James ConeySep 3 2020

Financial planning discussions are challenging in the new normal

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I hate the words ‘new normal’ but it’s better than post-pandemic, particularly as we don’t feel anywhere close to being in the ‘post’ bit of that expression.

There are clearly many things to chew over, ranging from low yields and volatility to diversification.

When the clouds come over then we’ll see what devastation has been heaped on the economy

For what it’s worth, I think there is much more volatility to come as we’re currently sitting in the lovely, summery weather of what is actually the eye of a terrible storm going on around us – a symptom of which is the sunshiney buoyancy of the property market and rising asset prices.

When the clouds come over then we’ll see what devastation has been heaped on the economy.

While there are these questions to ponder, the core elements of the discussion do not really change much, and I suspect that is reflected in the conversations advisers are having with clients.

In that respect, the new normal is much the same as the old normal in that everyone still wants the same thing: they want to find the best way to grow their savings; they want to be diversified for global growth so that they have minimised overall exposure to any one market; and they want to know how to do the best for their retirement and their family. 

What I am intrigued about is the ethics of all this, because that is a growing part of conversations now.

The chief executive of a private bank told me that when wealthy families sit down together and talk about inherited wealth, increasingly the younger generation want to know the provenance of how money was made and how it can be best put to good use for sustainable sources.

(To which I suspect many parents might just utter: ‘Do you want the money or not?’)

The two big moral issues are taxation and environmental, social and governance factors but, clearly, neither of those are easy to answer. For example, where does anyone stand on investing in BP and Shell who are, on one hand, major producers of carbon fuels, and on the other, major investors in sustainable energy – so much so that their billions by far outweigh anything a smaller, 100 per cent ethical producer could do?

And what about the US? Many may object to investing in anything that is backed by Donald Trump, but on the other hand, does that mean you rule out putting money into US government gilts? That would be lunacy.

Then there is tax. Good financial planning means taking maximum advantage of the tax allowances you are given, particularly for those with top-end rates of taxation.

But the pandemic has highlighted how underfunded some state services are, as well as the fact that we are going to need taxation by some degree to pay for the lockdown and government bailouts.

So where does this leave someone who tries to reduce their liability, with the end result that the state gets less? Luckily these are conversations for the privacy of the adviser/client Zoom chat, but these ethical questions are important issues that need addressing.

Thankfully some things never change. So there is nothing new about wanting the best for your retirement and your children: that’s just normal.

Gold is for protection

Safety, safety, safety. That’s what everything in investment trends pointed towards in August. Gold was soaring and National Savings and Investments was being bombarded with applications – hardly surprising when its rates on Premium Bonds (albeit notional) and on income bonds look so much higher than the rest of the market.

If I hear one more know-it-all tell me that gold doesn’t have a yield, then I think I’ll scream.

None of this is about yield; it’s about protection. The marginal cost of holding gold compared with bonds, and the 100 per cent government protection on NS&I, makes these two things a perfectly logical choice for investors who are worried about the markets, and have one eye on the future. 

Black swans

Lastly, welcome back from the Financial Adviser annual summer break.

Usually I can’t bear to read finance books when I’m off, so I lined up Bill Bryson’s book The Body (which had the handy added bonus of being able to annoy my wife by yelling out fascinating bits of trivia), and Hidden Valley Road by Robert Kolker, which I heartily recommend as not just a brilliant tale of the breakdown of a family but also a history of mental illness.

But I also started The Black Swan by Nassem Nicholas Taleb, the book which became the foundation for black swan investors who plan for the worst in financial markets.

That sums up where I think we’ll be heading. I hope you had a lovely summer.

James Coney is money editor of The Times and The Sunday Times