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Should every investment portfolio be insured?
The ideal position for any investor is to get the perfect balance between risk and reward on their invested money. There are also good reasons why some investors need to aim for higher returns, for example in an Income Drawdown plan to meet the required income levels to make the Drawdown work efficiently.
To get higher returns requires higher risk and the challenge for investors and advisers is how to trade this position.
One of the ways that the ideal position may be achieved is through portfolio insurance. There are several ways invested monies can be insured against falls or against falling (these are not necessarily the same thing). The use of derivative products and inverse ETFs are two examples. At SVS we work through many different client scenarios where the aim is to build in insurance to protect against a fall or even in some cases to leverage on a downward market (we have clients who will want to do this from time to time).
In every such scenario we are able to provide estimated costs and produce a report which shows how this can be achieved depending on the client’s requirements.
It appears that in the IFA world there is limited usage of this fantastic planning tool. If we go back to the example of Drawdown, there may be many cases where an investor wants to use Drawdown (because they require flexibility and/or they need the possible improved death benefits) and need to generate a reasonable return to make this work, but they don’t have the risk appetite (because a big fall would decimate the capital and income of their most important retirement asset). In this case some form of portfolio insurance could be arranged to limit their down side risk.
The important element here is this: How often is this considered; how often is this priced up? It may be that it won’t work in many cases, but surely that is not a reason to ignore this. Advisers naturally always look to cover every angle and make sure they have considered all the possible ways of achieving their client goals.
As part of the SVS Preferred Partner Programme (www.svspartners.com) we will be working closely with our Regional Partner firms to make this service available to all clients wherever it is required and we can support the IFA with the requisite advice and costs. We know from experience that investors react to this incredibly well, liking the idea of insuring their positions wherever possible, so for an IFA having this additional facility available to them in their armoury creates a huge differential, which can also be used with accountants, solicitors, trustees, charities – anyone who has responsibility for looking after other people’s money. It is definitely a business winner.
Philip Pooley
Director
SVS Securities Ltd
www.svspartners.com
www.svssecurities.com
[Sponsored article by SVS Securities Ltd]
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Author: LifeTalk Admin (Bella)
Posted: Tuesday, May 01, 2012 | 4:43:10 PM
Comments
If you realistically analyse the risk your client can afford and is willing to take, you can obtain for them a decent return. When market corrections happen, they are not surprised, as you told them this will happen sooner or later.
you need to get your client to understand the notion of a risk premium, what they give up in security for potential greater returns. If they cant accept this, don't invest money for them, stick it in the bank or NSI instead.