IF YOU as a financial services professional think consumers have some way to go in understanding the nature of investments and the provision of advice, get ready for a bumpy three months.
Between now and September most investors in Australia will be getting their annual reports and the true nature of their investments will come to light.
There is no need to discuss the savaging many managers have had in the market or what this means to returns, all this has happened before and will happen again.
But what is truly unique this time around is that those people at the end of the value chain, the consumers, have changed since the last major fall in returns and investments.
Never before have we had such a big pool of investors or the wealth they bring. Never before have these investors been so educated, in many cases more so than they are given credit for, and never before have they been in a situation where they felt they can act if they feel things could have gone better.
Consumers and the financial services industry have seen much worse days on the balance sheet and many people will remember the depths of the 1987 crash, as well as the grey days surrounding the 1993/94 recession.
While these were indeed grim times they were not combined with the high levels of awareness consumers now have, or the sums of money they have invested.
While most clients will understand the cyclical nature of investments on a logical level, they still rightly see lost investments as their money and will act, logically or not, to ensure they get what is theirs.
Recent court action has borne this out and the whole nature of the professional indemnity insurance crisis has also proven the point. Insurers are afraid to provide cover because of the fear of being cleaned out in a spate of client-driven legal cases.
This means the industry now sits at a key moment in its recent history when a number of events have come together to create an environment that has never developed and probably won’t occur again, depending on how the situation is handled by fund managers and financial planners.
The start of a new tax year is normally considered the calm after the end-of-year tax frenzy, but unless you have truly been advising and educating clients, it could very well turn into a long period of finger pointing and calling to account.
