Are financial advisors getting excessively risk averse???

slopemaster

Just some thoughts….
Had an initial meeting with an IFA.
It was mostly to discuss fees etc, and we haven’t been fully through my circumstances yet, so what he said wasn’t ‘advice’, but I was a little surprised all the same.

I have a lump of money which I will need to draw on for living expenses, but which I also want to try to protect from inflation. So my thoughts were to maybe keep 50% in cash, and invest the other 50% in a range of stuff. However, his initial suggestion was that I should keep it all in cash and use term accounts of different lengths etc. Then he said, that if I did want to invest, he would recommend something with a guaranteed return like one from the Pru. Of course these things where your capital is protected are superficially attractive, but I always thought that most advisors on here said they were rubbish?

Now, perhaps this was just a polite way of saying that he wasn’t really that interested in me as a client?

But it also made me wonder, as a couple of people on here have recounted somewhat similar incidents. There was the advisor who wanted Blue Parrot’s husband to move his pension to a ‘guaranteed’ product instead. And gadgetmind reported an advisor who said ‘no-one ever made any gains from equities’
Is this because of FSA regulation and the advisors are terrified of being sued if they recommend anything with any risk???!

Or, do they know something I don’t and would I be stupid to go ahead with the idea of investing? He said it was a bad time to invest - something about the Greek debt crisis and how markets have lost 5% in the last couple of days and that would be 5% of my money! But I never really bother about that sort of news, that’s for people who want to speculate short-term, no? Whereas I would be investing money for longer term if I did go for it, so it doesn’t matter what it does day-to-day. I would have thought that when everyone is panicking is a GOOD time to get in, not a bad one… But he seemed to think things will go from bad to worse.

Aspiring_Writer

OP, I'm not an IFA, first and foremost. Someone's IFA telling them no-one ever made any gains from equities- that is blatantly untrue.

Equity investment is generally for the long term. i.e 20 or 25 years plus. Ask Warren Buffett.

IFA'S may well be a bit cagey re investing in anything with Eurozone origin right now, especially Greece or any fund with exposure to Greece or Italy.

I would recommend you get a proper fact find done by this guy, and wait for his recommendations based on that. Then go from there.

It's your money ultimately, and therefore your risk. There are plenty of investment opportunities in the world that carry no exposure or dependency on the Eurozone and/or Southern European sovereign debt.

Good Luck.

oldvicar

slopemaster wrote: »

I have a lump of money which I will need to draw on for living expenses

How much of this can you afford to lose?

Although you are prepared to invest long term, for the past 12 years and counting the 'average' stock market investment hasn't been brilliant.

Proving that investing 'long term' is worthwhile seems to be changing the meaning from 5+ years, to be an inter-generational activity. In other words IMO investing is best reserved for the ultra high net worth individual, and the mass affluent should mainly stick to saving. Maybe your IFA has a similar opinion, but unlike me he will be qualified to say so

qpop

Structured products are often poor investments.
That being said, if it's with the Pru it's more likely to be some with-profits based investment, and the Pru's with-profits fund is bewilderingly successful (when compared to the rest of the with-profits industry)
It really depends on your attitude to risk.

If you went through a risk assessment discussion (usually aided by a questionnaire) and the adviser concluded that you were incredibly cautious/risk averse, then why, as somebody required to take responsibility for their advice (financially, if the FOS decided the advice was unsuitable), would they suggest investing in equities?

Did you discuss your attitude to risk? Did the adviser tell you how he would categorise you? (not unusual to use a scale of 1-10)

slopemaster

No, we haven't done the risk assessment yet.
Wouldn't say I was exceptionally cautious/risk averse.

oldvicar

slopemaster wrote: »

No, we haven't done the risk assessment yet.
Wouldn't say I was exceptionally cautious/risk averse.

Please explain why you are not cautious if you NEED to draw on your assets for living expenses.

slopemaster

Of course I'm cautious!
Just don't think I'm EXceptionally cautious.
I would be prepared to risk losing a small amount, say 10%, of my total capital, in exchange for the likelihood of a much better return on it. (And I think I could cope with it going up and down more than that in the short term.)

I do need to draw on this money, but also need to maximise the chances of it lasting 25 years plus...

slopemaster

'Speculate my dear' said Mrs Nickleby...

qpop

Take a look at the total return graph of a typical (outperforming) managed portfolio fund;

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=GEBII&univ=U

There have been periods of serious capital loss, and that's considered a "cautious" managed investment.

That being said, look at Invesco Perpetual Distribution, for example;

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=GTF91&univ=U

Yes, the capital value fluctuates, but if you were to purchase at the stated price, you'd lock in a yield of ~6.9% PA, regardless of the capital value.

Income distributions are one fairly constant feature of income portfolios, and are pretty reliable. If you have no requirement for the capital for a significant time but want the income, they're the typical route forward.

slopemaster

At the moment, you could draw a graph of my savings just shrinking by 2% every year due to real interest rates being negative. So if this carries on - admittedly it might not - after about 8 years I would have lost 20%!
So might as well *risk* losing 20%?

6.9% would be fantastic at the moment...

slopemaster

Anyway, I talked to another IFA today and preferred his approach I think.
(Only on the phone but quite a long chat)
I think the first one was too quick to jump to 'solutions' without asking me enough stuff.
As someone else said, a 'one size fits all' approach.

The second guy asked lots of Qs and just said, well these are the areas that need further discussion, rather than - this is the answer.
So I've arranged to go in and see him.