Investment Strategies

Macro Environment Creates Tough Challenges For Wealth Managers - Vestra Wealth

Harriet Davies, 17 March 2010


An extended period of slow growth, volatile inflation and uncertainty about taxation will present many challenges to the wealth management industry; it will need to respond quickly to changes and prove its trustworthiness and integrity, said a panel of experts at a discussion held by Vestra Wealth.

We are facing a period of slow growth while the excesses of the last 20 years are being unwound, said Adrian Paine, founder and managing partner of Oxburgh Partners.

“A lot of policymakers don’t really understand what got us into this mess,” said Derek Scott, member of the investment advisory board at Vestra Wealth. While the recession is often depicted as having been caused by an external shock to the economy, from which we could bounce back, it was in fact caused by central bank and government policies, said Scott.

While a floor has been put under the economy, we are facing an inter-temporal problem: too much spending led to a boom, which consequently busted and left consumers and governments with tight budget constraints.

This means that end demand isn’t there, said Scott, which presents a problem for investors: “Why would anyone invest when demand tomorrow looks like being less than it is today?”

However, despite prevailing opinions to the contrary, the UK is not in a bad relative position, he said, as sterling weakness can help it to rebalance its economy – whereas the US and euro-zone are both, for different reasons, hampered by their currencies.

The next 10 to 15 years would be “a battleground between inflation and deflation,” said Paine. Equity markets would move sideways overall in this period, but with big rallies and slides, or mini-cycles, within it, he said.

“No single asset class is going to perform well over a sustainable time period,” said Paine. Instead, we face an extended period of volatility, where investors will need to be able to respond quickly to sudden changes.

The impact of all this on the wealth management industry would come down to its performance, integrity and trustworthiness, said Seb Dovey, managing partner of Scorpio Partnership.

While the past year and a half had been a mixed bag in terms of performance, some big players, as well as boutique firms, had performed fantastically well, said Dovey.

One problem for the industry is that “clients are trusting themselves potentially more than they are trusting the industry, and that’s a challenge,” said Dovey.

Moving forward, and facing difficult investment calls, the consensus was that wealth managers would need to be honest with clients, both about decisions and the reasons for them. They would also have to manage clients’ expectations about returns in a low interest-rate environment.

In terms of performance, asset allocation would be key, and there will be plenty of opportunities for stock pickers as, even in the worst case scenarios, there are quite clearly good companies, said Paine.


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