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Caught in the crunch

The credit crunch could offer an opportunity to demonstrate the value of advice to clients.

IFG Group financial planning strategist Donna Bradshaw says: “Our clients are quite a knowledgeable lot and have long-term investment strategies. Most of them will not be looking to start changing their asset mix on the back of blips in the markets.”

Informed Choice managing director Nick Bamford says most of his clients are taking a “steady as she goes” approach, though there have been some people who have needed a review.

He says: “I have just spoken to one client who consolidated his pensions into a Sipp five years ago. He has a number of years before he needs to take the benefits and is uncomfortable with the current situation and his level of exposure to North American and UK equities.

“He is not a cautious kind of investor but, given his circumstances, he has been concerned with volatility so we have now allocated his assets so he has 20 per cent in cash and 20 per cent in commercial property.”

For this client, Bamford reasons there is little need to maintain the previous level of equities in his Sipp portfolio and while cash is providing a decent rate of return, there is little justification in taking additional risks in this case.

IFAs need to segment their clients into those who should think about taking decisive action as the credit crunch continues and those who should stay as they are.

In a market where Libor has shot up and banks turn to retail investors rather than each other to prop up liquidity, higher savings rates are now on offer.

But this is not to say cash is king for everyone. Best Invest business manager Hugo Shaw says: “There has been volatility of late but our advice is broadly the same as it always is, which is look out for your long-term plan.

“Hopefully, few clients will have kneejerk reactions to the credit crunch. It is more likely to be execution-only investors who have tended to pile in to markets and are likely to dive out again in panic.”

Bamford says: “Where clients are saying to you, shouldn’t we be moving into cash?, the challenge back to them should be, OK, if you want to get out now, when do you think will be a good time to get in again?

“We had a similar situation over corporate bonds. People were tempted to get out when yields were low but are glad they stuck with it now there are signs of yields increasing. It all goes back to having a balanced portfolio.”

He adds that unpredictable times illustrate that asset class diversification is always critical.

This lesson may prove especially pertinent for clients who have piled into buy to let. New industry figures show that prices seem to be levelling off or falling in some areas of the housing market.

Should amateur landlords think about moving way from residential property?

Bradshaw says: “If you got buy to let a few years ago and your mortgage repayments are relatively low, you have plenty of equity and a continued strong yield, then stick with it.

“If you bought it fairly recently and your yield is not that great, the signs are that it might be better to get out sooner rather than later. This is especially true in London where very high property price rises have set the stage for the biggest falls.”

Personal debt is another area where advice could be needed for some clients.

Credit card interest rates are rising and rates and criteria for personal loans are becoming more difficult. Financial comparison website says quality of loan applications has been constant since April but acceptance rates have fallen in each of the past six months. head of loans Tim Moss says: “Some people who should be offered loans are not getting them at the moment.”


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