Guiding investors through the turbulence of global volatility

Investors are facing turbulent times as the global market returns to volatility. Steering them through these choppy waters will be their wealth manager, and both parties must be in it for the long haul.

Investors aren't oblivious to growing unease in global markets and are already seeking advice on how to avoid shocks, says Bernard Walsh, head of pensions and investments at Bank of Ireland.

“A lot of clients I am meeting at the moment are saying they are holding off on investing because they are concerned about trade wars, they are concerned about Brexit in particular. It’s something I am hearing again and again.”

Yet Walsh is keen to stress that Brexit, if and when it occurs, will not have the impact on investment portfolios that people are fearing.

“There is no doubt that Brexit has massive economic implications for Ireland, but from an investment point of view, it is not a major issue. A recent survey of fund managers were asked about their major concerns right now and Brexit came below ‘don’t know’ and ‘other’.”

Walsh explains that the financial services industry categorises risk acceptance on a scale of 1-7, with 1 being the lowest level of risk and 7 being the highest. “Almost all people in Ireland come out as 3 or 4. With a typical portfolio at level 3 or 4, its exposure to the UK would generally be below 3 per cent.”

There is a distinctly gloomy economic picture being painted globally for the next 12 to 24 months, according to Gareth Hetherington, associate director of the Ulster University Economic Policy Centre.

“From an overall economic point of view, clearly, we are entering a more challenging time. The International Monetary Fund’s latest world economic outlook is called ‘Growth Slowdown: Precarious Recovery’. That in itself doesn’t inspire confidence both in terms of where we are going in the short-term, ie a global slowdown, and then the scope for economic recovery in the medium to longer term,” he explains.

Eighteen months ago, the global economic picture was actually “quite rosy”, notes Hetherington, with, the US, China, and the EU all growing reasonably strongly at the same time. This “global growth synchronicity” has since begun to slow, if not reverse, and the indications now are that these economic powerhouses are flirting with recession.

‘Significant risk’

“If the US and China go into recession, that will have a major impact on global growth but also potential stock market evaluations. As the realisation of an economic slowdown and potential recession increases, so too does the risk of a correction in global stock markets and from a wealth management point of view, that’s a significant risk for people to be conscious of,” he explains.

All indicators point to an extended period of low interest rates, a situation that is obviously good for borrowers but not good for savers, adds Hetherington. “What tends to happen is people start to look for yield elsewhere, which has distorted other markets. There are suggestions that global stock markets are reasonably pricey and there aren’t many bargains out there.”

However, Walsh says the impact of chronically low interest rates means the stock market is the only place customers will be guaranteed a return.

“We are unlikely to see an interest rate increase in Europe for a very long time, so customers need to look at getting a better return on their money,” he says. “Our opinion is that while the global stock market may have bumps along the way and returns may not be as good as they have been for the last 10 years, it is absolutely the main source of growth for the future.”

The wealth manager is now an invaluable companion on that bumpy road, says Simon Hoffman, head of intermediary distribution at BCP Asset Management.

“Volatility is returning to equity markets as there are so many potential shocks that could hit after the end of a rather frothy period. This period of low deposit rates and low yields is set to continue for the short to medium-term, while the safe havens are getting lower and lower value for money,” he explains.

This means that wealth managers are taking a long-term view and carefully tailoring investment solutions to suit their particular clients. This is in contrast to historical interactions between the two parties, which were mainly transaction-based and would typically take “five minutes”, admits Hoffman.

“Now because of client demand, and also regulatory pressures to some extent, that has been turned on its head. The financial adviser relationship is now completely different. It is now incumbent on a financial adviser to sit down and get to know his or her client properly, in order to be able to provide a more holistic approach and better advice,” he says.

New sense of loyalty

This has fostered a new sense of loyalty between both parties, adds Hoffman. “The adviser just going in with a solution and telling the client what return they will get, those days are over. Now it’s more of an in-depth, long-term view. The value is given over the lifetime of the relationship.”

Simon Howley, head of wealth management at Goodbody, agrees there has been a fundamental shift in the role of the wealth manager.

“Ten to 15 years ago, people on the frontline managing relationships were focused on transactions, but now we are more focused on interacting with clients and helping them plan for challenges ahead and changes in their lives, such as selling a business, or dealing with a death in the family.”

This means that financial advisers must be “excellent listeners”, adds Howley. “That is a big challenge for us as an industry to make sure our wealth managers have those skills.”

He agrees with Hoffman that advisers now take the time to build trust and offer their clients an appropriate solution. “It is very hard for clients to accept that they are not getting a return by holding their cash in a bank or in bonds so our role is educating them on the nature of risk – if they want any return at all they have to accept some level of risk. Our job is to make sure we are matching the appropriate level of risk with the client.”

Howley believes that as the global economy faces uncertain times, a strong relationship between wealth manager and client will be invaluable. “It’s a much better relationship because you are now their trusted adviser and being at the centre of their planning process. The investment solutions we provide our clients are highly structured and really well-diversified and better able to weather choppier markets.”