I am not an avid follower of football but often the unexpected team become victors, Greece being an example in the European Championships a few years ago and Wigan in the FA Cup Final this year. It made me wonder why these teams are successful, they don’t have multi million pound players and in fact they are the underdogs. The reason is actually very simple, as a team they gel and deliver what others are not expecting. Of course, there is possible a bit of luck along the way as well.
When we discuss the role of the financial planner I have said many times that the role of the financial planner is not just about the performance of the money they invest. This is important because this is often what they are judged on and actually it is the whole package that is important. In this blog I just want to consider the importance of performance because ultimately this drives the solution.
One of my favourite quotes from a fund manager is that he prefers a get rich slowly strategy, now this is a very contrarian view because actually as humans we are programmed to want to see our wealth grow quickly (and certainly not fall).
Often patience is the name of the game, take an example of a share I have been buying for about 12 months the price has varied from 25p to 58p and during this time I have added to my holding. I have researched this share carefully and I feel that at its current price it is heavily undervalued, I suspect over the next 5 to 10 years it could go to £2 plus. During this journey it will fluctuate but I am prepared to be patient.
This is not easy because you get excited when it goes up and gloomy when it goes down and often you sell or buy at the wrong time, the key is the end goal.
Now this comes back to the role of the financial planner and the money they invest for clients. I know not all will agree with this but I believe this role fundamentally sits with the financial planner and this is where the proposition is complete.
So why do I think this?
Ultimately if the adviser knows what the goals are then they should be able to develop a portfolio which can deliver those goals. This is key when we consider a team, when we sit down and create our portfolios we know in certain periods certain funds will perform better than others, this is important because it doesn’t mean that we are picking a poor fund it means we know how the manager invests their money and we are prepared to be patient for that return to come through. This means that blended together we don’t try and pick a group of funds which will shot the lights out in one go, but a blended group of investments which perform at different stages of the cycle and provide long term out performance.
And this goes back to the team analogy, we are not looking for star strikers but a mixture of good players, perhaps unseen players, but ones who all have a track record and blended together can deliver long term. We are also patient we know sometimes players will underperform but we don’t rush to replace, we monitor and constantly look for alternatives and challenge our thinking but we don’t rush in.
The argument is that going direct is cheaper, that better decisions can be made, I would challenge this. There are individuals, who go direct and can play the game well, but there are many who will start the season with some impressive goals but slowly they run out of steam and as the injuries come in the performance dips and what they have saved is quickly eroded by poor performance. Of course direct providers have rushed to help with model portfolios but some of these seemed to be stuffed with strikers or defensive players. There seems to be no balance.
So financial planners can up their game by controlling their investment proposition; the problem for some is time and resource. The dilemma is to outsource to a discretionary fund manager, or a risk asset fund range (to me these are the old managed funds but they do have a place). However, these propositions can be expensive and the financial planner has no control over the players. Even choosing an off the shelve package doesn’t solve the problem because you have no knowledge about the players.
Imagine a service which you could plug into your business like an external paraplanning service and gives you not only the team but all the data and knowledge for you to play the game.
I believe the financial planners who play the game will win in the long run, just sometimes they have to be a bit more creative like the Wigan’s of this world.