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Outside edge: David Ferguson

With the world&#39s media winding down operations in Iraq, it seems likely that the next few months will see renewed scrutiny on Western economies and their stockmarkets. How timely. Or is it?

It seems on the face of it that the UK and US markets are over the worst but I wonder how much of this is due to a post-war false dawn rather than any improvement in the investment fundamentals over the short/medium term.

In the UK, the reality is that there remains much doubt regarding the sustainability of the consumer spending boom and therefore the growth potential of the economy – particularly as the long-standing catalyst of the housing market is also cooling.

So, should IFAs be recommending equities to clients. My feeling is that the time certainly feels right to be increasing exposure although I would be hesitant about a headlong dive back in.

I actually wonder if this could be the time when the rump of the IFA market could feel forced to consider its level of investment expertise and invest in own development accordingly. This really could be an opportunity for a fresh start, especially as the barrier to learning that is with profits seems less attractive than ever.

I guess my hope is that those IFAs who have traditionally relied on the somewhat questionable investment expertise of the life offices will break free and begin to consider client level asset allocation and its impact on short/medium and long-term investment horizons.

Even where knowledge is weak, there is now a far greater range of tools to assist with decision-making and to help the IFA communicate strategies to clients.

Products such as those available through Selestia and from companies such as decisionsdecisions really should come into their own as IFAs seek to guide their clients back into the markets.

By considering clients&#39 attitude to risk and their investment goals, modelling tools can be used to provide comfort that a certain strategy is appropriate and has a certain probability of success.

This is a major step forward as it implies a break from the product-led approach of the past and a shift toward more holistic financial planning to the ultimate gain of the client and the adviser.

If the client gain is obvious, perhaps the IFA&#39s is less so but it must be appreciated that by providing such a service on a long-term basis, assisted by online and offline tools, the IFA can truly make the transition to long-term service pro-vider (with associated earning potential) from short-term product salesperson.

There have been many academic studies that have arrived at the same conclusion regarding asset allocation and product selection, namely that the benefits of an appropriate, tailored asset allocation strategy is far more valuable than any product differential, whether offered by taxation or price.

As I recall, this was the message that Selestia launched with, although I cannot help feeling it that was not promoted with sufficient aggression.

Nor should it come as any surprise to the rest of the market. After all, this kind of stuff is merely the logical extension of fund supermarkets and the gradual introduction of open architecture investment choices.

Quite what impact it has on the economic business model for providers is ano-ther matter but the client appeal is clear.

So, should IFAs get back into the equity market? I think on balance yes, and I believe that they should use the opp-ortunity to take a more considered view, use the tools that are available to help and see how long it takes before clients begin to appreciate the improved level of service and information provided.

David Ferguson is a director of the Abacus


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