As you’ll (hopefully) be aware, the world is going through a very difficult time at present due to Covid-19 (Coronavirus). This has not only had a major impact on everyday living, but it has also had a massive effect on the financial markets and you, as an adviser, when servicing your clients.

Why should I care if stock markets fall?

Many people’s initial reaction to “the markets” is that they are not directly affected, because they do not invest money.

Yet there are millions of people with a pension – either private or through work – who will see their savings (in what is known as a defined contribution pension) invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

The graph above illustrates the impact this is having on the main financial indices.

So big rises or falls can affect your client’s holdings, but the advice is to remember that pension and investment savings are usually a long-term bet.

Also important to remember, is the nature of investment markets. The cycles that are absolutely guaranteed to occur, over and over. Covid-19 has taken the world by surprise but, in reality, after the longest worldwide Bull market in history, some sort of downturn was expected in the not too distant future (albeit not as dramatic as has happened!).

Bull and Bear Markets

This chart shows the historical performance of the S&P 500 Index throughout the U.S. Bull and Bear Markets from 1926 through to June 2018. Although past performance is no guarantee of future results, it does show market trends and cycles.

The average Bull Market period lasted 9.1 years with an average cumulative total return of 476%.

The average Bear Market period lasted 1.4 years with an average cumulative loss of -41%.

It’s not to say things are easy. And it’s not to say the recovery will be quick. But history tells us the recovery will happen.

What should you do?

New rules introduced in January 2018 requires individuals whose portfolios are managed on a Discretionary Fund Manager (DFM) basis to be notified of a fall in value occurring that is at or above 10%.

You, as advisers, need to be aware of the effects this could have on their clients’ portfolios. This is not something that is due to the particular performance of one fund or sector, it is an issue that is market-wide.

It is therefore important to be in contact with your clients and make them aware of the situation. Good communication is important as you can help to reassure the clients of the uncertainty.

So, while everybody is out stocking up on toilet rolls and setting up remote desks we are trying to help manage expectations. We have produced a ‘10% Drop Letter’ which allows you to provide further information to your clients around the current situation and it might help to reassure them.

Click here to download the template – please feel free to use it with your clients.

In addition, there has been a special recording of That Mint Podcast which may benefit many of your clients. Click here to listen.

Finally and the most important thing… stay safe!

Peter Rhoden – Lead Paraplanner
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