Focus on downside protection: Centrepoint Alliance

Financial advisers need to overcommunicate with clients and focus on downside protection and capital preservation rather than making tactical changes as the COVID-19 pandemic continues to rock markets, according to Centrepoint Alliance.

The firm said advisers could add value by helping clients understand individual time horizons and financial requirements.

Centrepoint’s head of research, Miriam Herold, said: “The worst thing a client can do after a large equity market fall is to lock in losses by selling their equity exposure, if they don’t require the assets to fund their living expenses”.   

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Herold said the low correlation between different asset classes and their performance under different market conditions and economic scenarios was still one of the most effective strategies for managing volatility and smoothing returns for clients.

“The importance of diversification across asset classes cannot be emphasised enough,” Herold said.

“It is extremely difficult to time the market and taking this type of action may cost portfolios dearly over the long run. Instead of attempting to make tactical changes, we recommend including allocations to strategies with a specific focus on downside protection and capital preservation.”

The firm’s group executive for advice services and solutions, Kate Anderson, said it was important for advisers to overcommunicate with clients to help allay any concerns.

“Advisers have an important role to play during this time to guide clients through important and possibly life-changing decisions about their investments, superannuation and pensions,” she said.

“We have seen markets tumble before but they will bounce back and that is an important message, particularly for those who are still accumulating. For clients who are transitioning to retirement, they are the ones who more than ever will need to speak to a professional about their income requirements.”

Centrepoint said it encourage all advice businesses to test remote working to ensure it had the technology and infrastructure in place to continue to support clients.

The firm also noted that it would develop templates and tools to support advisers when speaking to their clients, regardless of the technology they were using.

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