Are you sure your financial adviser is thinking long term?

If you’re looking to maximise the value of your investments, a financial adviser is an obvious port of call. It’s important to be aware, however, that once a stockbroker or IFA is helping you to manage your portfolio, you’re going... Read more

Blog7th May 2014

By Sarah Munro

If you’re looking to maximise the value of your investments, a financial adviser is an obvious port of call. It’s important to be aware, however, that once a stockbroker or IFA is helping you to manage your portfolio, you’re going to be incurring charges. And when you take these fees into account, you may end up achieving a below average financial performance. Research shows, in fact, that over time, you might be as much as 2% below the average.

Some canny financial advisers are, of course, able to buck this trend by picking investments that perform well enough to outweigh the costs. But they’ll tend to be the exception rather than the rule. And while there will always be investors who relish the ups and downs of the market and thrive on the sense of excitement that volatility brings, how often do they stop to consider the price of the advice they’re receiving? Not to mention the stamp duty and transaction charges that may well apply.

Before you engage an IFA, it’s important to ensure they have a clear investment strategy. Can they demonstrate that they’ve actually out-performed the market consistently over a number of years? And are they declaring their ‘turnover’ – the costs incurred in the process of buying and selling?

Remember, you can sometimes achieve the best results by simply holding your nerve. Spending time in the market – investing for the long-term and seeing a steady return – is a good approach for many. Astute financial advisers will recognise this and use the strategy to help bridge the ‘performance gap’ that often emerges when people try to predict market peaks and troughs.

Naturally, there can be great returns available if you’re able to buy when investments are cheap and sell when they’re at a high. But a 2010 study by Clare & Motson at Cass Business School’s Centre for Asset Management Research showed that the average UK equity fund investor lost 1.2% a year between 1992 and 2009 by trying to ‘time’ the market in this way.

So look for an adviser who won’t be swayed by the lure of short-term profit, but one who’s capable of seeing the bigger picture. They should also be able to help you rebalance your portfolio, identify appropriate tax ‘wrappers’ and advise on the best way of making withdrawals for your portfolio. Patience can potentially bring significant rewards.

For more information contact Simon Glazier (simon.glazier@aabwealth.co.uk) or call 01224 625111

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