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Crisis management

Recent weeks have been more unnerving than many advisers and their clients have ever experienced. Many advisers are already taking steps to deal with the aftermath.

Rowan & Co head of research Tim Cockerill says it would be an easy option simply to stop answering the phone and leave a message saying: “Gone away, back when times are better.”

That is unlikely to leave you with many clients and Rowan & Co has opted for a proactive approach, writing to investors with a number of suggestions on how to deal with the crisis.

Cockerill says: “We stated the obvious, that stockmarkets have fallen heavily. This is to warn clients that while valuations may be disappointing, it is not something to be overly concerned about in the long run. The impact is very client-specific but we have tried to reassure as much as possible.”

The company has also explained why it thinks the bank bailout plan will work and that confidence will return slowly to the stockmarket and, more important, to the short-term credit market.

With portfolios having taken a defensive stance for some time, Cockerill hopes they will have performed relatively well throughout the turbulence. At the last assessment, valuations were generally ahead of Rowan’s composite comparative index by 3 to 4 per cent but clients should not expect miracles.

Cockerill says: “Frequent client contact which is honest is the best way forward. Not over-promising is going to be key and if markets do better than we expect, that can only be good.”

Baigrie Davies director Amanda Davidson says confirmed long-term investors are the most sanguine about market falls although inherited portfolios are being reviewed as some are far punchier than risk attitudes would suggest.

Newer investors have been hardest hit. Davidson says: “It has been rough for them. All they have seen is downside.”

The downturn will probably change their perceptions permanently and few will go back to taking risk when markets recover.

Davidson says: “This will be more lasting as it has affected more asset classes. It is rede- fining what a safe haven is.”

In the past, she says standard advice was to tell clients to get into markets as quickly as possible. With markets hard to predict, she is changing tack and now recommending that new investments are dripfed over time for maximum effect.

Harry Katz of Norwest Consultants confirms that his long-term investors have been stoic about their equity holdings. He says: “It is not individuals rushing for the exits, it is the institutions. The volatility is coming from the fund managers, not those who actually have their money in the funds.”

That said, there is very little that advisers can offer as a sure-bet investment opportunity in the current climate. Katz says: “One thing investors have learned is there is no such thing as no risk. Assessing risk right now is meaningless as volatility ratios go all over the place. Adv-ising at the moment is flying by the seat of your pants.”

Specific recommendations may be extremely hazardous but the market has reinforced Katz’s view on what constitutes a strong investment for the long term. He has never been a fan of tracker funds and says investors should simply ignore the doom and gloom being peddled about the falling FTSE. Instead, Katz says they need to think about which investments flourish in downturns. The answer is to concentrate on investor time horizons, asset allocation and stockpicking.

He agrees with Warren Buffett’s principle that investors should stick to investments they understand. His preference is for UK companies that trade overseas “doing proper things”.

Katz says: “Ignore your Bric funds or China, Russia, Africa and Pacific funds, as I call them. Investors should think about BBB funds – booze, beans and bonking.”

He says there is a strong correlation between beverage company values and recession, hence the booze connection. The beans’ reference follows consumer behaviour in trading down to cheaper food retailers and bonking is his chosen euphemism for the seasonal and economic move to staying in and saving money with “home entertainment”.

Longer-term themes include infrastructure and climate change funds that aim to profit from environmental concerns and clear-up, rather than eco or green mandates that attempt to modify corporate behaviour or select the friendliest green stocks.

When equities suffer, corporate bonds and gilts are usually the first assets that investors turn to. That long-held tenet of investing is unsuitable as the liquidity crisis and rapidly deteriorating economic picture hits countries and highly rated corporates. Katz remains wary of bond funds and says: “A lot of people are saying corporate bond funds but that is still the debt story and I am not comfortable with it at all.”

Katz believes due diligence remains a priority although he admits this it can be difficult, whether assessing savings accounts, bond fund outlooks or individual shares.

He says: “At the beginning of the month, clients were being justifiably paranoid about savings. What nobody was telling them was the truth. Even if they were guaranteed, there is no telling how long it will take to get their money out. Advisers must underline everything right now with a plea for utmost caution, due diligence and care.”


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