With stock markets in the US and UK close to all-time highs just five years on from the dark days of 2009 it is easy to become complacent and think that you can do it yourself, after all it would have been more difficult to lose money than make money over this time. The problem is that’s the past and as the well-known warning says past performance is not a guide to future performance.
DIY investors have a habit of picking last year’s best asset and are reluctant to buy something that has fallen in value. A professional advisor should be looking for next year’s best asset.
Some DIY investors find it difficult to move past simply looking at what grew most over the past year but when they do they often focus on a couple of other measures such as dividend yield or price to earnings ratio and buy investments that are above or below a trigger point. Without fully understanding why an investment has a particular yield or ratio using that as a buy or a sell signal can be very dangerous. For example a historic dividend yield can be very high because a company is about to go into liquidation and will never pay a dividend again!
Like a compulsive gambler DIY investors can be very good at recalling their wins but spectacularly bad at remembering their losses. They remember the technology unit trust they bought and trebled their money on and got out of just in time during the dotcom boom but forget what happened to their portfolio of supposedly “safe” bank shares during the credit crisis.
It is important to know your weaknesses as well as your strengths and like most IFAs we accept that advising on individual share, bond or property selection is not what we do. We leave that to specialist fund managers to handle this part of the process, typically through a unit trust or OEIC. In the investment process, through our research and expertise, we add value around the asset and regional allocation and then the individual fund selection.
Again, when it comes to investing money through collective investments DIY investors often pick a couple of last year’s best performers or if they know about a couple of performance measures such as Alpha or Information Ratio pick funds that score highest on this basis. These measures definitely have a place but without understanding why the funds have these scores using them in isolation can be dangerous. As we manage the money of hundreds of clients we have access to the fund management groups in ways that the ordinary retail investor does not. We are able to meet the actual fund managers in the flesh and ask them about the decisions they have made within their fund and why.
We also analyse how the funds blend with each other. A DIY investor picking the top two funds from the UK all companies sector may think they have diversification but in fact the funds could be invested in the same shares meaning they are actually adding to their risk. At the other extreme if you diversify too much you simply end up with an expensive tracker fund.
Investment selection and performance aside, financial advice is tailored to the individual and takes into account their needs. Advisers ask questions relating to your future plans and tailor your investments accordingly. For example, are you expecting to pay towards a wedding or university fees in the future? Will you need to have any major work done to your home? What would the impact be of a 20% fall in the value of your investment on your lifestyle? These are things an IFA considers when giving you advice and investing your money for you, we think of things that need to be taken into account that may seem irrelevant to the client until the adviser mentions it.
We also help protect investors from themselves! Inevitably there will be times when investments fall in vale. Some DIY investors have a habit of running for the hills at this stage and crystallising their losses. We’re able to remind them of the long term nature of their investments why they invested in the first place and encourage them to ride out the storm.
Tax planning is often overlooked by DIY investor as well. They know to use their ISA allowance each but very few actively make use of their CGT allowance to rebase the cost of their portfolio and save 18-28% tax on £10,000 + of gains each year.
Having your own IFA gives the client continuity, a point of contact who knows them and their individual circumstances eliminating the need for frustrating call centres or generic email responses.
There is also the opportunity for an IFA to spot flaws in other areas of your finances. As a result of examining other areas of peoples finances we have discovered several miss-sold policies (PPI anyone?) resulting in our clients receiving pay outs between £8,000 and £90,000!
Sometimes what the client is looking for is simply reconfirmation that what they think they need is correct and for the IFA to take the strain out of making the investment for them, the only part of form filling our clients have to do is in the signature box.
In recent years, when things have been tough our clients have benefited from the hand holding that we provide and the work we put into managing and monitoring their investments. Bryce Sanders, president of US financial services consultancy Perceptive Business Solutions words an IFAs role in tricky times brilliantly- ‘if a client is standing in the road and a speeding lorry is heading towards him, the adviser is the person who picks him up just in time and puts him back on the curb- that has value’.
In conclusion whilst we don’t dispute that there is a place in the market for DIY investing we do believe that it is a niche market and that if you have the knowledge, time to research, access to the correct technology, and confidence to invest via an online provider then that is probably the right option for you. However the majority of people do better by seeking out tailored advice from an independent financial adviser.
But following the recent widespread flooding, it is perhaps an appropriate time for a little blow of the brokers trumpet and an insight as to some of the work done, much of it unseen.
Insurers generally respond well to large scale disasters when they are in the media spotlight, although they are a bit like politicians and can respond differently once the media lose interest. Inevitably not all claims are going as smoothly or quickly as policyholders had hoped and some insurers are now receiving media attention for the wrong reasons, although insurers can't magic water away and properties have to dry out.
It is at the time of claims that brokers can truly prove their worth, providing vital initial advice, along with guidance through the claims process, so you know what to expect and where relevant, the options available. The majority of claims are generally straight forward and may, to the client, go smoothly, but behind the scenes the broker may well have been chasing and liaising with insurers and loss adjustors to negotiate a fair settlement. A few years ago research by the British Insurance Brokers Association showed that brokers generally negotiated fairer claim settlements than those dealing direct and if there are complications involving cover, under insurance or betterment, do you really want to be on your own?
And it is not just claims where you need a broker, nowadays there are many ways of arranging insurance and the personal lines insurance market in particular has been revolutionised, firstly by Direct Line and more latterly the price comparison websites. Most car and home insurance products have now become commoditised, seemingly all providing similar covers, but when the detail is examined the differences in policies can be marked and not necessarily suitable for an individual’s needs.
