So, given that we are guaranteed (?!) a great spring and summer by virtue of global warming and general optimism, what is the explanation for the doom and gloom in economic markets?
Clearly, the credit crunch is having a dramatic impact on the UK and US consumer. In the US, mortgage foreclosures are widespread across all consumers, not just sub-prime. Twenty per cent of homeowners are said to be in negative equity and private sector employment is falling. This will also impact on the UK, given the closeness of our economies, and there is no hiding the fact that the UK consumer will have a difficult time this year.
This will affect the “mass market” client who may need some hand-holding through the mortgage maze (an opportunity for an IFA, perhaps?). It will also affect the more affluent, mortgage-free client with declining or negative investment returns.
Some UK corporates will suffer (particularly in the retail sector or those more connected with discretionary consumer spending) but the vast majority will be little affected. Profit warnings are on the increase but, generally, UK corporates will make money in 2008. They may even make more money than in 2007. It just may be the case that they make less than they anticipated when they drew up their plans in 2006.
What actions should IFAs take in these situations? I would suggest that nothing has changed for IFAs. Client needs are the same. They still need reassurance that remaining invested in markets delivers better long-term returns than trying to “time” markets by selling at the imaginary top and reinvesting at the Utopian bottom.
Lots of data is generally available about the folly of such a strategy and IFAs need to be strong enough to take this to meetings. They need to highlight the added value of good tax planning, good fund selection and good strategic planning. Yes, financial plans may look a little behind target currently (where equities, bonds or property assets are involved). Clients need to be reassured that this is not economic Armageddon.
Markets have already recovered from the low point of March 17 when the FTSE 100 hit 5,414 and will improve further over time. It is a given.
IFAs need to be positive to help their clients overcome the negativities of the mass-market press. Yes, billions might have been wiped off the FTSE on one particular day but the same press never report the upswings adding billions to the market on subsequent days.
So, let’s encourage clients to buy into markets when the FTSE 100 is below 6,000 (ish). It is a great discount on where it was 12-18 months ago and the tax-efficiency of an Isa or a single pension contribution (or VCT or whatever else) remains very attractive. Yes, it might take a bit more time in meetings, more preparation and a stronger argument but we know that it is the right advice for long-term investors. Surely it is a case of “buy now while stocks last” rather than listen to the press and their short-term ideas.
On this note, I hang up my pen for a few days of golfing in Spain with the real sun (as they will have missed spring altogether) and expecting to return revitalised to maximise these opportunities.
Peter Heckingbottom is deputy managing director and investment director at Pearson Jones