We hear a lot of talk about how difficult it is in the current market to advise or manage funds for clients. But the truth is that market downturns, while equally as irrational as extreme bull markets, do ultimately simplify matters.
Firstly, the absence of heady absolute returns means that relative underperformance can no longer be disguised. Secondly, the true costs of advice and funds management are exposed. The completion of a cycle means that clients can fairly reflect on the net value they have received – whether they have a strategically crafted portfolio matched to their time horizons and appetite for risk or whether they have a mish-mash of assets assembled to suit the purposes of their adviser or fund manager.
The other truly positive feature of the current environment, at least for those investors who have cash flow, is that they can sit on their hands and earn very strong real returns from cash while searching for the opportunities that these sorts of markets invariably flush out, often in the form of forced sales. If professional advisers do not like that strategy because it does not generate sufficient fees then maybe they have a problem with their remuneration model.
Garry Weaven is chair of Industry Funds Management, an investment service provider to the superannuation industry; a director of Members Equity Bank, which is owned by 40 superannuation funds; and a director of Pacific Hydro.
