Vanguard Investments calls it “adviser’s alpha”, while Morningstar calls it “gamma”, but whatever its name, the value added for clients by helping them to modify potentially destructive behavioural biases is one of the most valuable roles a financial planner can play.
A common wealth-destroying tendency of clients left to their own devices is to buy assets high and sell them low – whether it’s direct equities or managed funds. Encouraging clients to make the right investment decisions at the right time remains a core element of an advice proposition.
But it requires advisers themselves to have a firm grasp of the investment philosophies and processes employed by fund managers, and to be able to simply and succinctly convey those issues to clients.
Jonathan Ramsay, the managing director and a co-founder of research and consulting firm InvestSense, says learning how to convey investment ideas to clients, in a way that encourages them to take a long-term view, is a useful skill.
And a good starting point to learn how to do that is the fund managers themselves. On October 10, InvestSense is holding the 2016 Ideas Factory event. A hand-picked selection of fund managers will be invited to pitch their best investment ideas – pre-vetted by InvestSense – to a panel of experts and an audience of financial planners.
Ramsay says the evening will not only expose great investment ideas, but will also demonstrate how to effectively convey investment ideas in a way that is compelling and likely to encourage clients to stick to an investment strategy.
“Empirically, investor timing in both asset allocation and changing fund managers tends to have a significantly negative impact on performance,” Ramsay says.
“Over the long term, the effect of buying high and selling low compounds to a greater extent even than fees.”
Ramsay says academic research has shown that over the long term – 1991 to 2013 – poorly timed decisions can reduce an investor’s long-term returns by more than 1.3 per cent a year.
“To put this in context, if we can reasonably expect a risk premium of 3 to 5 per cent above inflation or cash from a diversified portfolio of mainly equities, then this kind of structural drag on returns becomes a very big deal,” Ramsay says.
Clearly, helping clients to understand what to expect from their investments plays a significant role in helping them stay the course and to avoid making ill-timed, knee-jerk reactions to short-term market issues.
In some respects having clients invest money and forget about it is preferable to having them “looking and acting at the wrong time”, Ramsay says.
“When do you wake up and get interested in your super – when markets are up or down?” he says.
“Therefore, engaging investors with their money and the people who manage it for them, in such a way that they stick to their guns, might well be one of the most important things an advisor can do,” Ramsay says.
“However, this is really difficult. All investors do this no matter how well-versed they are in psychology and behavioural economics or how dispassionate, cerebral or Spock-like they are.
“The lure of past performance is truly irresistible – like Odysseus and the sirens.”
The 2016 InvestSense Idea Factory
Presented in association with Professional Planner
Date and venue
October 10, 2016
5.30pm for 6pm
The Eternity Playhouse, Darlinghurst.
The event
Discover six exciting and engaging investment stories you can use to inform discussions with clients and learn what it takes to pitch an investment idea in five minutes or less. Each idea will be pre-vetted and assessed by InvestSense for its investment merit. Hear from a panel of judges including peers and experts from different areas of the industry on what they think works for clients. Advisers are invited to nominate fund managers and investment themes for consideration.
There is no cost to attend the Ideas Factory, and refreshments will be provided at its conclusion.
How to register
Simply click here to register to attend. You will be contacted by InvestSense to confirm your attendance.
