Six ways to keep clients invested for long-term success

1. Conduct a comprehensive goal review

As advisers you are always looking to achieve the best outcomes for your client. That means delivering advice aligned with what a client has said they want to achieve.

A useful first step in assessing the value of investing is to revisit what it is a client what’s their wealth to do for them. For example:

• Do they want their capital to grow in value to a certain amount by a certain date to, say, help pay off a property mortgage, provide a child’s college or homebuying fund, or deliver a desired level of retirement capital?
  
  
• Does the level of income they ultimately want their wealth to generate (e.g. when they retire) surpass the rate that on average, can be achieved on cash savings over the long term?
  
  
• Are they concerned about their investment capital being eroded by inflation?

If the answer is ‘Yes’ to any of these questions, then they probably need to retain an element of investment in their portfolio. Equities are one of the few asset classes that have the potential to achieve long-term growth that outstrips the rising cost of living (i.e. inflation).

Conversely, returns on cash have historically failed to keep pace with inflation, eroding the long-term value of a client’s capital.

Outside the regular reviews you already conduct, a change in circumstances – such as the receipt of new capital, a new job, a new relationship status, or plans for earlier retirement – is a valuable opportunity to help clients to review their goals.

These ‘trigger events’ are also times when clients can be particularly receptive to making sure their financial planning is optimised, and therefore can be a good time to explore the benefits of investment versus holding cash.

2. Emphasise financial well-being

Achieving good customer outcomes sits at the heart of Consumer Duty, from helping clients meet their long-term objectives to avoiding foreseeable harm.

Holding cash can give clients a sense of reassurance as their capital is secure and (depending on the notice period) readily accessible. Keeping enough cash to meet unexpected costs is often key to being able to sleep at night.

But investment can also contribute substantially to a client’s sense of financial well-being:

• Capital has more opportunity to keep up with the cost of living – rather than being eaten away by inflation
  
  
• Where a client’s risk appetite allows, they get to participate in compelling performance potential – whereas holding cash can mean ‘missing out’
  
  
• Investing can allow a client to support high-quality companies and enterprises – including ones that align with their green/ethical values or hopes for the future.

If it’s the right circumstances for your clients, showing them how investment might potentially help improve their sense of personal well-being – especially when aligned to the right level of risk and time horizon – may even encourage clients to invest more.

3. Match capital to the right level of risk

Of course, investment can only deliver a sense of financial well-being if clients are completely comfortable with the level of risk to capital it potentially entails.

A welcome development in financial planning over the past decade is the level of precision with which investments can be aligned to different levels of risk tolerance.

The Managed Portfolios Service by M&G Wealth Investment, and Risk Managed Funds and the PruFund range from Prudential all offer options with clearly-labelled levels of risk or volatility limits. In many cases, these products are independently rated by leading risk analysis services such as Defaqto, Dynamic Planner and EV.

Clients can also be shown how their risk tolerance might expand with the time available for investment as longer-term horizons give them more scope to ride out short-term market volatility.

The value of any investment can go down as well as up so your customer might not get back the amount they put in.

4. Tranche capital in line with its time horizon

As an adviser, you’ll know that cash and investments both play vital roles in financial planning. Clients can feel more comfortable about holding both if capital is allocated to each in a very disciplined way.

One popular solution is to tranche capital (often referred to as ‘bucketing’) based on the time left until it is needed. For example, capital that is potentially required in less than three years can be allocated to cash products (in addition to emergency funds requiring instance access).

A second tranche of low to medium-risk investments might be created for capital that could be called upon in three to seven years. Finally, capital that may not be required for seven years or more can be allocated to a tranche comprising investments that reflect the client’s highest tolerance for risk.

An attraction of tranching is that capital can cascade from one bucket to another as its time horizon shortens. So, clients never need to pull money out of markets at short notice – and can feel completely in control of the level of risk and accessibility of their capital at all times.

5. Show clients the power of diversification

A big appeal that cash has over investment is that its nominal value doesn’t fall. Shares, on the other hand, can see daily movements up and down in their price.

Client concerns about such volatility can be addressed by showing how allocating across different asset classes, markets, industries and themes can smooth out market movements, as rises in one area can potentially offset falls in another.

Some funds give your clients access to very specialist investments which add greater diversity. These can include investments in infrastructure in the UK, such as government projects, as well as a diverse range of global developments, including investments in renewable energy, utility service providers and large, economically and socially important investments.

If market ups and downs are a persistent concern, clients might be interested in solutions like PruFund. PruFund from Prudential is known as a multi-asset fund which invests in a wide range of different assets like shares, property, bonds and cash. PruFund aims to balance the performance of the various assets.

 PruFund aims to grow clients’ money over the medium to long term (at least 5 to 10 years) with a view to providing them with a smoother investment journey.

That’s thanks to an established smoothing mechanism and multi-asset approach; achieved through being part of Prudential's With-Profits Fund. This aims to spread the risk to your clients’ investment, which can help provide less potentially volatile returns.

Like most investments, the value of the underlying funds change daily, up or down. PruFund’s smoothing mechanism aims to reduce the impact of these movements over the short term, using Expected Growth Rates and where required, Unit Price Adjustments, to deliver a smoothed investment journey.

Prudential sets Expected Growth Rates (EGRs); these are yearly rates your clients’ investment will normally grow at. They reflect Prudential’s view of how it expects the underlying assets of the PruFund funds to perform over the long term (up to 15 years).

While the EGR reflects Prudential’s long term view, Prudential also needs to check that the fund is performing as expected; if not an adjustment may be needed to your clients’ fund value, either up or down. These are called Unit Price Adjustments (UPAs) and there are limits which set out when one would be required.

6. Keep clients informed

Another way to keep clients investing is to get them engaged in the topic of investing itself.

Every week sees fascinating developments in stock markets – from breakthrough drugs in the healthcare sector to the growing impact of artificial intelligence (AI) on almost every industry.

Keeping clients informed about what’s happening in the companies, sectors and markets that feature in their portfolio through newsletters, emails and workshops helps bring investing to life, and invite a deeper sense of involvement. It can also keep clients better prepared for any market volatility along the way.

M&G Wealth can support you with weekly market commentary to comprehensive monthly and quarterly reports, and a host of other information to help keep clients engaged.

Investing is more complex than simply holding cash. But communicated well, it can be a lot more interesting too.

A new focus on investing

Savers have enjoyed some very attractive interest rates on cash in recent years. But it looks likely they will have to turn to investment if they want the potential to replicate these returns going forward.

Advisers that are ready to support clients on this journey – with regular assessments of their goals, demonstrations of how investing can support their financial well-being, and steps to ensure clients are completely comfortable with the level of investment risk involved – will be at an advantage as this refocus on investment takes place.

For more on how M&G Wealth can help you communicate the value of long-term investing, request a call back here.