The value of financial advice

Rita Verma

As stormy market conditions continue, we asked Chartered Financial Planner, Rita Verma, about the advice she gives her clients to help them navigate the current climate.

Money Matters: How do market downturns affect financial planning?

When the stock market dived in March 2022 some clients got in touch. Those who did fell into two main categories. The clients who had been invested for a while and were concerned by volatility or had just received a valuation, and those who were nearing retirement. In both cases, we discussed their options; de-risk their investments and potentially miss out on growth when the market ‘bounces back’, move to higher risk investments, crystalise losses by reverting to cash, or leave their funds where they were.

I had a call from a client I’d had since 2019 when we created a plan for his future retirement. He’d just received his valuation, and his funds hadn’t performed as he’d hoped. He was considering withdrawing some of his funds into cash. It was an emotional response to his valuation and completely understandable. But he had no immediate need for the funds and still had a way to go before his planned retirement date. If he had removed funds from his investments, he would have crystalised the losses during a market downturn and removed the opportunity for future growth.

MM: Can we predict when markets bounce back?

We don’t have a crystal ball. No one knows exactly when this will happen, which is why we normally recommend investments are held for five years or longer. But we always factor in the likelihood of market correction in financial planning. Our cashflow modelling tools let us visualise this for our clients. And when markets recover, clients are generally happy for their funds to remain invested.

MM: How do we help clients understand the place of risk in their investments?

Part of an adviser’s job is to educate our clients, breaking down economic data into actionable points for their financial plans. We’ll always start with an ‘attitude to risk’ assessment, and this shows us that new investors are generally cautious. It’s human nature. With education and time, they tend to increase their risk level – unless there have been changes to their personal circumstances. We all worry from time to time, of course. And especially during market turbulence.

Sometimes I explain it like this. We have four seasons a year, but we don’t know exactly how long each one will last or what the weather will be like. It’s the same with investments. We have four main asset classes (cash, equities, property, bonds) and we never know which one will outperform the others at any time. We encourage clients to diversify across these asset classes as it is often the better option than leaving your money in one asset class.

Some people say “at least I know where I am with cash, and I’m getting the interest”, but we have to remember that interest rates aren’t keeping up with inflation, so in real terms you’re losing money over time. Investing offers the chance to generate greater profitability and it’s up to us as financial planners to explain risk and return and remind them of this at points of volatility.

MM: And how are financial decisions affected in difficult market conditions?

I’m thinking about a recent enquiry. A lady had a recent windfall and wanted to prepare for her and her son’s future. She was concerned about her legacy and a possible inheritance tax (IHT) bill. She was aware that she had a financial problem to solve and wanted help. But she wasn’t looking to invest for investments sake. She has a goal in mind. That’s where we started.

I’ve found it’s not the pounds and pence that we worry about. It’s all about the motivation for investing in the first place. In turbulent markets we’re afraid we’ll lose the progress we’ve gained towards our goals. Reassurance at these times is crucial, as clients can be tempted to make decisions that aren’t in their best interests – and sometimes not investing is also a decision. That’s where an adviser comes in.

MM: What’s the value of financial advice?

Yes. Once we’ve fulfilled our role as financial adviser and helped you create a suitable plan and put it in place, we’re also a life coach. Once we’ve gotten to know you and we understand your situation (family, home, social, work life) we’re coaching you to your chosen goals, adapting as your circumstances change and offering reassurance on the way.

It can be hard to see, because the benefits of having a financial adviser aren’t always tangible. Peace of mind, and financial confidence are by-products of having an expert on your side. We ride out the difficult times, review your situation regularly, and we contact clients to reassure them in the face of turbulent markets, as our plans are built for the long term and designed to experience disruption at times.

We are not the only people at Wren Sterling looking out for clients though. Our investment committee scrutinises the funds we recommend to our client and holds investment managers to account to ensure their ongoing suitability. There’s our risk and compliance team that ensure the advice we give is accurate and absolutely in the best interests of our clients at all times. The investments we make in technology and operations are designed to provide a better client experience – all pointing towards the goal of giving clients a sense of confidence and control of their finances.The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a reliable indicator of future performance.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

Rita Verma
About the Author

Rita has worked in the financial services industry since 2004 advising individuals on complex financial situations, she provides holistic advice to include retirement planning, tax efficient investing and inheritance tax planning. Rita helps families fulfil their goals and dreams by maximising opportunities for their finances whilst protecting them and their loved ones. Rita is also a Pension Transfer Specialist, authorised to advise on defined benefits transfers. You can get in touch with Rita at our offices in Nottingham. Our network of advisers across the UK means that if you’re looking for local financial advice, we can help. We specialise in all areas of financial planning for both corporate and individual clients all over the UK.