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Independent view

We have been through a tough time – not only us but also our clients. It is bizarre to be conducting meetings with clients where losses are showing over the last few years and tell them that actually they have done quite well.

This may well be the case if the funds chosen for them have performed well against their peer groups. There are many funds that have done this where fund managers have managed to produce creditable returns in a difficult investment climate.

However, in absolute terms, these losses are significant to investors and understandably make them cautious. What I have found is that clients need encouragement to take another step into equities. With many of them sitting on losses, they feel that an overweight position in cash has been rather prudent.

However, I do have an encouraging set of clients that are looking at the stockmarket thinking that it cannot go that much lower and now is probably a good time to buy. Meetings with these clients are a joy – a little like an oasis in a desert. These are clients to be treasured.

I was speaking recently to one whose attitude highlights the nervousness of investors. He has some money to invest on behalf of his children, aged six and four. He will not need the money for them until they are 18 and 20 respectively. This is a long timescale.

My advice is that he should put it in the stockmarket. He took some persuasion but did agree to accept my suggestion with a bit of a compromise on some of the funds. I think that what is important for an adviser is that if you believe money should be invested in the stockmarket this is the advice that needs to be given to clients.

For many clients, property has been the area that they feel most comfortable investing in. Substantial numbers of them are involved with improvements to their home or moving house. Many of them also recognise that we could be at the height of the market but this does not deter them from investing further in property.

The most difficult category of investors to advise are those who are at or approaching retirement. You need a substantial amount of capital these days to produce the measliest amount of income. Look at annuity rates, which have fallen so significantly in the last decade – and indeed have fallen by some 12 per cent over the last 12 months.

However, these rates have been much maligned. Where else can you put your money to get a decent rate? It is a real problem. For those seeking income, putting money in cash does not produce a brilliant return. Equity markets again would produce a small amount of income, as would corporate bonds. Even property, with rental voids and often mortgages to be paid, is not producing a great level of income given the risks.

The old perceived wisdom is that you have to retain the capital at all cost in order to provide an income for the future. This model worked well in the days where income levels were reasonable. However, we have to look again at this model and consider whether it might not be better to start using a bit of capital as well as income. Although investors will worry about money running out, no one lives forever. Scrimping and saving on income in order to pass on money that will suffer inheritance tax is possibly not a sensible way of dealing with your assets.

So programmes can be set up looking at providing income by drawing some of the capital as well as the interest from investments. Of course, care has to be taken but most people would not expect to be living beyond 110 these days.

In these difficult times, an adviser can really add value. Reassure and discuss the options with clients, sticking to fundamentals and making sure that clients do what you believe is right for them – even if this goes against what they empathetically and temperamentally want.

It is all about relationships. If you have a good relationship with your client and have been advising them for a number years, the chances are they will take your advice.

Indeed, many will be looking to you for guidance and it is important not to desert them now. It is tempting to take an easy option but this is not always going to be to the client&#39s long-term benefit.

Amanda Davidson is a partner at Holden Meehan


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