Opportunities, with the right asset mix

Amid tough local economic conditions, growing a client’s wealth is not without its challenges. A protracted period of below average returns has been compounded by a rise in living costs. The introduction of a 45% tax bracket for high income earners, the VAT increase and upward pressure on inflation due to rand weakness and record fuel prices are all eroding wealth in real terms.

Clients are understandably anxious, but the unequivocal message from the wealth management industry is to stay calm and make sensible decisions. James Arnold, Wealth Manager at FNB Wealth and Investments, believes the wealth industry is responding to the uncertainty by showing greater sophistication in how it develops solutions, and in how it treats clients. “Experience, and a focus on costs, are vital in an environment where investment returns are under pressure.”

He also believes that the right mix of assets can create opportunities for solid returns amid challenging market conditions. “While active fund management remains popular, passive funds are now often also included. Blending the two approaches into one meaningful strategy presents interesting opportunities, provided the unintended consequences of passive investing are understood, especially in the context of underlying share exposure as a percentage of the index.”

But too much choice can lead to poor investment decisions, says Mike Wilmot, head of advice at Nedbank Private Wealth. Given the extensive range of options available, clients should work with their wealth managers to interrogate and combine the most appropriate investments, particularly when under pressure to find higher returns after a protracted period of low growth. “It can be tempting for investors to forego advice and chase trends. However, it’s imperative investors consider the valuation, allocation and ancillary estate and tax planning implications of all investments.”

This is where wealth managers can add significant value. “Advising on the right action when required, and ensuring inaction the rest of the time, saves clients from making poor financial decisions.”

Wealth managers then need to back up their advice by achieving the specified objectives. “Our approach is to build a strategic portfolio that comprises the appropriate combination of asset classes that meet a client’s goals. This creates a solid foundation on which to build,” says Wilmot.