Interview with Ben Raven, Director, Tavistock Wealth


Ben Raven

In the run up to Money Marketing Interactive on 3rd May, Ben Raven, Director at Tavistock Wealth answers some quick-fire questions on the opportunities and challenges he sees for advisers in 2018.

Tavistock Wealth are Bronze sponsors at MMI this year and will be running a workshop on currency hedging and whether it's the next scandal for the financial services industry.

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1. What are the key opportunities for advisers in the market right now?

The opportunity to protect their clients from a widely anticipated rally in GBP, the impact this could have on their portfolio returns and the detrimental impact this could have on the volatility of their portfolio. Client portfolios have globalised in nature over the past 20 years at a time when GBP has weakened consistently. Consequently, clients have benefitted from owning overseas investments denominated in currencies which have strengthened against GBP. This means client returns from asset classes have been further “boosted” from currency moves however in the majority of cases this currency exposure is not part of the client’s intended strategy and represents additional risk. Should GBP rally, clients could see the opposite effect and have any gains from their asset classes wiped out by a strengthening GBP. Worse still would be a client making a loss (owing to currency moves) when their underlying portfolio assets made a gain. Exposure to this type of currency risk is not generally part of the intended strategy for clients and it can cause a client’s portfolio to become misaligned with their agreed attitude to risk profile. 

2. What are the key challenges?

Identifying what level of their client’s portfolio is exposed to currency risk. There have never been more investment options available to advisers however deciphering exactly what portfolio risks a client is being exposed to has never been more challenging. A key reason for this is that fund providers are not obliged to mitigate currency risk on behalf of an adviser’s retail clients, given that the fund provider must make every decision in the best interest of the fund. The adviser must take all of the information from the fund provider and make every decision in the best interest of their clients. Fund providers may operate with unhedged overseas exposure, which results in currency risk for retail clients who may not know they are taking it. However, the fund provider is perfectly entitled to operate with unhedged currency exposure if it is in line with the objectives of the fund. Advisers need to look deep under the bonnet of each fund they recommend to clients and make sure they understand it fully before recommending it. Reliance on high level explanations of the strategy and fund providers marketing literature is not sufficient when it comes to currency risk given this can result in a fund becoming unsuitable for a client over time. 

3. What can providers and other adviser support services do more to help the IFA community?

Fund providers can provide precise details on what level of unhedged currency exposure exists within their funds. Most advisers are not qualified investment managers and are not necessarily able to identify the extent of this risk with the standard documentation provided to them. Advisers shoulder all of the liability should a fund ever become unsuitable for a client and the fund provider should play a greater role in helping advisers understand their products fully before recommending them. Understanding a product fully means knowing exactly how much of a UK client’s exposure is based overseas, what level of unhedged currency exposure exists, and the impact this can have on the volatility, and the returns, of a portfolio over time. It is not sufficient to rely on a brief mention in the disclaimers of fund literature which may say “currency moves may impact the returns of the portfolio”.