Facing the music in a low return market

With one of the most significant bear markets in history showing no real signs of abating, despite several sucker rallies, investors spoilt by one of the longest bulls in history are feeling a tad panicked. As a result, fund managers and associations are churning out explanatory papers and holding road shows at a dizzying rate, hoping to soothe the raw nerves of both financial planners and their investors.

AMP Henderson head of strategy and chief economist Shane Oliver in a recent share market update put forward the view that the Australian share market should start to see an increase in six to 12 months, even while the US market is experiencing what he calls “collective hysteria” in the wake of the recent high profile company downfalls.

“Investor panic is now starting to tar all US companies with the same brush as Enron and WorldCom. Any good news such as profit growth is not even getting a look in,” Oliver says.

Investment markets are cyclical, and while a drop in returns has been experienced before, the severity of investor reaction has been in line with the level of the downturn. According to Oliver, the fact that the current market downturn is the worst since the 1929 crash has also been a major influence on investor sentiment.

“After what happened with tech stocks, it feels so severe,” Oliver says.

“It is a reversion to the mean. A hangover effect.”

However, Oliver believes the hype coming out of the US market has been over generated, with 60 per cent of US companies in the June quarter reporting better than expected results.

“The key thing is where will the low be. Will it be now or in two months time?” Oliver says.

“Sentiment is extremely bearish, and seeing such a degree of bearishness tells you you’re getting pretty close to the bottom. There’s a massive amount of pessimism and everyone has the right to be worried and concerned.”

The obvious issue facing financial planners in the economic climate described by Oliver is how to deal with client reaction and communicate their support. This is also an issue being dealt with by fund managers.

AMP Henderson Global Investors is one group that has answered the industry’s call for greater information and instruction through this current economic malaise.

Its latest annual adviser road show, entitled Future Trends, was deliberately held back until early June. According to AMP profile marketing manager Analisa Kirby, the road show was a change in direction for the company.

“The timing of the road show was deliberate, we usually have them in March but held it in early June to coincide with the run up to the end of the financial year. This is the time when advisers are doing end of year reports and facing difficult questions from clients about what has been going on in the market,” Kirby says.

The road show presented a macro view of the economic market and offered a fund manager perspective, as well as providing detailed information that could be used as solutions for clients, or at least explanations. Kirby says the ‘issue’ related, rather than ‘product’ related, approach was well received by advisers.

“We took a different approach to the road show and it was quite sobering news. Advisers appreciated the reality check,” she says.

More than 2,000 AMP advisers attended the Future Trends road show held across the country, the largest crowd ever according to Kirby. The obvious popularity of the topic, due to its widespread impact and the need by advisers for information to assist clients new to a low return economic environment, also led AMP Global Henderson to create an adviser tools set.

The AMP Adviser Tools, available from AMP Henderson’s web site and in postcard format, was designed in response to adviser feedback and requests for further information following the road show. The charts cover topics from the road show seminars, including the impact of low inflation on share market returns and the risks of residential property, with key points to make it easy to talk through the issues with clients. Kirby says the tool series has been integral to the success of the road show initiative.

Another group to focus on adviser requirements and client needs in the current economic market is Count Wealth Accountants, which has developed an e-mail newsletter for its financial planning member groups to send out to clients.

Count research manager Rachel Griffiths says the newsletter was developed in response to adviser needs created by client needs, and the Internet was chosen as the method of delivery due to its effectiveness and instantaneous nature.

“There was negative news around the market. We were hearing a lot of negativity from the member groups,” she says.

“[The newsletter] was a way to say ‘yes, there will be negative numbers and this is not a good thing’, but also to try and calm people down.”

For Peak Financial Planning principle Peter Nicholson, communication is the key for client relationships, not just in the current climate but in any type of market.

“It is critical to communicate with clients on a constant basis, both in good and bad times,” he says.

Peak Financial Planning is a member of the Count group with about 100 clients on its books. Nicholson says following the events of September 11, Peak took a proactive approach, calling every major client and then following up each month with phone calls, as well as written communication.

“This was about talking through the issues and making sure their comfort zone was not out of sync,” Nicholson says.

“And putting forward to clients that we are interested and involved.”