RYK VAN NIEKERK: Welcome to this Financial Advisor podcast, it is our weekly podcast where I speak to leading financial advisors. My guest today is Renee Eagar, she is a financial advisor at Brenthurst Wealth in Cape Town, she’s a certified financial planner, a member of the FPI and she has been in the industry for 20 years. Renee, welcome to the show, 20 years is a long time, does it help to have a few proverbial grey hairs in the current volatile environment?
RENEE EAGAR: Hi Ryk, thanks for having me on your show. It’s definitely a different world that we’re living in, the last three years as a financial advisor have been extremely tough, so ja we are in a different world and it’s become tricky, I’m not going to lie.
RYK VAN NIEKERK: But if you say the last three years have been tough, what exactly were the challenges there?
RENEE EAGAR: Well, it’s a combination of things but our local market has basically been on a flat for the last three years, it’s been so tricky to even provide above inflation-beating returns. We have as a business had a lot of offshore exposure with our clients and that proved very well and then the rand started on its strengthening path and it kind of wiped out all positive offshore returns that we were getting for our clients. So it’s almost been a no-win situation and we’ve almost just been advising our clients to just please hang in there, this is unusual. As the past would tell, it’s always better to have had equity exposure than to be in cash. We just don’t want clients to react emotionally to what’s happening in their portfolios, it can be quite damaging. So it’s a challenge to educate clients to understand the way markets work because everybody is getting a little bit panicky. So ja, it is definitely challenging but the markets themselves have been quite challenging.
RYK VAN NIEKERK: So your mood is being determined by the mood of your clients and it all boils down to, as you say, you need to educate them about the market but you also need to tell them, listen, just be patient. I don’t think that many people are patient when it comes to money, people want inflation plus 5%, even more returns every year. How many of your clients are impatient in the current environment and do not understand what is actually going on currently?
RENEE EAGAR: That’s a good question, Ryk. I find a lot of my clients are fairly educated and they understand that markets work in cycles. I would have to say that a lot of my older clients that I’ve had for many years are quite calm because they have been through these cycles with us before and they have had the double-digit returns in previous years, which makes up for these slow years. So those are the clients who are actually fairly calm because they have seen the results before. It’s the newer clients, who invested four to five that haven’t got the track record to go on. So I would say that there are a lot of clients who react to what is in the media and they phone in a little bit of a panic but I would say probably about 70% understand and probably about 30% are really concerned and want to take the emotion through to their portfolios and switch into money market, which is the worst possible time to do that. So we’re just trying to manage people’s expectations, so it’s almost like being a teacher, we’ve got to carry on reiterating the view and how markets work. Brenthurst is good at doing that, we have seminars, we have newsletters and we really try to advise our clients just to keep a cool head because it’s tough out there.
RYK VAN NIEKERK: Absolutely. You have been in the business for 20 years, did your advice, since, say, the mid-2000s change because of a more depressed economic environment in South Africa specifically?
RENEE EAGAR: Ryk, that’s quite a tough question because I haven’t been an advisor for 20 years but I have been in the industry for 20 years and, funnily enough, when I started advising clients it was just after the 2008 credit crisis. So my clients who I invested for when I became an advisor they have only but done well. But I have to say that we largely try to get our clients…because there are three things to a portfolio, one is to get your client’s risk profile right, number two is make sure they have got good fund managers in their portfolio and three is to make sure that they diversify. So it actually is very client specific and obviously where a client is more conservative we’ll put a bigger cash and bond exposure or where a client is more aggressive and allows fluctuations there will be a bit more offshore but we really try and take it client-by-client and the appetite of the risk of the client. But it’s a different world; I have never seen balanced funds do as badly as they have done in the last three years in all my years of being in the industry. So it is quite worrying but I do believe that things will come right and we’re just hoping to make sure that I clients just stay where they are at this point in time.
RYK VAN NIEKERK: How do you manage risk because there are several dimensions of risk, first of all you need to decide which funds to invest your clients’ money in and then you have the fund manager of that fund probably taking responsibility of the asset allocation, especially in your multi-asset funds, how do you approach managing the risk on behalf of your clients in that context?
RENEE EAGAR: Ja, it can actually be quite a tricky job, Ryk. What we do is at the outset when we meet a client we get them to fill out a risk profile questionnaire and we use a system called FinaMetrica, which basically scores the client and gives them a risk profile. Key to our job as an advisor is to actually sit down with that client and get your own feel, you can sit in a meeting with a client and you can think this guy comes out as let’s just call it an aggressive portfolio risk profile but when he talks to you and in his life he’s actually very conservative. So you really have to try and pinpoint, in other words take the client’s emotional side of his life and the way he manages money and try to interpret what the risk profile is and the accordingly choose the right funds with either low equity, moderate equity exposure or in some cases even high risk. But it is incredibly tricky because every client is aggressive until they are losing money and then they are not aggressive. It goes on a gut feel as well as background system analysis.
RYK VAN NIEKERK: People want money and the most superior returns. As I listen to you it’s actually quite clear that your fundamental principles for giving advice remain very stable, very long-term focused, despite the noise but don’t you think that approach should adapt a bit to a changing market environment?
RENEE EAGAR: Absolutely and at the outset now with all the volatility in the market you’ll definitely add a bit more what you call stabilised assets to a portfolio just so that there are no short-term losses. So we will definitely, definitely change our strategy according to market but we hope to deliver above inflation-beating returns over the long term and if our clients can just stick to the long-term approach it should come right. We do obviously asset allocate where we can to more offshore or more stabilised products. We even look at, for example, guarantee products that have your guarantee with your limited upside, whether it be local or offshore, we have your kind of guaranteed Fed bond products, where they give you a guaranteed rate over the five-year period. So there are different ways of tweaking it but generally from an asset allocation point of view we look at the risk profile and the unit trust fund managers that we use, a lot of them have got a mandate and that’s how they have to manage their money, and those are the guys who are sitting in front of the big screens and chopping and changing according to daily market conditions. So as long as you know what your fund manager’s philosophy is behind those funds you should be fine.
RYK VAN NIEKERK: Have you used any hedge funds in some portfolios?
RENEE EAGAR: No, we haven’t. I know hedge funds have become a little bit of a flavor again but they’re complicated and they are something that we at Brenthurst are not really looking at offering for our clients. We had hedge fund managers come and talk to us but it’s complicated and we fail to see the value. There was a company that used to, in the old days, it used to run a hedge fund and that hedge fund landed up closing, the performances weren’t there. So I don’t really have a lot of faith in hedge funds, so currently I don’t make use of them.
RYK VAN NIEKERK: Thank you, Renee. That was Renee Eagar, she is a financial advisor at Brenthurst Wealth in Cape Town.