Advisers may be causing their clients to lose out on market bounces by trying to time volatile markets during the coronavirus pandemic, data from adviser platform Nucleus suggests.
The fastest growing fund holdings on Nucleus in March were global government and public securities-backed fund Trojan X, Royal London Short Duration Gilts and Vanguard's short-term bond index. A number of other cash and bond funds completed the majority of the top 10 too.
The FTSE 100 fell by 26% in early March, which led some investors to pull out of equities and into historically safe haven assets.
The platform provider's data shows a switch to more equity-dominated funds in April. However, the FTSE 100 made it's biggest recovery of 16% between 23 and 26 March and the S&P 500's recovery tells a similar story. It is not clear when these funds were most popular within each month, but it does suggest some advisers using the Nucleus platform were investing clients more cautiously in March than in April, perhaps trying to time the market.
Capital Asset Management chief executive and Chartered financial planner Alan Smith says the Nucleus data reflects the knee-jerk reactions of some advisers to market crashes in March and brings into question the value of financial advice.
"Advisers historically have made a big point about saying the reason we charge you a fee is we will avoid you making costly mistakes, we'll coach you and guide you to make sure you stick to your plan and you won't react to short term markets and market noise," he explains.
"That is a valuable service, but what this suggests is advisers are every bit as guilty of a behaviour gap and moving funds around at the wrong time as private investors."
Smith muses that advisers who try to time the market in this manner show recency bias by reacting to the immediate past, rather than to long-term trends.
"In times of apparent crisis, a good adviser effectively guides their client through these waters. A less good adviser reacts to market sentiment," he explains.
"Most other experiences in life, when there's a sense of a crisis, humans like to react, and for us to say we won't do anything goes against the grain - if a building is on fire you put the fire out."
IFA Smith & Pinching director Chartered financial planner Carl Lamb says the most value an adviser can provide is to ensure their clients understand the impact of their decisions.
"For the clients I'm dealing with, if you're already in the market, the advice is to stay exactly where you are because nothing is a gain or a loss until you crystallise it," he explains.
"I think what's more important is communicating with clients and making sure they fully understand where they are, and if they are taking income to challenge them do they need to take that income, should they be reducing that income and taking it from elsewhere."
Lamb, with more than three decades in the financial advice sector, warns advisers to be particularly careful when moving clients money during times of crisis.
"Anybody that moves anybody's money right now is potentially locking in a gain or locking in a loss and right now they're more likely to lock in a loss. I think you have to be extremely careful and very diligent with clients to know that both parties know what they're trying to achieve," he adds.
Data from AJ Bell's adviser platform shows a dominance of equity funds in recent months, with Vanguard's UK Equity Income Index topping March and Fundsmith Equity April's most popular fund.
Solomon's IFA founder and principal Dominic Thomas, who uses the Nucleus platform, says it was alarming to see some advisers try to time the market.
"I don't think that's a game financial planners are equipped to play. The best thing we can do is manage people's financial expectations," he argues.
"Most of the things we've been educating investors to do over the years as part of move to behavioural finance is you can't time the market and when things are crashing you either look at historical data or you don't and if you don't, and believe you can second guess what's going on, you might get out."
He says his experience of the Nucleus platform was "excellent" and the provider does not act to sway advisers actions about fund selection.
"Nucleus are not in any way persuading any advisers to do anything. They're not wagging the tail of the client and clients - advisers are responsible for the advice they give."
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