The audience at the Rome event was asked if they have ever had a problem with clients insisting on investments that actually ended up damaging their portfolio, to which 49% said yes.
The issue of insistent clients in not a new one, with research from Prudential in July last year finding that clients with high transfer values for final salary schemes were piling the pressure on advisers when they disagree with their recommendations.
But like the insistent clients, figuring out how to handle this issue is proving to be a persistent problem.
Persuasion
Speaking on a panel at the event, VZ VermögensZentrum associate director Michael Ausfelder said his team at the Swiss financial services firm had to persuade their clients out of their perspectives if they differed.
“There have been times when we’ve struggled with clients that try to force us to bring the equity weighting down, so we tell them ‘it has gone so well so please stay invested. Keep the equity weighting high because the economic backdrop is good and don’t be scared’,” he said.
“This is the hottest topic in terms of clients trying to influence the decisions. So, if someone wanted to interfere we try to persuade them not to.”
Misjudgement issue
Also on the panel, Credit Suisse fixed income credit strategist Jessie Gisiger said that, while some clients might misjudge the current financial environment, being part of a larger company allowed for more solutions.
“But the solution might be a bit more expensive if the client insists on going in one direction,” she said.
“One typical example, is a client insisting on increasing equity allocations because they think the market is going to go up. However, in my view equities at that point are overvalued. The solution is to go with convertible bonds, which give yield.
“While equities might rally, convertible bonds allow the downside to be more protected in terms of liquidity drawdown and they have a shorter duration.”
Gisiger said convertible bonds tended to be a small component in her clients’ portfolios – around 2%-3% – but noted that if clients actually listened to her she would allocate 5%-10%.
“Convertible bonds are not an asset class that works well with long term portfolio allocation. The downside is you do not have liquidity in the event of a market correction. It’s a buy and hold,” Gisiger said.
“We’ve tried so many strategies across different asset class and we found the best strategy is long S&P and long 30-year US treasuries.”
She said this strategy required less portfolio reshuffling and was suited for buy and hold investors, and those who preferred to take leverage.
“The equity part could be for example be taken in the form of actively managed fund,” she said.
