InvestmentsDec 24 2015

Advice as important as ever in ‘fragile’ 2016: Vanguard

Search supported by
Advice as important as ever in ‘fragile’ 2016: Vanguard

Vanguard’s John James reckons that regulatory change and modest investment returns will leave investors with a lot of unanswered questions in 2016.

The managing director for UK and European operations told FTAdviser events during 2015 have made it abundantly clear that financial advice will be just as important as ever next year.

Pointing to the Financial Advice Market Review, Mr James said Vanguard has shared its insight into the UK market and experience of other international markets with the government and regulator.

“Traditional advice firms accept that they can’t service all types of investors profitably, but that doesn’t mean that the unprofitable clients should go without quality advice altogether,” he said.

“Technology is opening up other avenues to service these smaller clients, and it will be fascinating to see how the alternative advice models develop in 2016 and beyond.”

Mr James also said he is hopeful that the FCA’s asset management industry review will build on UK and international initiatives over recent years that have focused on increasing transparency around fees and costs, while also removing conflicts of interest from the distribution chain.

“A more competitive UK asset management industry will mean lower costs, and lower costs have the potential to improve the financial well-being of millions of people.”

He argued that global growth will remain “frustratingly fragile” in 2016, as the world economy continues on its long-term path of structural deceleration.

“Vanguard’s non-consensus view is that, over the long term, the global economy will converge towards a more balanced, unleveraged and healthier equilibrium once the debt deleveraging cycle in the global private sector is complete.

“We believe that those who see an even weaker future of secular stagnation are too pessimistic about potential productivity growth and are overlooking the benefits of an unleveraged expansion.”

Mr James suggested the growth gap between emerging markets and developed economies should converge, due to lower contribution from private-sector debt and credit expansion, therefore reversing the structural theme of the past 15 years.

“Against this background, and with interest rates remaining low and equity valuations still relatively full, we anticipate muted returns from equities and bonds over the next few years.”

In fact, Mr James said Vanguard’s market returns outlook is the most guarded it has been since 2006.

However, he noted that low interest rates and low inflation mean that investors still have a good chance of seeing healthy real returns from equities. “We would always remind investors to view bonds as risk-control and diversification tools rather than a source of outright return.”

Mr James moved from Melbourne to London in March to take over the leadership of Vanguard’s European business.