People come to us because they have an issue or a problem of some kind. They don’t often come to us if they’re totally clear about how they want to invest a lump sum or address some financial issue that’s been nagging away at them.
They want advice. They want guidance.
Potential new clients are usually referred by an accountant or solicitor. Or sometimes a friend who is already a client. A new client might be fifty years-old or they might be seventy-five. They have a problem or issue that needs resolving.
There are a few things we commonly come across in those first meetings with a new client:
They have several pensions and want to get advice about pooling those pension pots into one.
They’ve inherited money and want to invest it.
They’ve just sold a business or have come into a lump sum through some other means. What should they do with it?
These are some of the commonest things that get discussed when we first meet someone. Essentially the client is looking for the same outcome – they want to know that their money, in an ideal world and barring disasters, will be earning more money for them than if they’d just left it in the bank or building society. They want it to grow.
Clients also want to know that the headache of arranging and understanding all of this has been taken away from them; that everything is in hand. That’s what we, as chartered financial advisors, do. A lot of people don’t want to find out about or really understand corporation tax, inheritance tax, capital gains, income tax and the like. We do that for them.
We tell people what they might be able to achieve with the lump sum they’ve come into.
One thing we need to get an understanding of before we really get started with a client is to understand their attitude to risk. Some people are conservative, very risk averse. Others are prepared to take on a bit more risk. Some, not that many, are quite ‘out there’ and will embrace risk and the potentially higher rewards that come with that.
We need to find a point – in terms of risk – where our client is comfortable with how we’re going to invest their money. Some people spread it – a larger proportion in something safer but returns at a lower rate and a perhaps smaller amount in something riskier but potentially more rewarding.
The first step is to assess the client’s attitude to risk through a questionnaire. There are a number of questions that when answered honestly and instinctively will provide us with an accurate risk profile for that client. Inconsistent answers in the questions are flagged and if this happens we will discuss in more detail with the client to gain a more accurate understanding of their attitude to risk. The questionnaire is the starting point. A detailed discussion will tease out more – the client’s capacity for loss and their investment knowledge and experience.
Then on a regular basis, about once a year, we run through the exercise again. Has their attitude to risk changed? If it has then what does that mean for how we have invested their money? Some of the questions we ask include:
1) What is more important to you in the context of investments: the risk or the potential gains?
2) Have you ever borrowed money for the purposes of making an investment (other than a mortgage)?
3) Would you borrow money for the purposes of making an investment?
4) How would you feel if you lost 50% of your investment? The answers to this last one range from ‘don’t care’ to ‘murderous’. While that might seem like a strange or extreme question, coupled with others in the questionnaire it helps us get to a point where we understand the client’s attitude to risk.
A client’s answers to our questionnaire, coupled with a detailed discussion around their needs, will tell us where they sit on the ‘risk scale’.
There’s no such thing as ‘no risk’ and we make that clear to our clients. Whatever they want to do, wherever they sit on the ‘attitude to risk scale’ there is an element of risk in what they’re doing – even if it’s at the more conservative end of the scale. Things can fluctuate. Investments can go down as well as up. An investment made just before the pandemic broke in March 2020 would have looked very poor in September of that year. Fifteen months later it’s a different picture. But there are no guarantees.
We have a very good track record over thirty-odd years, and we have hundreds of clients who are substantially better off than they would have been if they hadn’t come to us.
What we do in terms of investing a client’s money is based on getting good returns over the medium to long-term. There’s no point talking to us if you want a whizz-bang return in six months. It’s TIME IN investments that counts, not TIMING. It’s the number of years you’re in which counts. If you don’t need that money immediately – let’s say you want it for your retirement in ten or fifteen years, then that’s where we have been successful investing for clients. After three or four years we would generally start seeing a return. However, if a client suddenly needed their money out, there are no exit penalties. It’s totally flexible. Depending on where their money is invested will determine how quickly that money can be released. In some cases that can be less than two weeks.
In essence, everything we do is aimed at putting people into a better financial position than when they first met us. That’s what we regard as success; that’s when we’ve done our job and done it properly. Hundreds of our clients are testament to that. Clearly, we don’t want to leave someone in a worse position through anything we’ve done or advised!
We invest clients’ money with a view to the medium or long-term. If you use a race analogy with each year being a lap of the track, then halfway through the first lap you’ll be behind because of fees being taken up. By the time you’re into the second lap you should be ahead and by the time you’ve completed lap four you should be comfortably ahead. Investment is a risk and funds can go down as well as up, however our biggest and most consistent successes do come from clients investing with a medium to long-term view.
Risk Warning.
The information contained in this article is provided in good faith and is provided for information purposes only.
Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain.
No individual investment advice is given, nor intended to be given, in this article and no liability will be accepted in respect of any action you may take as a result of reading this material.
If you are unsure whether any particular investment or any specific course of action may be suitable for you, you are urged to take independent investment advice.
