I know of an industry colleague who practiced financial advisory in the United Kingdom many years ago. 8 years ago, he resigned and came back to Singapore to continue as a financial adviser. Recently he went back to the United Kingdom for his honeymoon. During the honeymoon, he managed to visit his old clients and help them review their investments. He was shocked to see that their portfolio had grown 3 times of the original capital! For instance, a £200,000 initial investment grew to £600,000! It was not just one client but quite a number. Accumulatively the overall asset under advised among his clients then grew to a huge 45 million sterling! So how did it happen?

• During the period of 8 years, no financial advisers or insurance agents told  them to switch. Apparently many of his clients were Cantonese speaking sole- proprietors like Chinese restaurants owners. Therefore, any advisers who wanted to prospect them need to speak the language. Most advisers in the UK are English speaking. The adviser that took over the investment account from my colleague cannot speak Cantonese and hence just “left” these clients alone;
• These clients did not understand written English as well and hence did not understand the investment statements sent to them. Hence, they did not know how their investments grew during those years. These clients were also shocked to learn that their investments grew so much;
• The funds chosen were mostly in emerging countries (but details I do not have);

From this we can learn a few lessons:

• Asset allocation is extremely important. If the allocation is correct, we can be quite confident that it will grow. I have seen clients who had held their investments for 7 years but it is still underwater because the asset allocation was ….. actually there was no allocation. They just bought a product from the salesman without understanding what it was;
• The 8 years period includes a very nasty dot com bubble burst and it also inclusive of the existing bear market (that has being for nearly 9 months already). Nevertheless, the portfolio survives. It shows the real meaning of long term investing. Actually 8 years is not very long term;
• Buy and hold – it was fortunate that no unethical advisers came and churn and twist the portfolio. In this case, no advisers could speak Cantonese and hence they are unable to communicate to these clients. It was a blessing in disguise;
• The investors did not understand the regular investment statements and thus they did not know how the investments performed during those 8 years. If they had understood the statements, they would have seen the portfolio plunge in value during the dot com bubble. I am sure they would have panic and cash out. Again it is a blessing in disguise they cannot read English. How many times do we read our statements and login into the internet to view our holdings? Maybe we should throw the password away and tell the product providers not to send us the investment statements!

So here is what investors should do:

• Get a competent adviser to help setup the asset allocation;
• Implement the recommendation;
• Throw the password away;
• Never open the monthly investment statements and preferably throw it away (but there is a risk of not opening an important letter….);
• Recommend others to the adviser and
• than fire the financial adviser (opps… please do not heed this suggestion especially if I am the adviser!! )