JUNE 2011 |
www.opp.org.uk
BUSINESS
will perform well whatever happens in the wider economy. An allocation to alternatives should be part of every portfolio - alternatives can deliver enhanced returns and stability in times of uncertainty.
Low entry levels The minimum investment for most alternatives is around £10k to £12k with the average investment size around £25k to £30k. Low entry levels mean that there are far more opportunities to secure investments and to do some business, either with clients with smaller pots, with clients who are more conservative and don’t want to risk as much or with clients who have made a larger commitment to a property investment and are looking for somewhere to invest the remainder of their pot.
Termed investments with fi xed returns Alternatives are often structured to offer fi xed returns over a defi ned period and then return the initial investment back to the investor – very similar to a bond. This security and stability has a strong appeal to clients. And the returns on offer are
very respectable. Clients can easily achieve an average annual return of 8 to 10% with alternatives. With infl ation at around 5% you need a return of around 5.5 to 6% a year as a basic rate tax payer just to retain your wealth in real terms, so the search for decent returns is important. And of course when the investments mature there is an opportunity for you to help them re-invest – in this way you can build a long term relationship and a sustainable business.
Disillusionment with traditional strategies The BBC Panorama programme “Who Took My Pension” in October last year summarised this issue better than I can. You can still catch it on iPlayer. Investors are fed up with paying high charges for poor performance, little control and no fl exibility. Instead, investors are looking for other
options and this explains the growth in SIPPs. Many investors are choosing to move their underperforming pensions, ISAs and bonds into SIPPs where they can take control of them for themselves, invest them in a wider
Developer profi le ALTERNATIVES | 35
range of assets and avoid the high fees of the major institutions. Be careful though. Advising a client on the setting up of a SIPP is a regulated activity.
Think about those companies out
there who will complete that part of the process for you and then hand the client back to you – and you can earn your commission helping the client invest their SIPP, as well as an annual trail. Quality alternative investments are SIPP accepted and are often the first place clients look when it comes to investing their SIPP after having one too many bad experiences in the stock market.
Directly held asset Most alternative investments are backed by ownership of a hard asset – a lease on land, a commodity, trees or farmland for example. This is a concept that clients understand and
grasp quickly. People prefer them to the risks associated with holding paper assets.
Next Steps For You
If you’re earning as much as you would like and don’t see any threats to your business in the near to mid-term future then you probably don’t need to do anything. If on the other hand you are looking for ways to expand and diversify your business and boost your revenues then adding alternative investments into your offering could be the answer. Trying something new for the fi rst time is always daunting, but don’t let that put you off. Find providers of quality alternative investments who can give you initial training and on- going sales support and help you access SIPP money. With a little bit of effort you could have added a new stream of revenue to your business.
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