The sharp market falls in March have had only a modest impact on the cash flows of many adviser businesses.
As countries around the world entered lockdown in a bid to fight the coronavirus pandemic, economic activity in many sectors ground to a halt, and global stock market investors reacted by selling shares of the most affected companies, and causing equity markets to fall by more than 30 per cent.
The FTSE 100 has regained much ground since then, but remains 20 per cent below where it was at the start of 2020.
Advice companies that charge on a percentage of assets basis will therefore have suffered a drop in their total assets under management and so have less fee income.
There is also the potential for the sharp market falls and the general deterioration of market conditions to cause advised clients to remove their money from their adviser.
- Many advisers are reliant on a percentage of the portfolio for fee income
- Clients have been prepared for stock market falls
- There are steps advisers can take if they are concerned about cash flow
But Minesh Patel, an adviser at EA Financial Solutions in London, says the impact on the day-to-day cash flow of his company has been minimal.
Mr Patel says: “It was a bit lower for one month or so, but the thing is we are a financial planning business; we do not claim that investment management is something we are better at than anyone else.
“We use cash flow modelling tools with clients and show them a range of scenarios, including a ‘catastrophe’ one, which is markets falling by 20 or 30 per cent.
“So most clients know they are in the market for the long term. We asset allocate as well; the exposure is not just to equity funds, but to multi-asset strategies, like Vanguard LifeStrategy, and those fell by maybe 8 per cent rather than the 20 or 30 per cent fall that occurred in equity markets.
“Some clients were worried by the falls, but we had a conversation with them and they felt reassured.
“I started out as an adviser in 2002, which was a recessionary period, so this will be the third recession I have worked in.”
One change that is likely to happen for Mr Patel’s business is that he has grown used to working from home, and has told the landlord of his office building that he will probably move out and work from home permanently.
He says: “Although our office is in inner London, most of the clients are in the suburbs, and 90 per cent of the time, I go to them.
“I don’t think it matters to them where our office is, and my business is quite mature. We are not actively looking to win loads of new clients, though if someone interesting comes along we will certainly look at it, so I don’t really see the need for an office in central London.”
Philip Milton, who runs PJ Milton and Co, an advice company in Devon, says there has not been a significant impact on his advice business, but the discretionary fund management arm of his company does generate fee income from managing client assets, and this segment of his business is likely to suffer.