A good financial adviser will help you stay on course

Does your financial adviser know their stuff?

The importance of a good financial adviser that understand economics and the mechanics of investing was highlighted recently by a frank interview with multi billion investment house Baillie Gifford.

This column has highlighted more than once the need for advisers to help clients understand long term investment strategies and not to rush into knee-jerk reactions prompted by temporary dips or world events.

In a Citywire interview, James Budden, director of marketing and distribution at Baillie Gifford, said some financial advisers did not really know what they were investing in and didn’t understand the firm’s investment approach.

He was speaking as BG saw a £20billion drop in its managed assets in just 12 months.

Mr Budden is quoted as saying: “You have to stay loyal to what you do. You don’t change anything, because that is the route to disaster.

“People, quite often lots of them, were investing in our funds because those funds were top of the charts. A lot of these people didn’t realise the nature of our investment approach – that we’re nothing like an index and very growth-oriented – so there will be periods when we will be out of favour.”

The company realised more needed to be done on the marketing side to educate people on their investment style.

Whilst recently (and previously) we don’t hold BG funds, in our experience it is true though – do you or does your financial adviser just buy what seemed good before and not really understand very much about what’s going-on under the bonnet?

Does your financial adviser, your confidant who sold you the product, have a view that isn’t just ‘there, there, it will be alright in the end’?

What is that sentiment based upon? Do they understand the underlying tangible values in the markets and have a handle on economics and what is happening? We are not perfect but do we earn most of our money in encouraging people to do what is probably the best thing they should be doing at what may be a very uncomfortable time.

Instead, those who ‘do it themselves’ and who like checking their investment statements when the values only go upwards are their own worst enemies when the opposite happens – as they have no handle to know what they should be doing and all too often, they push that big red button and cash-out at the worst time, only to venture back again when things have recovered and are much higher.

As any good financial adviser should be and certainly for our clients, we are a ‘barrier’ – not to stop them accessing what they need, but an entity to add trusted opinion before an instruction is implemented, as it can be so easy these days and then it is too late – and we’ll talk to any of our clients too – all part of the service.

At Baillie Gifford, Mr Budden said the company’s priority was existing clients and ‘keeping people informed’: “People want to know why things have gone wrong, or whether you know why they’ve gone down. Is there any hope for them coming back up? You have to answer those questions.”