Check tyres to see if you deliver to clients

John Lappin

These are testing times for investors but maybe investment advisers should be testing their approaches too.

It feels like a very good time for kicking the tyres and seeing if, during this mini-crisis in markets, you are delivering all you say you are to clients.

Bear markets should hardly come as a surprise, but the challenge – and arguably the opportunity – is that this is the first to emerge since the advent of the Retail Distribution Review.

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It is also, arguably, the first to follow the extraordinary distortions caused by the financial crisis – though, of course, what we are now dealing with may well be the distortions caused by the cures to the crisis.

It arrives after intermediaries have put in place new business and advice processes, through a mixture of their own drive for higher standards and new rules enforced by the regulator.

The market is not exactly uniform in terms of what it offers. There is a huge range of central investment propositions, variously involving outsourced research, portfolio construction and risk management.

The use of a discretionary manager is prevalent in some of these structures, though it feels as if the advice market is still adjusting to how such models are managed.

But whatever the structure, this may be a good time to appraise your communications with clients and investors, and how all the outsourced parts fit together.

It might also make sense to consider the approach to rebalancing, and how you, your investment committee or your outsourced portfolio manager have done in terms of strategic asset allocations and meeting clients’ risk profiles.

Perhaps most thorny of all is how drawdown plans have performed, though those advisers with clearly agreed withdrawal policies are arguably in a better position than their peers.

Of course, these are very difficult markets to read. This is made more difficult still by many of those expressing their worries and fears, and even the companies in which they invest, looking at things over a much shorter time period than any advised client or investor.

There are certainly some issues regarding the misreadings of what might be loosely called the investment news and views ecosystem. There seems to be a rather poor understanding of politics and how it influences investment, particularly on the big oil question.

It is true that governments of all kinds, and their central banks, appear rather baffled as to what to do next. We should recognise that some of the issues and challenges are completely new in historical terms, because of the context in which they take place.

Nor is anyone expecting investment advisers, individually or collectively, to have all the answers. It may be that the current conditions prove to be about demonstrating the power of capital preservation rather than posting healthy returns.