These were the words of a friend of a friend to me recently, when she discovered I worked in financial services and told me her story of severe financial loss (of pension funds invested) during the recession.  My heart went out to her as it is a terrible, stressful thing to happen to anyone; to lose hard earned money which we thought was wisely invested.

But being in the financial services industry I also know this is not how the large banks/life assurance companies work.  They handle millions in investments, they do not see the person behind those investments to apologise to.

As an industry we are highly regulated and personally I feel such regulation is a good thing insofar as we have to given a written Statement Of Suitability to all our clients, setting out our exact recommendations, the risks involved and so on.  Of course this needs to be in clear language with ‘non industry speak’ and needs to be understood by clients.

It is hughly important that investing is understood.  I can recall having an SSIA before I entered into this industry and in conversation with friends at that time the focus was rather simple; namely whether it was in the ‘safe one’ or the ‘risky one’.  I had very limited knowledge but even that is a start.  At the time, I invested ‘safely’.  At that time I understood the concept of ‘safe’ and I knew I did not want to lose my hard earned money.  I did not understand the concept of not making very much additional to my contributions by playing ‘safe’.  Now I have a much better understanding of the choices and options of investing somewhat in riskier investments over the long term in order to have a better chance of earning a positive return.  I think ultimately we have to understand what we doing. With that I mind I think the following could be a good guide:

  • Ensure you are asked to complete a risk profile and take it seriously.  Your broker will assess your attitude to risk based on your answers and your meetings during which he/she should talk to you about your attitude to losing money, your term of investment, your knowledge of investing and so on.
  • Understand what you are investing in.  A good broker should be able to explain his/her investment philosophy, what a diversified portfolio and what the different types of investments and assets classes are.  A good broker will explain all this together with his/her recommendations for you in plain english and in straight forward written form.
  • Be happy with your risk profile and your resulting investment plan of action.  A broker might assess you as low risk but recommend you invest some part of your funds in a medium risk portfolio as it is a long term pension to retirement age for example.  However you need to be fully aware of the risks involved, notwithstanding your term to retirement and ensure that as you approach retirement your portfolio is reviewed with a view to moving it to lower risk investments, if this suits you.
  • Do not invest in anything you do not understand.  It goes without saying that anyone without previous investment experience and/or limited investment knowledge, will not have an indepth understanding of differing investments. However you should be happy that you have a basic understanding of a diversified portfolio which a good broker will recommend to you and the level of risk involved.  There are varying levels of risk from minimal to high risk.  It is good to know and be happy with the level recommended to you.
  • Ensure you do not have all your eggs in one basket!  As above, make sure you have a diversified investment approach.  Make sure you have your money invested in all types of investments, thus spreading investment risk.
  • Don’t rush investment decisions.  Yes it takes time to meet with your bank/broker in a time where we are all pressed for time.  But this is your hard earned money.  Consider all recommendations made to you and take time to read the paperwork in particular the Statement Of Suitability.  Take time to truly understand and ask all the questions in the world until you are happy!
  • Make sure you feel comfortable signing on the dotted line!  There will be a multitude of paperwork to sign, all of which confirms you are happy with the proposed.  Make sure you are!
  • Make sure you review your portfolio but do not panic if there a loss.  Invariably there will be times where the value of your investment will go up as well as down as all the good ad’s tell us.  In reality that means sticking with it in good times and bad.  Having said that consistent losses may need to be addressed and this is why it is important to review your investments on an annual basis.  Again, a good broker will build such a yearly review meeting into their service for you.

I hope the above makes some sense of what can be a complicated area but equally one which is extremely important. We all work hard for our money – lets not be careless with it!

This is an opinion only and does not constitute advice as individual circumstances will determine all financial advise given.