Here at IBOSS we have an almost unparalleled opportunity to gauge how retail clients are feeling about the world and more specifically their investments.
We work with approximately sixty adviser firms across the UK, from Aberdeen to Portsmouth and North Wales across to Hull, as well as Northern Ireland. Our quarterly communication on behalf of advisers goes to over seven thousand clients either via email or letter, and as some advisers have been using us for more than decade, we have communicated over forty times with their longer standing clients.
The IBOSS service
We have always been very clear from the start that, unlike some life companies and fund houses, we only want to deal with clients via an adviser. The explanation of all aspects of the advice process and investments in the adviser-client meetings will no doubt differ enormously; however, where we take considerable comfort is the fact that every client using an IBOSS product/service has been through a risk profiling discussion and understands, at least conceptually, that markets fluctuate.
Many clients will have been through these discussions numerous times, and we find that the longer a client has been with an adviser using IBOSS, the more comfortable they are with the realities of investing. It’s the same pretty much the world over that sensationalist headlines sell papers or increase click rates. Much of our communication is aimed not at diminishing the risks of investing but to try and put them into context.
Recent client concerns
The two words which have dominated client feedback in the last two quarters are, not surprisingly, ‘Brexit’ and ‘Trump’. As an example, one client recently pointed out that the FTSE 100 had “not appreciated during the last year” but hoped that “this (situation) will improve when both the Brexit and Trump problems disappear”.
It remains a somewhat confusing paradox for many clients that, whilst the mainstream media is often full of doom and gloom surrounding Brexit, the fall in Sterling in the immediate aftermath of the vote was, in almost every case, positive for their portfolios. In addition, although we find the merits of Trump’s tax cut questionable given the economy was so strong at the time, in the shorter term at least it had the effect of boosting global equity markets.
So, whilst the longer-term economic effects of Brexit and to some extent Trump remain largely unquantifiable, it can be argued that from a pure valuation perspective, so far at least, they have positively affected the client’s bottom line. Again, we know from client feedback that many clients now understand this, but we are still receiving questions from newer clients along the same lines. To finish on the Brexit paradox, if the markets perceive the eventual Brexit outcome to be good for Sterling, then client valuations would likely fall in the short term as Sterling would appreciate against both the Dollar and the Euro.
As the client feedback passes very briefly through our hands, we take the opportunity where possible to add comments, charts and tables which will help the adviser give a comprehensive reply to their client. We see patterns and themes emerge in client comments, most often driven by market conditions, but also reflecting mainstream media opinion and the financial channels which are mainly US orientated in both origin and focus.
Where is the index now?
What we are currently witnessing is a distinct change in client commentary, from fear of missing out which peaked in September last year, to a greater concern for the market falls that sustained throughout Quarter 4. In February, we have also experienced a probable record number of requests for meetings with their adviser from the clients. This would also seem to reflect growing client concern with the Brexit news being particularly prominent as various redlines get crossed and deadlines extended.
We have also noticed, going back to pre the global financial crisis to the current day, that it’s when markets are less stable that clients make more of their own investment suggestions, and often it’s around property. Again, it’s slightly ironic that, as some clients want to increase their property exposure, simultaneously within the IBOSS investments we have reduced exposure to the least on record. We have also extended the property definition to once again include infrastructure, which is often one of the few areas which carries the support of governments and opposition parties alike, with the US being a good example.
There is often a client tendency to want more investments in the areas which are attracting the ‘hot’ money. The fear of missing out is never far away and it can sometimes help our advisers if we can provide charts of previous hot assets and the eventual outcome of investing in them. The more specific and narrow the investment, the greater the risks, as a single changing factor can destroy the investment case. The risk can in turn be exacerbated by the way markets trade these days, with so much passive money, algorithmic and momentum style trading.
Almost every quarter the most common comments we get are praise and thanks for the adviser’s time, advice and often the word reassurance comes up. This is why, in a nutshell, we only work with advisers, and over and above the management of the investments, our job is just to help facilitate the adviser/client relationship.
FOMO has faded
To sum up the current client feedback, the fear of missing out has been replaced with an increased need of update meetings with their adviser. It is often the prompt of our communications that means the adviser gets to hear about concerns sooner rather than later and hopefully before the client seeks some other advisers’ opinion.
The period we entered into in October 2018 is, in our opinion, likely to sustain for a considerable time, as global central banks enter a prolonged period of head scratching and searching for the answers to a post-QE world with falling growth and political uncertainty. Effective communication will be essential as advisers and clients alike have to navigate this challenging investment environment. At some point, the fear of missing out will usurp the fear of market falls, and we will be sure to make our advisers aware of what the clients are saying to us when this is.