There are no short-cuts in financial planning, no big gain guarantees, no quick wins. The financial services profession still has an image problem and I propose that blindly chasing investment gains is one of the reasons why.
The Financial Conduct Authority (FCA) published its Financial Lives Survey earlier this year and amongst other things, it measured public perceptions and the profession’s reputation. Whether public uncertainty began with the 2008 financial crisis is debatable, but the survey found that 9 years later just 39% of people said they trust advisers to act in their best interest.
Alarm bells ringing
The survey also found that 23% of people had been approached about their pensions or investments by what they believed to be a scam. Analysing the issue from a different perspective; 69% of people had been approached by unsolicited claims management companies. The vultures are still circling!
Exotic overseas investments promising high returns are an increasingly common scam, typically targeting people with large final salary pension transfer values. It’s so prevalent that the FCA has just launched a TV advertising campaign warning about the dangers. These investments are typically unregulated, very high risk and almost guaranteed to fail, but the promise of huge returns proves too tempting for some. Action Fraud, the UK’s national reporting centre for fraud and cybercrime, states that victims of this kind of scam lost on average £91,000 in 2017; a devastating outcome.
Ponzi schemes, robbing Peter to pay Paul, also continue to be run by unregulated con artists and regulated advisers abusing their position of trust. Only recently a wealth manager was sentenced to six years in prison after defrauding 55 victims out of over £14.5m. In this case, investments varied between £20,000 and £750,000 and clients were promised between 4% and 8% annual growth from high-interest bank accounts. In reality, even after the base rate rise, that just isn’t possible.
Mistrust of a professional standing is deplorable and by no means am I suggesting any adviser, planner or firm promoting their service on the basis of investment returns alone are illegitimate, but doesn’t it seem short-sighted? The promotion and delivery of growth in situ isn’t financial planning; in fact, it could be argued that anyone focussed purely on performance is selling a product, rather than a service. The same could be said for advisers who’s propositions are based on outdated models. Ultimately, chasing gains will only lead to stress and disappointment.
Proceed with caution if a proposition is based on the return they intend to achieve or how they can ‘beat the market’; it’s the laziest form of promotion and often wildly unrealistic. Even the positive performance of a legitimate portfolio will not lead to financial independence on its own; it’s one small slice of the financial planning pie.
Planning, not products
Real financial advice is about having a well-structured plan and managing risk, your emotions and behaviour. Your adviser should be explaining volatility and market fluctuations, not promising returns, and reiterating the importance of sticking to your plan through thick and thin; it’s the only way to achieve true financial independence.
A well-balanced investment portfolio is important, but it should be kept simple and based on the right mix of assets for the level of risk you are comfortable taking. Chasing high gains is inherently high risk, whether it’s presented by a legitimate source or otherwise.
There are a lot of highly qualified and well-respected financial advisers and planners in this profession, here to add real value and help build you financial security. They should be easy to spot; they won’t be promoting 8% gains. If it sounds too good to be true…
The value of your investments can go down as well as up and you may not get back the full amount invested.