A solicitor referred a new client to us a couple of years ago. The client owned a substantial home with a mortgage and all investments were invested with Ross Asset Management. Our job was only to prepare the tax return.
We are chartered accountants, not financial advisers, but we recommended our client ask their financial adviser the following questions at their next review:
- Why is there no diversification in the portfolio? All the investments are in “penny mining stocks”, all high risk.
- Is the lack of a mix of investments appropriate for someone of your age (already retired) e.g. no fixed interest?
- Why are there no income producing investments? Our client was “living” off repayments of capital, supposedly capital gain, but there was potential to use up the capital and was not necessarily sustainable.
- Why is the house mortgage not being paid off?
- What would happen if your financial adviser had a heart attack tomorrow and died? There was only office admin staff.
- How do you know you own these shares?
- What evidence do you have that the gains are real?
I had a call a few weeks later to say they had enjoyed a lovely lunch together and the client had been reassured that the investments were performing very well with potential for significant further gains.
Subsequent events (based on information to date) are a timely reminder:
- If it seems to be too good to be true then it probably is.
- Invest in what you understand.
- Never delegate responsibility for your investments – keep an eye on them.
- Diversify your investments. This means you do not want all your eggs in one basket. A mix of fixed interest term deposits and growth shares depending on your age is appropriate.
If you don’t understand what’s going on, then seek independent advice (i.e. not from the same financial adviser).