Common sense over the 10 per cent rule

Marlene Outrim

Marlene Outrim

It’s not difficult to think that the world has gone mad during this period of this pandemic: lockdowns, panic buying and some people thinking they are on an extended holiday and taking themselves off to beauty spots.

But for me, it was the ridiculous idea to send clients letters telling them that their investments had gone down by 10 per cent.

If clients (those who were inclined and took the time to check the performance of their investments) were not aware performance had dropped even by 10 per cent, they must be living on another planet.

When the rule was first introduced, I wasn’t impressed then.

Someone with a portfolio of £3m might be alarmed, but would someone with £100K?

Also, we have been educating our clients to take the long view, but to expect periods of uncertainty and volatility.

That’s how stock markets work. They didn’t go up in a straight line and they don’t come down in the same way either.

Many of them have lived with various financial crashes and come out the other end, most notably 2007-08, but we had the technology crash in 2000 and their investments survived that too.

These letters smack of alarm at a time when we may be telling clients to sit tight and wait out the turmoil, when they have enough on their plate already.

They provide little for confidence for our clients, ourselves and the fund managers.

Thank goodness then, that the Financial Conduct Authority has seen fit to relax this exercise during the coronavirus period, but with limitations:

It has decided it will not take enforcement action where a company:

  • has issued at least one notification to a retail client within a current reporting period, indicating their portfolio has decreased in value by at least 10 per cent; and
  • subsequently provides general updates through its website, other public channels (such as social media) and/or generic, non-personalised client communications. These communications should update clients on market conditions, explain how clients can check their portfolio value and invite clients to contact the company if they wish; or
  • chooses to cease providing 10 per cent depreciation reports for any professional clients.

Let’s hope more sense will continue to prevail.

Marlene Outrim is a chartered financial planner at Uniq Family Wealth