James Coney  

Time to explain the grim reality to clients

James Coney

James Coney

One good thing about being a financial adviser is that lockdowns are not a disaster for your business.

Yes, life is harder, and certainly face-to-face advice is always better than a Zoom call with an elderly client whose connection keeps cutting out, but really the fundamentals of what you do have not changed a whole heap.

It is not like you have to operate a 10pm curfew, and only a few companies will have to put up plastic screens or operate a one-way system.

Plus – and this is commendable – many of the advice community have shown brilliant flexibility and innovation in trying to making their business adapt to a world in which seeing each other is highly restricted.

So, we are in the second wave now, which we knew was going to come eventually. It’s probably a lot sooner than we thought and is going to make the realisation that we are in this for the long haul a lot clearer in many people’s minds.

As it dawned on the markets the virus was still here there was a short sell-off, only for it all to settle down again (noticeably the FTSE 100 finished up after the prime minister sat down in the Commons having unveiled the latest measures).

I say this in full trepidation that I write about one week before you read this, but much of what we expect is priced into asset valuations now, and as such that should not really alter our view of where stocks are heading. Plus, good advisers will have already heavily diversified.

But what we do know is that we really are in a new set of circumstances, which has an impact on retirement planning.

I remember having the conversations about what low interest rates would mean in 2009, but that turned out to be just the warm-up act for the situation we are in now.

In the US there is a rapid reassessment of the so-called 60:40 rule on retirement investing, and over here savers are having to rapidly change their tack on the 4 per cent strategy of pension drawdown. 

None of these things are possible in a world where low rates reduce expectations on growth, even with equity markets relatively buoyant.

Much has been talked about the impact of dividend cuts on older savers, but it is the gilt yield crunch that will have the greatest, and most sustained impact on retirement plans.

With the likelihood of negative rates growing by the month, particularly as the Bank of England is running out of firepower to kickstart the economy, planning for almost no returns for safer investments is going to be a hard adjustment.

And perhaps this is the most difficult long-term challenge of all as we go into lockdown number two.