The shadow of the referendum in three weeks’ time looms over investment decision-making. Faced with a client who has cash to invest, what should an adviser do now? Wait till after the poll, invest now or invest some now and then some later?
The issue brings into sharp focus the perils of attempting to time the market but the strong temptation to do so – very often driven by clients’ hopes and fears. And there’s no unanimity among investment managers. A few weeks ago one DFM I met was keen to buy UK equities on the basis that a remain vote was inevitable and would be followed by an equity upswing. The following week, I heard fund manager Nick Train telling advisers that market timing is futile – particularly around Brexit.
The case against market timing on such events as the referendum is that the future is hard to predict. There’s always the chance that the electorate will have the temerity to disobey the massed ranks of most economists and fund managers and vote for Brexit. More seriously, it is always tricky to evaluate just how much of the danger of Brexit is already in the price of investments.
Waiting till after the poll could turn out well if the Brexiteers are victorious. Yet if the remainers win, the market might well rise before even the fastest moving investors can get in. And in any case other factors might turn out to be more important than the referendum – both on the day and in the following weeks. So investing some now and some later could end up with the worst of both worlds.
The inevitability of ‘events’ demonstrates the value that financial advisers deliver to clients. Platforum research shows that more advised clients (33%) commit to regular investing as their modus operandi than self-directed investors (26%). For the rest, the adviser can add further value by explaining the dilemma clearly and agreeing some kind of phased approach – invest some now, and then some more later. It might not be logical, but it could be emotionally intelligent and advisers understand the perils of ignoring client psychology.
If you are an investment adviser grappling with this issue, take this Money Marketing poll, which takes the industry pulse on whether advisers are recommending UK equity funds ahead of Brexit.
The EU referendum could impact €2.2tn of UK managed and/or domiciled funds – far larger than the domestic UK market. The Platforum European Fund Distribution research series covers the open architecture platform market in individual country markets and the international cross-border market with a view to helping platforms, fund managers and distributors to understand the current state of play and the opportunities. For more information, sign up to our webinar… click here for details.