Trust in a diversified portfolio. That is the key message advisers are giving clients in the aftermath of last week’s Brexit vote as firms focus on reassuring customers in the wake of market shocks and volatility.
The 24 June referendum decision that will see the UK leave the European Union has resulted in stockmarket and currency turmoil, giving advisers the opportunity to prove their worth as financial experts charting a course through choppy waters.
Despite seeing a rise in the days leading up to the referendum vote, the FTSE 100 index dropped 8 per cent at its lowest on 24 June, before closing 2 per cent down.
The pound dropped to its lowest level against the dollar since 1985 and the UK’s credit rating was downgraded by agencies Moody’s, Fitch and Standard & Poors.
With markets bracing themselves for months of uncertainty, advisers’ contingency planning is being put to the test but have lessons been learnt from the crises of 2008 and 2011?
Trust the financial plan
Advice businesses started implementing communication plans immediately after the referendum decision was revealed with many firms posting articles on their websites or emailing information to clients.
Networks Tenet and Openwork prepared material that their adviser members could share with clients.
Openwork marketing director Philip Martin says: “It is giving clients the context of what they are invested in and how it has reacted to the news. We prepared information our advisers could use directly with their clients about what happened overnight and what its impact was for the mortgage and the investment market. We will continue to do that over the coming weeks.”
He adds: “In terms of communication, we are sticking with hard facts rather than going into the realms of speculation. The message we want to get to clients is that you have invested for the medium to long term in diversified assets and that will stand you in better stead than if it was invested in the equity market.”
Clients who called weren’t asking for a view. It was more ‘what does this mean for me and my financial portfolio?’
The Tenet memo also urges investors not to focus too closely on short-term volatility and to trust the financial plan they have in place.
It says: “Volatility is an inevitable part of investing. Movements can be extreme and it is natural to feel concerned about the investment climate. It is essential to consider longer-term timescales instead of focusing too closely on short-term volatility. However concerning market fluctuations may be, it’s important to remember that we have jointly worked hard to formulate a financial plan which is in-line with your own personal requirements and will continue to do so.”
Tenet distribution and development director Helen Ball adds advisers must remind clients of their worth in times of uncertainty.
Ball says: “We support our adviser firms with their end-consumer communications so that in situations, such as the EU referendum, consumers are reminded they are better to manage their affairs with advice than try and manage things on their own. Without advice it’s common for people to make panic-based decisions leading to them selling at the bottom and buying at the top.”
Flurry of calls
Paradigm Norton chief executive Barry Horner says his firm experienced a “flurry” of calls from clients following the referendum decision which led to the business posting an article on its website explaining what the vote means for investment markets.
Horner says: “We had that article up by midday on Friday and emailed it out. By sending that information out you avoid a 30- or 40-minute phone call which is what we needed on Friday.”
Those that did call were mainly seeking reassurance, he explains.
“They weren’t asking for a view. It was more, what does this mean for me and my financial portfolio and what does this mean for my financial plan. Reassurance is the biggest thing they are looking and, typically, in these circumstances the answer is to stay put.”
Ongoing communication will be important, Horner adds, but advisers should look to tailor this to the varying degrees of investment experience and knowledge their clients have.
He says: “We have about 750 private clients. There are some who are professional investors and they will be aware of what is going on. There are others who we might need to send out further emails and there will be some where we need to put phone calls in. What we have never done is a mass mailing to everyone because we try and personalise things for our clients.”
Lessons learned from market falls in 2008 and 2011 have prepared advisers in knowing how best to deal with volatility after the Brexit vote.
Horner says: “A lot of what we are seeing is similar to other economic or political issues in the past. People want to know if we are on top of things and what the implications are for their portfolios.”
Martin considers the market impact of Brexit is “thoroughly different” to the financial crisis in 2008.
He says: “The reality is that people are holding different asset classes in their portfolio and on Friday they saw the value of their portfolio rise and that is because they are holding bonds and equity funds that are priced in other currencies that when they come back into sterling, made more money than the amount at which the market fell.
“Could there be any better example of why a diversified portfolio makes sense?”
Expert view: David Shelton is a consultant at Stoke Bishop Associates
Advisers’ job is to reassure
What we saw in the market before the referendum were many examples of good client communication from email attachments through to letters and Twitter. Those communications were mostly setting context and the likely outcomes.
Usually the communications aim to remind clients that their investment strategy has been set up for the long term and to withstand uncertainty and short-term shocks, such as Brexit.
Communication settles clients down, it reminds them of the benefits of having an adviser. It also heads off a lot of emails and phone calls because if you have written to clients to explain what is likely to happen and what they need to know.
However, advisers should only communicate when there is a need. Writing to clients every month after a market shock is not a good idea. When something significant happens – and there will be a lot of significant things over the next couple of years – that is the time to communicate with clients because that is when people are concerned.
There are two opportunities for advisers following Brexit: client retention and client acquisition. For client retention, communications like newsletters and very specific targeted emails are helpful. Where it is appropriate, using social media with a link to what you are communicating on your company website is important. To show your value to existing clients it is crucial to explain the situation and what it means for them. It is important to portray a straight forward message with two or three key points.
A period of uncertainty is also a good opportunity to remind clients of the benefits of an adviser. Emphasising your qualifications and experience is also really important because when people are confused they want to talk to someone who they can see is an authority in their field.
The second opportunity is client acquisition. The UK is currently in an unstable political and economic position and there will be people looking at their investments and feeling confused about what to do. It is a time when do-it-yourself investors might feel quite fragile.
Advisers can provide reassurance that the portfolio is right and tell the investor that if circumstances unfold and the portfolio needs to be adjusted, that they know what they are doing.
Yellowtail Financial Planning managing director Dennis Hall:
“My job is to reassure clients and encourage them not to make any rash decisions. The temptation is to try and trade tactically or to pull out and wait for things to unwind. We have got an internationally diverse portfolio in our models so the weakness of sterling might work for them. We have quite a large holding in bonds and bonds prices have rallied this morning. Our clients will not be experiencing the 4 to 8 per cent falls between currency and the markets. What they are seeing on the television and in the newspapers will not be what they experience in their portfolios.”