciate exactly how much their money is increasing or decreasing in value as they are not properly engaged. It is as soon as they start taking money out of their pension that they begin to focus on the amounts involved. This is not new information for advisers, but are we doing enough to educate clients about risks in retirement?
I have a theory that there is an inverse relationship between a client’s understanding of risk and the amount they take.
For instance, those who understand risk, such as bankers and fund managers, often do not want to take much with their pension pots, while those who do not understand risk end up taking more than they should.
This raises some interesting challenges. Take the fact many people complete risk questionnaires without really understanding the key issues, thus ending up with investments that cause them anxiety when markets fall. It highlights the importance of good financial advice and making sure investment solutions are suitable for individual circumstances.
Most people reading this will agree and will be giving clients excellent advice. But what about those not reading this, or who do not take advice? On one level, it is not our concern because, as advisers, we can only help those who want it.
But on another, if the industry does not get to grips with the advice gap, many who thought they were better off with pension freedoms might find they are worse off overall.
William Burrows is retirement director at Better Retirement