Beware the mantra

I have worked in retail financial services for longer than I care to confess, and I have never been bored because of the rate of change throughout.

Some things do not change, such as the client's need for protection against living too long, dying too soon, and disability: the core of financial planning.

Just occasionally, a new generation assumes there was no such thing as financial planning before the world was blessed with their presence.

But today, most advisers do focus on it. Most do not see themselves as fund pickers or asset allocators; the vast majority are far more aware of costs and charges than a few years ago. Indeed, most can quote their total costs of ownership to two decimal places. This is huge progress.

I am less happy when advisers become seduced by disciples of theories or hypotheses beyond sensible employment of such tools.

While my own money is in passives, I accept the necessity for active management (so long as charges are reasonable). Yet there are those who do not. I smell mantra.

When I was at business school studying investment appraisal, we looked at the capital asset pricing model, modern portfolio theory and the efficient market hypothesis. But it was stressed that these were theories or models and, as such, imperfect.

Part of EMH is around the problems of attempting to time the market. Recently, I tweeted I had placed 25 per cent of my portfolio in cash. One adviser told me I was wrong because markets would continue to rise for another three years. What I would give for that crystal ball.

"Clients will not thank advisers if they are more concerned with theory over long established good practice"

A number criticised me of the great sin of market timing. Yet timing is unavoidable. Not even the most devout disciples of a Random Walk Down Wall Street were investing when the FTSE sank to 3,500 following the dot.com crash.

Markets have been on a bull run for nigh on 10 years. By all historic measures, they are expensive - both equity and bond. It has always been regarded as good practice to take profit. I remember the market falling by 75 per cent in 1973 to 1974. Could it happen again? Of course it could.

By taking a significant cash position, I can ride out most crashes. I sleep better at night and I still get 75 per cent of market gains. How bad is that? In days gone by, I would have achieved the same by investing in short bonds as a defensive strategy. Today, the charges outweigh the pathetic returns, so they are not an option.

While retirement is known as being a long game, it is also a short game for many. Most will spend more money in their 60s than in their 80s. Short-term money needs to be low risk.

A correction will occur sooner rather than later. Clients will not thank advisers if they are more concerned with theory over long-established good practice.

So, please beware mantras. Avoid being too dogmatic about your proposition. The danger is that you will confuse clients. That is not good for any of us.