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Blue Chip Journal - June 2019 edition

  • Text
  • Retirement
  • Investors
  • Funds
  • Income
  • Managers
  • Asset
  • Investments
  • Investor
  • Balanced
  • African
  • Edition
  • Www.globalafricanetwork.com

COVER PROFILE Why

COVER PROFILE Why outcome-based investing is easier than you think How should investors process the emotions that they feel during increased market uncertainty? They need to understand how their investments behave and know what is likely to happen before it happens. Equity markets are volatile and will lose capital from time to time. We have to inform clients that this will happen, making sure they know they can afford to lose capital in the short term, reassuring them they have enough time for markets to recover, and enforcing the message that the points of greatest risk often coincide with the best opportunities. This will give clients the confidence to remain invested even when the unexpected happens. Try to understand what drives uncertainty in the markets, as it is often a short-term phenomenon. Do some of your own research by understanding that it is better to remain calm and invested during uncertain times, and don’t look at your investment values on a day-to-day basis. Research showing that investor returns are lower than investment returns has been done frequently. What is likely to trigger an improvement now? Greater levels of knowledge and professionalism in the financial adviser space, together with better tools should align expectations more realistically. Unfortunately, this is not a silver bullet, and there will be many instances of clients being disappointed. Ultimately, clients need to exercise their choices and should choose their financial advisers carefully. Switches and cash flows often affect investor returns. Keep switches to a minimum and only switch if absolutely necessary or if the investment strategy changes. Most people don’t know what they want to do next year. How should they go about understanding their life-long goals? I think this is as a result of just not spending the time and effort thinking about the future and constructing stories of where and what they want to be. This is an opportunity for financial advisers to start conversations with their clients where they look at their dreams, needs and fears, and then systematically make this practical and achievable. Often we don’t understand our lifelong goals. What we do know is we want to retire comfortably and perhaps have enough money to travel and leave a legacy. This should already be enough to start a conversation and change the mindset of the investor to a longerterm view as opposed to short-term focus on risk. We manage all funds with the outcome as the focus. It’s not just a single outcome of inflation plus 5%, for example. It’s also about the experience the client has over time. It’s a fantastic story to tell and a great “aha” moment when the client finally gets it and fully understands the "what" and the "how". Once we reach that point, it is difficult to lose clients, and the whole conversation and type of language we use changes when we give feedback. Suddenly, clients understand that we don’t focus on our competitors but on the outcome and the experience. How we perform relative to our competitors is now a consequence, not the focus. We stand for keeping clients invested, using diversification and, in that process, making the journey comfortable. How does outcomebased investing align with active or passive investment management? We don’t believe it is an “or” but rather an “and”. Active or passive investing are tools in a toolkit that can address different needs and, in some instances, complement each other. Our funds generally use a blend of these approaches where it makes sense: passive for cost control, risk management and to get direct exposure to market movements, whereas active management opens up alternative sources of return, the potential to add outperformance relative to a market benchmark. The decision between active or passive investing or a combination is always approached from what the solution is targeting as a whole. Cost control is a driving factor, but so is risk and reward. Active strategies are used only where there is a clear value to be added from an outperformance perspective over time after costs have been deducted. The combination of active, passive and alternative passive strategies, for example smart beta, helps create robust outcomes over time. How can you be sure that financial advisers not only understand their clients’ goals but also have the expertise to choose the appropriate solution that will maximise the probability of achieving these goals? We try to help financial advisers through education and tools, support and contact sessions, even by growing our own tied-adviser force. However, this is not a silver bullet and clients need to be selective about which company and financial adviser they choose to partner with. Suddenly, clients understand that we focus on the outcome and the experience – how we do relative to our competitors is now a consequence, not the focus 16 www.bluechipjournal.co.za

24 32 47 59 91 85 78 63 51 What are the chances of your clients achieving their investment goals? Assess if their investments are on track. Calculate their outcome-based investing score by scanning the QR code . Speak to your Momentum consultant to find out how outcome-based investing can help you and your clients achieve their goals. Momentum Investments is a division of MMI Group Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.

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