Putting on the shoes of the salesman can help you understand their motives…
Saturday 22 November 2008
There were 10 tips issued by Robert Jenkins, chairman of the Investment Management Association, in the FT on October 19.
His comments are made to the asset management industry. You can link to the article at the FT here or download a copy here. When reading, try to look at the tips and think about how they impact on you, the end user!
He suggests if fund managers themselves don’t understand what they are buying…don’t sell it to your customers. I agree but this implies they have been doing exactly that to date! He goes on to say “Read the prospectus and read the fine print. If you cannot explain it to your mother in a way she can understand, reconsider the proposition.”
In the same way as fund managers are recommended to read the fine print, investors need to do the same. Ask yourself if you understand what you are buying? Are you sure who is doing the recommending (or selling) knows as well?
He continues “The packaging should be appropriate to the product. Think hard about including illiquid assets in open-ended funds. Moreover, remember that what starts out as a liquid asset can become illiquid if circumstances change. And beware substitute investment products. Investment banks are creating and distributing structured investment products aimed at the retail investor. Deceptively simple in sales pitch but complex in construction, they carry issuer risk, liquidity risk, and a level of cost that may not be apparent.”
The words used, sales pitch are a little off putting, but actually honest. The fund managers want to sell their funds. As the end user, you may not be buying what they think they are buying so ask questions. One other point, structured products are aimed at retail investors…that is you. I have already commented on structured products in previous blogs and you really need to know what you are buying…remembering that the sales pitch is likely to be attractive to you! The words 'marry in haste and repent in leisure' provide a good analogy to think about whilst reviewing whether these types of investments are suitable to you.
Number 6 in his list says “If in doubt, do not launch. It is human nature that we lose our heads at the top and our nerve at the bottom. Client demand often peaks at the peak. Fund managers are human and we cannot be expected to know when top or bottom has been reached. Nevertheless, there are times when our experience calls for caution. Risking one’s long established reputation for the sake of short-term asset gathering is a bad bet.”
Human nature will want to buy investments when markets are bullish. It’s a feel good factor, and asset managers know investors are unfortunately often misguided by their emotions. Ever wondered how many funds are launched year after year but how often do you hear about the failed funds…what happens to them?
…once again understand the risks you are taking.
One final point, this may sound like don’t buy any investments, but the right investments will make a significant difference to your wealth over time. The key is getting it right. Our role is to help investors make good decisions. By being transparent, investors can really start to understand why capital markets work over time.
posted by Murray Round Wealth Management @ 11:29,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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