Transcript
Welcome to Wright Hassall’s podcast on “Good Markets Hiding Bad Advice”.
I have with me today Susan Hopcraft, a Partner in our Commercial Litigation Team at Wright Hassall, and Matt Goodwin, an Associate in the team, both of whom specialise in claims against negligent financial advisers and other financial services claims. Good morning both.
Susan, Matt, a lot of people are looking at their pension and investment funds having dropped a significant amount during this Covid Crisis – is this just bad markets? Or is there something more to have a look at?
Podcast covers the answers to the questions and outline below:
- The reality is that everybody’s portfolio will have dropped by something in this current environment. But the question to look at is how much has it dropped by – and should it have dropped by this much if it had been properly invested?
- The markets have been relatively kind over the last few years, and what we are seeing come out of the woodwork now is poor advice from IFAs and other advisers that has been hidden by the markets being good.
- That poor advice has now left a number of our clients exposed to a significantly greater degree than they should otherwise have been.
What constitutes “poor advice”?
- Heavily regulated industry
- Should be risk appetite questionnaire classifying individuals as anything from risk averse – cautious, to aggressive/adventurous. Your classification and willingness to take risks increases the level of return you might receive, but also increases the amount you might be prepared to lose if things go against you.
- We are seeing three types of issues with risk appetite questionnaires:
- They don’t exist;
- They are fundamentally incorrect; or
- They are accurate but are not reflected by the risky investments subsequently pursued.
- That is point 1 – is there a risk appetite questionnaire of some form and if so is it accurate.
- Point 2 then is how to spot a bad investment. This is very difficult – just because an investment has not turned out as hoped does not make it a bad investment. However, things to look out for are, for example, investments that have gone illiquid very quickly, highly geared investments – that is where companies have borrowed against the investments to buy assets to boost returns – and also where a large proportion of your portfolio is invested in one type of asset – for example, a lot of property or bricks and mortar assets in one portfolio would usually indicate a significant level of risk.
- There may well be nothing in your portfolio that jumps out at you as high risk or not in line with what you were expecting. But if your losses are high it is always sensible to get it checked out with us or an alternative adviser.
