The UK’s decision to leave the European Union sent investors and global markets into a panic. Volatility reigned, as property funds suspended trading, sterling plummeted and equities took a nosedive.
Although there have since been some signs of recovery, could it be the calm before the storm? After all, Brexit may have come, but it has most certainly not gone, with the invocation of Article 50 as yet somewhere on the horizon.
With so much market noise about the pitfalls of Brexit and what to do next, advisers now have the job of steering their clients towards a calm and collected approach to long-term investment planning.
So, have clients been keeping calm and carrying on, or have they been panicked into throwing caution to the winds?
This was the topic discussed at last week’s Russell Investments FA masterclass ‘Calming clients post Brexit’.
Bill Jamieson, former executive editor of The Scotsman and ex-economics editor of The Telegraph, pointed out that while there is much to be concerned about in the wake of Brexit, there is also a need to get things into perspective. He said: “Investors have been on a roller-coaster ride for the last few months. Initially, it was all doom and gloom. Even Christine Lagarde said Brexit would be bad. The FTSE 100 fell, but has since hit a 14-month high and the FTSE 250 took a hit, but has also since risen.” He also pointed out that some sectors, such as construction, had bounced back since July lows and that retail sales are buoyant.
“This is only the beginning, so we need to be cautious,” he advised: “But we haven’t had the Armageddon that was forecast.” Mr Jamieson also advised looking at things in context. He said: “Don’t forget we’re part of a global economy.” Despite some negative political debate about the economy in the run-up to the forthcoming US elections, he pointed out that the US economy is still the “great locomotive of global growth”.
“If you look beneath the political debate, the US economy is going well. The lesson is, it’s important not to be obsessed with Brexit,” he explained.
Reflecting on the importance of long-term investment planning, Mr Jamieson recounted that he had learned about this from a stockbroker, who said: “If you look at your portfolio once a day, you will have a nasty and miserable life.
“If you look at it once a week, or once a month, the outlook is no better. If you look at it once a year, there will be a glimmer of hope. After three years, you will start to see the benefit and after 10 years will be pleasantly surprised – you will think your IFA is a genius.”
Others wondered if there might be a heavier focus on the future than perhaps there should be. Ken Robertson of Sillerton Hill Research asked Mr Jamieson if the continued emphasis on looking to the long-term could be perceived as an abdication of responsibility. Mr Jamieson said: “You could take that view, but we need to keep a watchful eye on the markets. We’re not Rip Van Winkle.”
He added that regardless of the advice of the stockbroker he referred to previously, we all still look at shorter-term outcomes. “We all still do it because we are apprehensive,” he explained.
Although it could have been expected that clients might panic once the outcome of the Brexit vote had been announced, it seems that they are agreeing with Mr Jamieson’s stockbroker friend, perhaps taking it in their stride as a blip. Some advisers reported that far from a deluge of worried calls or correspondence, there seems to have been only a trickle.
Brian Steeples, managing director of The Turris Partnership, reported that he received only one email. Much the same was observed by Brian McQuarrie, managing director of Citypoint Wealth, who said: “My experience of the aftermath of Brexit was similar. Only one client got in touch.”
Neil Winstanley, IFA at Bellpenny, did not see the floodgates open either, as he said. “I was surprised by how few calls I had post-Brexit,” adding that “clients are now more used to volatility”.
One of the post-Brexit, potentially anxiety-inducing outcomes that hit the headlines during the summer was the suspension of a number of property funds, some of which, such as the Henderson UK Property PAIF and feeder fund, have resumed trading. Mr Winstanley said he thought others would follow suit as things start to calm down. Nick French, managing director of UK Private Client Services, Russell Investments, said that clients were now more aware that these funds needed to be held for longer, adding: “It’s not cataclysmic. It’s an amber light to remind us of the importance of liquidity.”
Events
So, what do advisers need to do, to maintain clients’ understanding in the light of volatile market events and encourage a similar attitude in others? Mr French said that communication is key, quoting George Bernard Shaw’s dictum that: “The biggest single problem in communication is the illusion that it has taken place.”
