Nobody likes to be told they are wrong. Fewer still want to pay for the privilege. But for advisers that's sometimes the best deal they can ever offer. Laura Miller reports...
Growing up, we are told ‘no' quite a lot.
No, you can't have sweets before dinner. No, you can't stay up and watch TV. No, you can't have a £120 bomber jacket even if everyone else is wearing it because in a month's time they won't be and it will gravitate to the bottom of your wardrobe never to be seen again.
No is restrictive when we want to be free.
Being told ‘no' doesn't get any easier when we are adults, even when it's for our own good. As the field of behavioural economics is increasingly revealing, we are not always rational beings and don't always recognise what is best for us, especially if we feel that we are missing out on The Next Big Thing.
And the financial world is full of next big things, ones clients have heard about from a friend, on the golf course, a bloke down the pub or from an unsolicited email. High returns, no risk, guaranteed and uncorrelated. The best of all worlds.
Telling clients to steer clear of something that sounds so appealing is often the hardest part of the job. But, as the advisers we spoke to said, from Keydata to Harlequin to rice farms in Sierra Leone, ‘no' is often the best advice they ever gave.
Here, they tell their stories.
"We think guiding people away from the wrong investment decisions gains a lot of client loyalty and it's something we've done on many occasions," Lowes Financial Management managing director Ian Lowes said.
Back in 2000, Lowes had a lot of clients contacting him about high income paying investments that had been promoted to them by other IFAs. What ultimately became known as precipice bonds were being mailed by the bucketload to Lowes' clients.
"We had so many enquiries asking why we weren't recommending them that we ultimately wrote to every client with our ‘Truth behind those high yield stockmarket bonds' warning," said Lowes.
Lowes also published the research on his website to steer clients clear of the bad contracts as and when they were launched, while pointing out which ones he was prepared to use. This ultimately evolved into the websiteCompareStructuredProducts and the IFA facing service StructuredProductReview.
By issue three of Keydata's infamous secure income bonds Lowes had had so many enquiries asking for the firm's view on those arrangements that he published his findings on the site even though they were not structured products – all with a ‘Not endorsed' stamp.
"Yes we could have made a lot of money selling this stuff but we're in the business of building long-term relationships with clients and we won't let them invest in something we wouldn't invest in ourselves," Lowes said.
Lowes also warned clients away from Arch Cru in 2007 when Canada Life International wrote to investors in funds managed by Insinger de Beaufort saying that the management of the funds was being transferred to Arch Financial Products.
In a letter to investors, Lowes wrote: "The changes involve a major alteration in how and where the funds will be invested... Cru Investment Management, the advisers to Arch, adopt an absolute return policy... By their very nature these types of investment are long term and invariably difficult to value accurately... they are not regularly traded and potentially illiquid, making them difficult to realise should there be significant redemptions from the funds."
"More often than not clients won't remember what you stopped them from doing," Lowes said. "We don't get paid for not investing monies but it's part of the job of a financial adviser and essential in building long-term relationships and trust.
"For us, knowing that we're doing our job to the best of our ability is what's important."
This article continues on page 2... click through for more on Harlequin, rice farms, and Icelandic banks
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected