29 Jul The real value of good advice
The number of investment failures that have hit the headlines in recent weeks is a reminder of the value of good financial advice.
Earlier this year, London Capital & Finance (LCF) collapsed after Financial Conduct Authority (FCA) launched an investigation and forced the firm to suspend all its regulated activity. Nearly 12,000 people who invested £236 million into the firm’s unregulated mini-bond, which it claimed offered 8% return, lost their money. Many of them are now seeking compensation from the Financial Services Compensation Scheme.
You may have also seen headlines about the ongoing problems at one of UK’s most celebrated active fund managers, Neil Woodford. His flagship fund Woodford Equity Income fund, which at one point had over £10 billion invested at one point, was abruptly suspended early last month. Investors in the funds have been unable to access their money. There is now speculation on whether the fund will reopen again unless it is able to sell all of its unquoted holdings and some of its illiquid quoted investments.
These are clearly worrying events for those who put their money in these firms. We are pleased to note that we have never recommended these investments to any of our clients. We have always advised our clients to steer clear of unregulated investments like mini-bonds. We prefer to use liquid, transparent, stable companies like Vanguard, Dimensional, Legal and General and Blackrock/ iShares, who over low cost, index linked and non-predictive (passive) strategies.
This is one of the many underappreciated advantages of good financial advice. A good financial adviser will conduct in-depth due-diligence to understand the risk of the investments they recommend. The value of any adviser is not only in what they recommend; It is also in what they avoid. A good financial adviser stands between you and financial mistakes.
Good advice is not about trends or which strategy or manager is hot at the moment. It is about making sound, well-reasoned decisions that are consistent with the adviser’s philosophies and convictions. At Tandem, we cannot predict markets or consistently choose winning funds, but we can take the correct steps to ensure that we do not expose our clients to investments that we do not believe in.