Growth Investments launch programme to help financial advisers in volatile markets

Maltese investors are no different from investors in a lot of markets for which Steven Kowal is responsible.

As associate director, International Business Development, at Fidelity Investments, London, Mr Kowal, who is responsible for the Middle East, South Africa, the Mediterranean, the Caribbean and Bermuda, should know.

Maltese investors' "concerns (for what is) happening right now are universal", he told The Sunday Times in an exclusive interview earlier this month. "They are not any more nervous than anybody else. It's just the general malaise in the markets.

"All the things that are going on that seem really terrible right now, or have been, just weigh on everybody's minds and causes people (to) freeze," he observed. "So, instead of making decisions, the best thing to do is nothing and often (with) investing, the best thing you can do is not do anything."

This is a key element of his message. For Mr Kowal was in Malta on the invitation of Growth Investments Limited, a subsidiary of Middlesea Valletta Life, who are the local representatives of Fidelity Investments, of the United States.

The purpose of his visit was to launch a new Fidelity programme to give guidance to financial advisers in volatile markets. "There are two essential roles of the financial adviser: to management investments on behalf of clients; and to manage the investors themselves and not let their emotions get in the way."

Mr Kowal demonstrated a number of arguments to show that it's not at all a bad time to be in investments but also the arguments advisers should be doing with their clients. There are five basic fundamental rules that investors must follow:

1. put your risk in context;

2. set realistic targets;

3. re-visit asset allocations;

4. long-term is best; and

5. be disciplined.

He encourages investors to invest regularly in a diversified portfolio in a planned manner. The key questions in any market are: "Are we still on track? Have your needs changed? Has your risk profile changed? If none of that has changed, there is no general reason to deviate from a well diversified, well-structured long-term savings plan," he said.

Investment advisers must manage their clients' expectations and have a role to play even when under pressure from clients to "do something" when those clients are losing money.

"I always tell advisers if you want to be a successful investor, it's very simple. Turn off the television; stop reading the newspapers; and don't talk to your friends any more. And if you could do those three things, you'll be a very successful investor for the long term.

"So, I think it's very easy, and understandably so, for people to get caught up in the emotion of the short-term events when, in the end, they prove not to make that dramatic amount of difference in the long term."

Mr Kowal demonstrated the importance of "anchoring" to show how short-term trends that seem huge movements in the market are actually blips in the long term. He argued how "safe" investments are relative and that, in the long run, while treasury bills showed a return of 1.7 times and bonds increased by five times, equities returned 220 times their nominal value between 1926 and 2002.

He showed the influence of psychological factors including what is termed "heuristic bias" and "frame dependence". The first is an investing strategy based on trial and error and misjudgments based on unconscious assumptions; and the second depends on how internal and external factors impact on investors' perception.

Another psychological factor is the impact of losing money on a person's emotional well-being. "Losing money has a two-and-a-half times greater emotional impact" because regret is a greater emotion than loss for it impacts on ego and pride.

"Advisers have to carry the burden of responsibility and blame to remove regret from the equation," he said.

A third scenario Mr Kowal demonstrated was the illusion of control, with investors gaining a false sense of overconfidence and skill which leads to overtrading.

Mr Kowal, a chartered financial analyst, has a banking background, having spent 12 years with the Royal Bank of Canada in Toronto after graduated with a Bachelor's degree in International Finance and Economics from Georgetown University in Washington, DC.

He has worked in financial sales, sales management and general management, holding the posts of branch manager and regional sales manager, before obtaining a Master's degree in management on the Sloan Fellowship Programme at the London Business School.

He defines his role as "to provide support primarily to financial advisers, particularly in markets which tend to be less developed in terms of their history with using equities. So the educational angle is a crucial one for us."

Mr Kowal deals directly with some 30 main financial institutions, the top 20 per cent, but he pointed out that Fidelity has hundreds of institutions distributing its funds. Growth Investments is one of 30 main financial institutions, which I pointed out give Malta a certain attention and importance that is disproportionately larger than its size.

"I think that's a tribute to Growth Investments and the work that they've done. We have a long-standing relationship with Growth and they are a good supporter of Fidelity's funds. I think it's the long term, but they have been at it for longer than a number of my other responsibilities."

Turning to international developments, Mr Kowal said the key word is "uncertainty. We all know that markets don't like uncertainty. They find that troubling because it is hard to plan.

"But to me uncertainty is short term when it comes to markets. It may impact what happens tomorrow, next week, next month, next year, but when we go and look at the longer term of markets, there's no fighting the evidence, which is: over the long term equity markets do go up..."

Clients prepared to invest in equities have to have a long-term time window. He also coined the term "multi-generational" investing to show that some investors also hold investments that their children or grandchildren are going to benefit from.

Investment advisers need to have the whole picture to give their clients the best advice.

Speaking earlier to the media, Mario C. Grech, chairman of Growth Investments said Fidelity is the largest asset manager in the world with $800 billion under management. With 17 million clients worldwide, Fidelity's analysts cover 90 per cent of the world's capital markets and 4,700 companies. Mr Grech introduced David G. Curmi, who has recently been appointed chief executive officer of Growth Investments after a 25-year career in insurance.

The programme Mr Kowal delivered to investment advisers is called 'Speaking from Experience', which was developed in response to continuing difficult markets and increasingly negative investor and advisor sentiment.

Advisers are provided with a host of materials, including a guide to understanding client behaviour in uncertain markets, as well as presentations and fact sheets for clients that clearly illustrate fundamental investment concepts and reinforce the importance of investing for the long term.