I mentioned in the last Arch Blogg that we had again been shortlisted for the prestigious New Model Adviser of the Year Award for the South East Region. 

Being ‘shortlisted’ has become something of a theme for us as 2011 gets under way. We are also delighted to have made it to the shortlist for the fourth year running for the Professional Adviser Baillie Gifford Financial Education Award (congratulations to Jacksons Financial Services of Penzance for winning this year) and for the first time to be shortlisted for the Professional Adviser Best IFA Website Award (congratulations to Informed Choice, also of Cranleigh, for winning this year).

Short-changed by cash

With the Consumer Prices Index (CPI) at 4.0% over the 12 months to January and the Retail Prices Index (RPI) at 5.1% over the same period, I am sure that most readers will realise that any investment producing less than 4.0% after tax is actually losing them money. This includes the majority of deposit accounts and Cash ISAs. At present I would assume that the Bank of England is reasonably relaxed about the current level of inflation as it is not yet creating a demand for wage increases and it is therefore reducing our standard of living without too much fuss – which is good news for a country with as much debt as we have. I think it is unlikely that inflation will get out of hand in the developed countries (although it is increasingly seen as a problem for emerging markets) as central banks have a lot of room to raise interest rates to combat that, although they will be very careful in the near future not to stifle the fragile recovery.

Having said the forgoing we would always suggest that you should consider keeping some money available which is immediately accessible to cover any unforeseen emergency expenditure that may arise. We would usually recommend, as a minimum, that you retain an emergency fund equal to three month’s expenditure within an immediate access deposit account. Beyond that you should only use cash deposits if you are not prepared to take any risk with your investments.

Short-changed by poor investments

We launched our current investment proposition in July 2009 and we have gradually been moving our clients to the range of OBSR risk-rated portfolios that we have made available via the Nucleus Wrap platform. Many of our clients have now been invested in one or more of the portfolios for a full year. If you have not yet allowed us to investigate whether we can ‘tidy up’ your investments and pension funds onto the Nucleus Wrap, or you are keeping unnecessarily large amounts in deposit accounts, let me encourage you to rethink this by providing details of the performance of the five main OBSR Portfolios over the 12 months to 18 February.

The following figures are from Morningstar, a leading provider of independent investment research in North America, Europe, Australia and Asia.

Portfolios in order of increasing risk ….Investment Return 12mths to 18th Feb 2011

OBSR Income Portfolio ………………………………….7.64%

OBSR Cautious Portfolio ………………………………10.37%

OBSR Balanced Portfolio ………………………………13.92%

OBSR Active Portfolio ………………………………….15.50%

OBSR Aggressive Portfolio …………………………..19.14%

You cannot judge an investment over a period as short as a year. The figures are there merely to encourage you to look at the investment growth that you obtained on your investments over the same period. If you would like to benefit from one of these professionally and actively managed portfolios then please do get in touch and we will be delighted to show you how easy it is.

Short-changed ethically

We have recently added to the range of portfolios by designing our own Ethical Portfolios. We would have preferred to have the likes of OBSR provide these for us but the fact is that we were not able to find suitable ethical portfolios that we could recommend to our clients. The Arch Ethical Portfolios are available via the Nucleus Wrap and where possible we keep them close to the process we already use for the OBSR portfolios, including use of the Ibbotson Associates asset allocation and quarterly rebalancing. If you would like further information on these please let us know.

Short-changed by ‘old model’ advisers

Many financial advisers are still trying to research and recommend individual funds to suit the needs of their clients. They then either leave those funds unaltered without any formal review process, or they make an attempt to rebalance clients’ portfolios from time to time.  This ‘old model’ has become increasingly cumbersome as advisers try to keep abreast of so many changes that are occurring with increasing rapidity, such as:

• The proliferation of new fund launches, each one requiring analysis before being recommended to their clients.
• The increasing use of a wider range of asset classes which are now available under the UCITS III directive, which, whilst being of enormous benefit to investors, has added to the complexity of asset allocation and rebalancing.
• The constant movement of fund managers from one investment house to another, results in analysis being required each time to evaluate the likely impact on the fund and forwarding misgivings to all of the adviser’s clients when appropriate.
• The increasing number of smaller boutique investment management companies, some of which have been poorly funded.

Any financial advisers worthy of the name will be constantly striving to increase their knowledge of investment theory and practice through studying for professional examinations (for example I hold the CII’s Investment Portfolio Management qualification); attending investment seminars and workshops; meeting fund managers and, of course, reading a very wide range of investment publications and trade journals. However, much of this work has moved beyond the specialist areas of expertise of financial advisers, leading us to the conclusion that with such complex advances in the investment process it is foreseeable that an adviser’s standard of advice could be compromised if they were not to outsource the technical aspects to specialist partners.

If you would like to discuss the use of our investment proposition for your pensions or investments please ask your usual Arch adviser, telephone 01483 204600 or email enquiries@arch-fp.co.uk.