Brexit. Trump. Shocks to the system have been regular in recent months, and often unexpected. The initial reaction of investors is typically to sell first, and ask questions later. Too often the answer is: You should not have sold (“ASX posts biggest jump in five years”, said the headlines yesterday afternoon). It’s human nature at play.
As a financial planner, one of the greatest assets you bring to the table is an understanding of human nature and a calm head in a time of chaos. A significant part of your value is an ability to map out and articulate a plan to help your clients reach their objectives and goals. Investing may play a significant part in that plan.
As much as anything, the value of financial advice is the provision of wise counsel to help clients stick to a plan, even when every fibre in the client’s being is screaming out to cut and run. And so it’s important as an adviser to be able to explain investment strategies and concepts in a way that is memorable and engaging for clients, so when the temptation to bail out is strongest there are simple and concise messages you can go back to and reinforce.
It’s a fine skill, and not everyone possesses it in equal measure. Over the past few months, Professional Planner has been discussing exactly this issue with Jonathan Ramsay, a director of the research business InvestSense. Ramsay thinks there’s plenty that financial planners can learn from managers about how to define and articulate an investment strategy. And to experience this first-hand, InvestSense is inviting financial planners to attend the inaugural Ideas Factory on December 5. Admission is at no cost to advisers who register to attend and InvestSense will even provide some refreshments while you’re there. What is there to lose?
Two ideas in one
There are actually two concepts underlying this event. The first is to invite six fund managers to present their best investment ideas for the year ahead – “ideas worth investing in”, as Ramsay puts it, with due apologies to TED. Ramsay describes this as a Dragon’s Den kind of set-up, with advisers at the event voting on what they think is the best idea on the night.
One of the managers, and the first to be announced, is Magellan, whose portfolio manager Ted Alexander will provide the manager’s insights into global healthcare themes and opportunities (so it is, literally a Ted talk).
“Magellan is one of the bigger groups; we’ve got one other big group who are going to talk too, who we think have done a pretty good job of communicating a difficult concepts,” Ramsay says.
“And we’re also going to have some smaller groups, who you wouldn’t have heard of.”
So while part of the Ideas Factory event is to judge the find managers’ investment ideas, equally important is picking up tips on how those ideas are communicated.
“We recognise that advisers probably only have about five minutes of a client’s attention span, and it’s vitally important for their wealth creation, and for the adviser’s peace of mind, that they get that idea across,” Ramsay says.
“As an industry, we think that’s probably an area that we struggle with.
“The real learning opportunity is how these investment professionals go about getting their idea across in the same sort of time span you might have with your client.
“Observing this will help you think about your own client interactions.”
Ramsay says clients that understand what their adviser is helping them to do are much less likely to become disgruntled and lodge a complaint with a dispute resolution scheme.
“Many of these complaints are to do with risk-profiling and multi-asset diversified portfolio choices,” he says.
“Very often it wasn’t about blow-ups, but fairly normal market outcomes. Therefore it is often about clients not understanding what they were invested in, rather than bad advice.”
Making clients comfortable with the strategy
In a video interview with Ramsay, Magellan’s general manager of distribution Frank Casarotti says the more advisers understand a manager’s strategy and the better they can convey that to their clients, “then arguably the more comfortable, hopefully, they feel about their investment in that fund or in that strategy”.
He says the ability to explain investment concepts and strategies has been fundamental to Magellan’s success since it launched its first funds in 2007, just as the subprime crisis was morphing into the full-blown global financial crisis (GFC) and advisers’ appetite for risk was waning.
“We got out there and basically talked about what we were trying to achieve in that product that we’d just launched … and some advisers warmed to it, put us on the sideline and waited to see how we were performing over time, and ultimately now here we are, a decade later, and pleasingly we’ve done OK.”
Ramsay points out that there were times when Magellan’s approach “didn’t work so well”, and through those periods there were challenges keeping advisers and investors on track.
In 2014, broad global equity markets rose by about 20 per cent and Magellan’s fund underperformed by 800 basis points. So why didn’t investors pull out in droves?
“For the 4000 or 5000 advisers we were dealing with at the time, we had a handful that questioned whether something had gone wrong in the strategy,” Casarotti says.
“And yet we defaulted to our core objective of preserving capital and delivering 9 per cent, which we think is why we didn’t get too many complaints or objections from advisers.”