He said: “People believe that they are communicating clearly when they are not,” emphasising the importance of ensuring that advisers are being sufficiently clear when imparting important advice to clients. “Tell them, tell them, tell them again and for good measure, tell them again,” he recommended. “Keep repeating the message.”
He added: “Ask clients if they understand what you mean. If not, it’s not their fault.” Mr French also stressed the importance of client engagement. “Engagement is what communication is all about,” he said. “Financial services is just numbers on a page or screen,” Mr French added, emphasising that advisers need to make clients feel more involved by encouraging them through whatever medium they prefer.
He also recommended that advisers look at their communications from a client perspectives, for instance with newsletters. “Revisit everything you’re doing,” he suggested. “Ask clients what they really want to receive.”
Language
Mr French said that the use of language is a key factor too, in getting the right message across to clients. “Language is crucial for credibility and calming people down. Jargon gets in the way.
He said: “Speak the client’s language. Don’t talk about correlation, alpha and risk-adjusted returns. People don’t respond to or believe in the word ‘expert’ or ‘personalised’.”
He added that clients also tend not to like the terms “financial planning” or “retirement income”, and recommended instead advisers talk to clients about “lifestyle”, as a more appealing term.
Perception is a crucial factor too, according to Mr French, who reported that he had Googled Brexit and the search had delivered links to catastrophes such as earthquakes and the end of the world. “We are getting a once-in-a lifetime event every year,” he reflected.
Mr French also advised that advisers place more focus on emphasising their worth to clients, as he urged them to “beware the fad. Don’t do anything that could cause ‘feast or famine’, or ‘boom or bust’ for your clients. Remember that funding their life is what you do and show them the value you bring.”
On reviewing how advisers can continue to help clients achieve their objectives, he said that clients’ goals could be summed up in two questions that they ask, which are about whether they can do what they want to in the future and whether the value of their portfolio has gone up or down.
Mr French suggested that to engage more with clients, advisers should ask clients to tell them their story. “You will find out all sorts of things, even if you’ve known them for years,” he said. “Talk to them about time, planning and money – ask them what they want in their life that requires this.”
He also said that advisers can help clients achieve their objectives by getting them avoid the noise of information overload.
Mr Steeples of Turris shared his experiences and policies for keeping clients from becoming concerned about their investments during volatile times, agreeing with Mr French about the importance of effective communication. “Language is important,” he said, explaining that he avoids jargon, for instance by using more straightforward terms for volatility, such as “up and down-ness”.
Mr Steeples also shared his approach of being direct and getting to the point of financial planning. “Ask people what will expire first, you or your money,” he explained. Pre-empting client queries can also be beneficial, as he pointed out: “We discussed Brexit in advance with our clients and also gave them reassurance afterwards.
“We said that no action was required and that our position remained the same, with the normal rules of engagement, although we were keeping a close eye on markets and would be in touch if need be.”
He recommended: “Answer client questions before they are asked. We can’t control events, but we can control reactions.” He added that some clients had switched to cash, but that this had been for personal reasons, such as buying a house.
Clients
Although Mr Steeples reported that Brexit had only generated one client enquiry, he explained that clients sometimes see media reports from sources less reputable than others that can cause them concern, making them wonder if they should be doing something different with their investments.
He shared his tactics for managing clients’ anxieties. “I tell them, don’t stew on it,” he explained, adding that he asks any worried clients to send him the article as soon as possible, so that he can look at it from a wider perspective and then let them know if it affects their portfolio.
Mr Steeples said his policy for managing clients’ investments could be summed up as the “Five Ps”, which he describes as “personal planning: portfolios with a with a personal purpose”.
“Having an anticipated, agreed plan is the starting point,” he said. He explained that subsequent annual meetings help strengthen client relationships and maintain calm, adding that circulating minutes of the meeting to the client is usually much appreciated: “They love it,” he said.
He said that it also helps with client communication to make it clear that a lack of communication is not ominous. “It doesn’t mean that you’re doing nothing with their portfolio.”
Fiona Nicolson is a freelance journalist
Key points
UK financial markets were hit by much volatility post-Brexit.
It is important to consider long-term planning.
It is important for client communication to be clear.
