Advised clients have reached “break point” after experiencing several negative markets, resulting in a greater preference for cash despite higher returns elsewhere, according to a certified financial planner (CFP).
“In our practice, we’ve moved a lot of clients that have been through quite a few negative markets as they’ve come to break point and don’t want to be exposed to the markets anymore,” Jordan Financial Solutions founder and CFP Damien Jordan told InvestorDaily.
“Even with interest rates as low as they are, there’re two options: one is to consolidate, hold on to as much capital and not let it haemorrhage, or two, accept a very low income return for that capital guarantee to keep it in tact.”
Current client sentiment is that the risk/reward trade off is to take a lower income for peace of mind, Jordan said.
Retired clients in particular are now exposed to greater levels of fixed interest and cash as the preference for a more conservative exposure has been increasing over the years, he said.
“Because retired clients no longer have the ability to still produce or earn an income, they’re a lot more concerned about making sure their portfolios don’t haemorrhage too much.”
Jordan Financial Solutions is spending more time with clients to educate them around the markets, including the latest downturn, their risk profile, original goals and where they are currently up to in their plan.
“Asset class and asset exposure always plays a good part of the conversation in any review,” Jordan said.
“If that client is constantly worried, can’t sleep at night and have perhaps reached that break point, we’ll suggest a more defensive exposure across their portfolio.
“At the end of the day, we need to make sure they’re comfortable and happy.”
A lack of education around other asset classes and their returns does not play a part in clients’ rush to cash, as they are making informed decisions, Jordan said.
“They’ve been through [negative markets] a couple of times now and clients are becoming more knowledgeable about the risks of investments as well as what some of their options are,” he added.
“We give them a reasonable basis and we take into account their timeframe but we make sure they’re comfortable with the pros and cons of both sides of going defensive or not.”
Economic, political and legislative uncertainties are driving the advice practice to spend more time with clients upfront to decrease fears and avoid hasty decisions, particularly when things don’t go according to plan, Jordan said.
