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Risk business

I find myself increasingly looking forward to my summer holiday, with a chance to recharge the batteries and get away from the credit crunch, the mortgage market, falling client valuations and turmoil in the markets. What a tough year we have had so far.

If you are an investment IFA, then your client reviews and updates have been quite depressing reading, unless, of course, you had the foresight to disinvest your clients completely from the equity markets and be 100 per cent in cash or your clients are invested in emerging markets and commodities.

Even in cash, you will be slightly nervous because the banks keep making noises that even the most non-savvy of clients have picked up on. For instance, one of my clients who has a substantial amount deposited with a high-street bank and knew one of the board directors asked him to write him a letter to reassure him that his deposit money was safe. Apparently he got the letter but just a few years ago this kind of situation would have been unheard of.

We seem to be living in a world where the certainties of life have become uncertain and fixed interest or adventurous investments seem to be the only answers available. All the investments that are sat in the middle ground seem to be suffering badly and therefore there is a real temptation for an adviser to place clients in investments that are above their attitude to risk to get some return for their clients.

This is where it is important for an adviser to keep his head and remind clients of their stated attitude to risk. I have had a number of client reviews where clients have indicated that they wanted to take risks that were beyond their attitude to risk. This is where we earn our money and remind clients of their previously stated intentions.

So you can see why I am particularly looking forward to my holiday to get away from this type of pressure for a while.

As we all know, sooner or later, markets turn. Keeping faith and encouraging and reassuring clients that things will turn is what we should be doing. Most of all, looking for opportunities to make adjustments in our clients’ portfolios that will, in the long term, provide them with returns. As one leading investment banker said: “Downcycles are not fun but they form the basis of future outstanding performance.”

However, given the state of what is reported in the media, apparently down- cycles are the end of the financial world as we know it and a balcony should be found and promptly jumped off because things will never get better.

The pessimists of this world who have been banging on about a recession and a housing crash and so on and so forth are having a field day in the press and earning masses of fees for their appearances while saying: “I told you so”, “I knew this would happen”, “I made this prediction five years ago.”

But as the saying goes, even a clock that has stopped is right twice a day. With any prediction of a crash or a boom, you will be right at some point. The really clever ones will tell you exactly when it will happen. And so far, I have never come across a pundit like that.

Getting back to my holi- day, I am looking forward to going away and coming back to a market that probably will not have changed much but will still offer opportunities for potential future growth.

Mortgage rates will at last start to ease and the availability of mortgage products will ease the near hidden panic I see from some clients. Even the good old Northern Rock has started to look for new mortgage business.

We are suffering a slow-down, it’s is not the recession that we experienced in the 70s or the 80s when we had high interest rates, high inflation and high unemployment. In other words, things are not really that bad and life goes on.

John Winful is a partner of Winful Associates

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