KEY POINTS:
Grant Brenton, general manager of personal client services at Guardian Trust, talks about wealth management.
What is the state of the wealth management business at present?
While everyone is aware of the global credit crisis, there are subtle differences in the effects it is having in each country. In the US, the effect of the subprime mortgage meltdown means that country may already be experiencing a recession, and experts estimate the UK is about six months behind that stage.
In New Zealand, the softening in the housing market, combined with the advent of KiwiSaver, means for the first time, many New Zealanders are thinking about building and managing wealth as something more than paying off the mortgage.
Some analysts are taking the view the wealth management market for Americans is past its prime, but in New Zealand our view is the opposite - the net worth of individual Kiwis has increased at an extraordinary rate over the past decade or so, and there are excellent opportunities.
What has been the response of investors to the negative state of the market?
In times of uncertainty, people become more conservative - that's human nature. Some choose to bank their money and wait for the upturn.
However, what all good wealth managers remind their clients of in a bear market is the best investors behave consistently and don't allow strategy to be dictated by market changes. If you have a strong portfolio to begin with, one that has true diversification and a level of risk you're comfortable with, its value will steadily grow.
What are the golden rules investors should follow?
Many of the rules that should apply to an economy can also be taken to heart by individual investors. Just as a government should create a policy framework that allows for balanced growth of all economic sectors, so should investors spread their risk by diversifying investments across different asset classes, domestically and globally.
The process of asset allocation is especially important because no one can predict what will happen to any given asset class.
What opportunities exist in a volatile or uncertain market such as this one?
Each of us should take advantage of wealth-building opportunities offshore while investing in strong local prospects to maximise returns and balance risk. What investors can anticipate with confidence is the markets will rise again. In fact, historical data shows equity markets recover rapidly from years in which there has been poor performance.
Over the past three decades, each time there was a downturn for a year or two, the growth in subsequent years was good. Well-diversified investors have nothing to fear as long as their strategy is consistent, because a broadly diverse portfolio essentially has a protective effect.
Where and how should people be seeking advice? Should the source differ between experienced investors and those looking to set up their first portfolio?
Many people have unique personal situations that may be complicated in some way, so there is a need for carefully tailored investment advice. Good wealth managers don't have a one-size-fits-all approach. There have always been investors who have done it their own way, independent of professional advice or support, and that will continue. However, we find there is a greater need for, and interest in, advice in times of uncertainty, which is natural.
Some investors are looking for reassurance their portfolio is robust, while others are looking for input about where they could make improvements. Above all, when seeking advice, people should look for advisers with a track record and strength of service. The value of market experience cannot be overstated - you need to know that whatever is happening now, they have seen it before and are familiar with every possible scenario.
On the web: www.nzgt.co.nz
