In the realm of financial planning, the choice of investment approach is a critical factor that can determine the success or failure of a business and the financial well-being of its clients. The risks associated with an erroneous investment strategy extend beyond mere financial losses and can have profound implications for the reputation, legal standing, and client relationships of financial planning firms.
A market correction can spell disaster for a financial planning business. Time is lost calming clients’ nerves rather than building your business. Some clients may even leave after seeing their capital shrink, and your income may plunge along with the market.
When prospective clients ask why they should choose your advice firm over another, are you able to provide them with a compelling reason that clearly makes you stand out from the competition?
During the last 30-40 year investment period, investors have been spoilt by an unusually favourable period for investments and asset prices. Following the high inflation and low growth period of the 1970s – when stocks and bonds did very poorly – inflation pressures finally subsided as did high interest rates. Furthermore, we had a massive period of peaceful prosperity and globalisation, enabling lower prices and greater economic efficiency. This created excellent conditions for most asset classes to flourish and with it growth orientated static Strategic Asset Allocation (SAA) portfolios and low-cost index funds.
In today's fast-paced, technology-driven world, the adage 'if you're not moving forward, you're moving backward' holds particular significance, especially in the financial sector. For Australian financial advisers, remaining static in the face of evolving challenges and opportunities is not just a risk – it's potentially a path to obsolescence.
The September quarter was a case of back to the future for weary investors. The US S&P 500, Dow Jones Industrial Average and Nasdaq all suffered their worst quarter performance since the same period last year. In Australia, the ASX 200 has returned to its March lows.
Financial advisers come in many shapes and sizes with various approaches and value propositions to suit their clients and business goals. Yet, all share typical dynamics. Beyond the need to be profitable enough to survive, they need to:
The idea that we should invest to meet our needs and goals is basic common sense. However, somewhat surprisingly, that is not what most players within the investment industry do.
The momentum towards managed accounts is unmistakable. A noteworthy jump from 17% to 56% in the decade to 2023, with Investment Trends highlighting that more advisers are tapping into its potential. By the end of 2022, $144.5B was under management in this model, as noted by IMAP.