The trend to commoditisation has also started with business insurance (generally small business products at the moment) and if you buy online it will be a ‘non-advised’ sale, where you are given details of the insurance contract and you decide if it is suitable for your circumstances. The information will include a summary of cover that is supposed to include all significant exclusions (they don’t) and most then get you to ‘tick the box’ to say that you have read and understood the full policy wording, knowing that the vast majority of customers do not!
By contrast, the service offered by brokers is far more than transactional, with most providing professional advice by reviewing the risks you face, explaining terminology such as material facts, exclusions and warranties before recommending suitable covers to best protect your business. Getting the choice of cover and insurer right in the first place avoids problems with claims and it shouldn't stop there. As important is the on-going advice. Businesses change and adapt over time, so do the risks that they face and it is vital that insurance coverage is kept up to date.
As mentioned earlier, insurance brokers have not been great at PR and failure to publicise the benefits of the services they provide made it easier for the direct insurers to enter the market. The opening up of new distribution channels has made the UK market extremely competitive, but the concern is that there has been a 'dumbing down' of products with cost being the overriding factor at the expense of cover and the Chartered Insurance Institute are now trying to change the public perception of insurance by promoting professionalism in the industry with 'Chartered' awarded to both insurers and brokers who meet certain standards.
As technology continues to advance and customer expectations increase, insurance brokers, like all service providers, face the challenge to show that they continue to provide a valued service at competitive pricing. As with all products, it may be cheaper elsewhere, but the phrase “you pays your money and you takes your choice” come to mind.]]>
So, on Wednesday 26th February David Elliot-Rose and Dave Cole attended a Rampion Offshore Wind Farm 'Meet the Buyer' event at the Amex Stadium, Brighton, hosted by the developers, E.ON. The main aim of this event was to inform local businesses of potential opportunities that could arise from the construction and operation of the wind farm project, assuming it receives consent later in 2014. The grand setting of Brighton’s football club stadium hosted some 250 – 300 persons with a conference style programme in the morning, followed by interactive breakout focus group sessions in the afternoon.The first morning session provided a project update and supply chain support, introduced by Chris Tomlinson, Rampion Development Manager.
This session then included an introduction to the supply chain steering group and associated studies, a Rampion project update, with a report on the way forward to construction and operation, followed by comments on supporting supply chain development. The presentation continued with an item relating to business growth grants and then a specific item for grants and loans for East Sussex businesses.
After a break, the morning continued with overviews of supply chain contract packages, then offshore work packages, then followed by an absorbing presentation and video from Vestas (turbine manufacturer) regarding their history and worldwide operations. The morning concluded with an overview of onshore work packages and operations and maintenance needs for when the project is completed.
A networking lunch and exhibition had been prepared with the opportunity to meet other local businesses, and project and procurement staff from E.ON's Rampion Project Team.
This was a fascinating and rewarding presentation which included speakers from E.ON, Vestas, Marine South East, Grant Thornton, Coast2Capital and Locate East Sussex.
Early cyber policies included Liability & Property Modules. The liability cover addressed claim expenses and liability arising out of a security breach of the insured’s computer systems, although some early policies only covered technical security breaches. The property-related modules covered business interruption and data asset loss or damage arising out of a data breach with additional first party covers including such things cyber-extortion coverage. Unfortunately for the insurers it was not easy to get people to understand the need for this coverage and this still remains a challenge today, but it is now certainly a lesser challenge with all of the security and privacy news that’s constantly streaming.
One change that has occurred over time and has had a significant impact concerning the frequency and magnitude of data breaches is organised crime. In the early 2000s hacking was more of an exercise in annoyance or used for bragging purposes. Hackers at that time wanted their exploits talked about and known as well as the notoriety for hacking into or bringing down sophisticated businesses.
The real criminals, of course, are less interested in such notoriety. In fact, when trying to steal millions of records to commit identity theft or credit card fraud it is much better for them not to be detected. Recognising that this type of crime is low risk with high reward. Nowadays the sophistication of the cyber criminals has effectively resulted in a relentless crime machine constantly attacking and looking for new ways to attack, and always seeming to be one step ahead of those seeking to stop them. That is why we here about security and privacy breaches practically every day in the newspaper and in the media.
Today Cyber Insurance is a much more established market with more carriers now looking to provide the appropriate cover for businesses of all sizes who are now beginning to see Cyber Insurance more as a mandatory purchase rather than discretionary. As the world continues to change at an alarming rate cyber risks increase with the advent of such things as hacktivism and the monstrous amount of people using social media, the need for Cyber Insurance is also growing. With competition pushing cyber insurance prices down, and significant security and privacy risk being retained by organizations, risk transfer is becoming even more attractive.]]>
At Nsure we feel we contribute to these statistics by making sure that following on from school or college education, all of our staff are appropriately qualified or helped by us to qualify for their job. We do this via our successful trainee/ graduate programs within the Financial Services division of the company. This year so far, three members of the general insurance team have passed exams and gained further industry relevant certificates. Despite only being a part of the general insurance team for a matter of months Laura McCarthy has already passed her first exam towards the Certificate in Insurance. Two of the financial service team have also passed qualifications this year. It is our dedication to training our staff that has resulted in each part of the Nsure Group of companies being accredited with the Investors In People award (IIP) every year for nearly a decade.
We also volunteer our time at Worthing High School teaching financial literacy twice a week. Our lessons cover budgeting, savings, debt, investment, insurance and financing property purchases/ rent alongside the cost of living. These lessons are well received by pupils and often prove to be a real eye opener to them. We have been teaching pupils twice a week for the past five years. We have also had various pupils come to us for work experience in year ten getting a taste of how the financial services business works.
Our staff come from various educational backgrounds, from school leavers to university graduates and industry experts including Fellows of their profession. Regardless of background all forty of our staff share the same goal that it appears 95.6% of Worthing do- to be the best that you can possibly be.