Blue Chip Journal - June 2019 edition

COVER PROFILE
Active or passive
investing are tools
in a toolkit that can
address different
needs and, in some
instances, complement
each other
How should investors behave
to gain more certainty?
Avoid impulsiveness and buyers’
remorse, and don’t chase after the latest
fad or success story. Once you commit
to an investment, understand what you
have invested in and allow enough time
for your investment to deliver.
How can you ensure that a
financial adviser’s advice process
is aligned with the outcomebased
solutions you offer?
This is a question with levels of grey. At
best, we can influence advice by making
sure financial advisers know what our
products and funds entail, and we can
empower them with tools. The greatest
control we will have is with financial
advisers who are most closely aligned
with our business. Ultimately, the advice
process happens in a closed room
between the financial adviser and client.
As a client, you need to listen carefully and
apply a rationality test; does this make
sense, is it realistic or just too good to be
true (the ultimate walk-away question)?
Our outcome-based solutions do,
however, give the financial adviser the
ability to choose funds that are more
closely aligned to an investor’s needs.
This in itself should ensure a closer
alignment to the advice process.
The importance
of staying
invested for
the long run
You mentioned
the high
probability
of beating
inflation over
long periods.
What can be
done to direct
clients’ attention
to long-term
rather than shortterm
returns?
Repeat the message,
gain a client’s trust and be proactive
and honest with good and bad news,
opportunities and risks. Markets go
up and down, and if there is too much
focus on the short term, it becomes an
emotional experience for clients, who
will be overwhelmed by the noise. So,
keep reinforcing the long term, and the
successes attained.
Stay invested, even if the market
doesn’t seem to be offering the
opportunities to deliver high inflationoutperforming
returns.
What are the main reasons that
clients stop being invested?
Apart from the practicalities of needing
their money, it is often about losing trust
and faith in the investment because their
expectations are misaligned and the
disappointment that naturally follows. In
other words, irrational behavioural biases.
How can technology be used to
prevent clients from switching
funds during a market correction?
Sometimes just creating a pause for
thought, allowing time for reflection and
highlighting the consequence of your
decision, can sway an investor.
We can also use technology as a prewarning
for irrational behaviour. We should
communicate to clients during times when
markets are tough.
What responsibility do fund managers
have to help clients behave better?
They should be honest and create
a clear context and expectation. To
communicate on an ongoing basis
what the client can expect, what has
happened – good and bad – and what
we are doing. Keep clients up to date
with what is happening, and why.
How can clients know how much
volatility they are able to handle?
We actually need to start by asking
ourselves whether we are speaking a
language clients understand. Volatility
is a concept clients may battle to truly
understand. We need to use a different
language around risk and opportunity
and how long clients can remain
invested.
Instead of talking about the investment
horizon and what happens if there
is a loss of capital, ask how much can a
client bear to lose compared to the return
he or she wants or needs. Everyone
understands this and this will better
align clients’ expectations, experience
and portfolio returns.
How important is financial
literacy and investor education
in managing client behaviour?
It is crucial. If we cannot speak a common
language, we cannot align our expectations.
If we don’t understand each other, we'll end
up disappointing each other.
The role of a financial adviser
in ensuring that clients
achieve their goals
How equipped is the average
financial adviser to deliver a goalbased
service to their clients?
There are great financial advisers
and some not so good ones, just like
in any other field. We believe good
financial advisers would already be
focusing more on the needs and goals
of their clients as part of providing a
professional service and running a
great practice. As such, we believe our
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