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Sharemarket success no easy ride

Inexperienced advisers might be tempted to use sharemarket gains as a way to score wins with clients – but are being told they might regret it.

Tuesday, October 10th 2017, 6:00AM 1 Comment

by Susan Edmunds

New Zealand share prices have been rising steadily since 2009 and the NZX50 hit 8000 points for the first time on Monday.

Financial adviser Simon Hassan said the long run of strong returns might make it feel as though advisers’ jobs were easier.

“It’s easier to make clients go ahead [with investments],” he said. “But the corollary is that it’s harder to get them to stay with those investments when it goes down again.”

Advisers would have to emphasise that the strong performance of any asset was short-term. 

“You can’t make it a selling point that the market has gone up and up and has hit records because if anything that’s just an indication it will all go down again soon.”

He said inexperienced advisers might be tempted to use it as an opportunity to sell shares but that would be “foolish”. “Then they have to justify the losses later on.”

All advisers should tell clients that it was their long-term goals and plans that were important, and how their portfolio was structured to achieve that, not short-term market movements.

Commentator Shamubeel Eaqub said almost all investment assets seemed overvalued and the important thing for investment advisers would be to make sure their clients’ portfolios could withstand structural changes coming from offshore.

International central banks are beginning a move to unwind quantitative easing, led by the US Federal Reserve.

That could mean interest rates return to more normal levels and currency rates pick up, removing some of the strength in asset prices.

Eaqub said there would be few advisers who had not had a good run over recent years.

“Markets have been going strong so unless you’ve made your clients lots and lots of money, you’ve screwed up.”

Tags: investment

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Comments from our readers

On 10 October 2017 at 8:32 am Brent Sheather said:
Hmmm, I get a little annoyed at frivolous, flippant comments like “investment advisers should make sure their client’s portfolios could withstand structural changes coming from offshore”. Perhaps Good Returns could ask Mr Eaqub how exactly investment advisers might do this? Seems to me if you are worried that interest rates are going to go up and equity and bond prices go down the only way to “withstand” that sort of action would be to move to cash. Surely Mr Eaqub isn’t recommending everybody sell their shares and bonds and move to cash or some other esoteric high cost, non performing, niche strategy like long/short or hedge funds? It is important when “commentators” make this sort of insouciant, off-hand remark that they back it up with some facts. As I am sure Mr Eaqub knows, in respect of the residential property market, market timing is a high risk strategy. Over to you Shamubeel….

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