Oct 5 2011
By Shawn Lariviere, FMA
The current global market environment is testing the suitability of investment portfolios and is a great time for Advisors to exercise prudence in determining the real risk of clients.
As of today, many global markets have broken bear territory (a decrease of 20% from highs) and the coverage is highlighted daily on news and business channels. However, before we start panicking, lets examine first off, what is happening to many investment portfolios which are not invested in guaranteed products.
Many equity portfolios are have depressed values over the summer months reaching bear territory, previous to that, they rode the wave continuation of market growth that had started in 2008. This returned, by index values, roughly 10 % at the beginning of the year. Typically, following market indices, an all stock account (used for example to provide volatility) started in January is down about 5-8% at this time, but the same account started in June may have a 20% loss thus far. It is not yet a given that 2011 will be a losing year for equities however, portfolios may have an easier time reaching parity as investors can grow deposits at a value over the summer, with dividends, to create a positive rate of return for the year. Long-term accounts such as youthful client RSP's and locked-in accounts may have an easier time accepting the volatility whereas short term speculation accounts, Margin, & Leveraged investors will all be wearing their risk in plain view. Some, especially longer term and locked in account holders may feel (wrongly) that they cannot do anything about it anyhow and so attempt no such action. In cases such as this it is the Advisor who must take a personal analysis of the client. The investment, age of investor, and the type of account all play a role in guaging the clients "actual" risk parameter.
The first thing to assume when a client is invested in market performance items is that either the Advisor or the client has determined that the client is suitable for some degree of volatility in their search for larger returns. Secondly, it seems, either the Advisor or Client has a general understanding of the underlying investments within the portfolio and an agreement to invest as such.
In the search for greater Rate of Return on the portfolio many clients may take on more risk initially than they are comfortable with, in fact the presumed risk of the portfolio beforehand affects them much less than the actual risk of the market on their money. It is absolutely paramount, that Advisors reach out to clients during downturns in the market to guage the level of comfort that they are feeling when the situation is at hand rather than an envisioned scenario. It is not uncommon for many clients to stay the course that their Advisor has recommended but their are plenty of instances where the short talk will cause the Advisor/client to determine that a comfort zone has been breached. In other instances, the Advisor may realize a new short term goal that must be taken into consideration within the portfolio and, of course, it is not uncommon for the client to speak of a situation that would invite referrals, hence, evidence that these talks provide dual benefits.
Many clients, if not most, working outside of a private client services realtionship, will ever get a call from their advisor unless it is a sales call( ie,bank). This part of due diligence will ultimately bring you closer with your clients, attract new ones, open new cases, and prevent large falls to your client and your own investment account and assets under management.
Shawn Lariviere, FMA
can be reached on the go at shawn.lariviere@rogers.blackberry.net with any questions or concerns that you may have, on facebook or at roweandmali.com.
