Adviser-to-client template: Current conversations with clients

Morningstar  |   30th Jun 2023  |   5 min read

For financial advisers to use with clients. Feel free to copy, paste, then edit as desired.

The text is intended to support your service proposition to clients. It is produced by our investment writers with a deliberately light tone and structure. However, these are guidance paragraphs only. It is not guaranteed to meet the expectations of regulators or your internal compliance requirements. If you wish to remove or amend any wording, you are free to do so. However, please bear in mind that you are ultimately responsible for the accuracy and relevance of your communications to clients.

Dear client,

It has been said we’re investing in a period we haven’t witnessed in over 15 years. Some like that we’re moving away from the “free money” era, while some are concerned about the adjustment. We see both sides to this argument, but we maintain a positive view when taking a longer-term perspective. As such, we share some insights below.

Current Backdrop & Key Observations

Like always, we must assess the market environment around us. This is not something we can control, but we can seek to understand it and the opportunities that are available. We do this with the support of Morningstar Investment Management.

Below is a series of recent developments:

  • Due to sticky inflation post-covid, interest rates have increased quickly, pressuring many households and businesses alike.
  • Higher interest rates mean better cash rates for savers, but also higher interest rates for borrowers. As fixed rate loans mature, many are seeing sharp increases in their debt repayments. The old “pay down debt vs invest for growth” conversation is back, which is something we can certainly help with.
  • Economists now expect rate cuts as the consensus, with most believing we’re very close to peak rates. These rate cuts are expected to begin later this year.
  • Stocks have been oscillating, while people weigh two opposing forces: 1) better valuations are available for long-term investors and may stand to benefit when interest rates start falling, and 2) recession and inflation pressures remain, with potential volatility for investors with a shorter-term mindset.a
  • Among defensive assets, bonds and cash rates have improved, so we don’t have to work as hard to find decent cash-producing opportunities. In many cases, investment yields can still exceed debt costs.

How to Act During This Period

For assets matched to longer-term goals, we see merit in continuing our measured and positive approach. That is, we want to retain the ability to potentially drive healthy long-term outcomes, so keeping money at work in a diversified portfolio makes sense, especially with a valuation focus. We share a few reasoned thoughts to support this:

  1. Higher interest rates have resulted in better yields becoming available for many assets. By holding assets with strong durable income generation, we can benefit from this market shift and reduce the capital gains hurdle required to grow your portfolio.
  2. Valuations are supportive of investment. The markets aren’t running hot, by large, so potentially offers a solid foundation for returns.
  3. To offset some shorter-term risks, such as the U.S. debt ceiling or a potential recession, we’re holding defensive assets that can offer a ballast. Given the higher yields available among these defensive assets, this could offer some peace of mind.

Risks We Are Working to Mitigate

We believe the above approach makes sense for you in this environment, however we also acknowledge that we operate in a world of uncertainty. Below are some of the potential downsides that could occur:

  • If we see large-scale volatility, your investment mix could still fall in value. It has the potential to hold up better than the overall market, but we might see shorter-term falls.
  • The proposed holdings are diversified and liquid in nature, but we can’t rule out some assets falling more than the market. We don’t expect material liquidity or default issues though, given the diversified approach.
  • If the recessionary concerns come to pass, we may find ourselves slightly on the back foot, not growing as quickly as the broader market. That is, riskier assets may excel, which could leave us lagging in a big upswing. This is a trade-off we are broadly comfortable with, balancing risk and reward, but is worthwhile noting.

No Action Required, But My Line is Open

If you are comfortable with the above, you don’t need to do anything. We will keep working on your behalf. That said, we want to make sure you’re comfortable, so if you have any questions regarding any the above, please don’t hesitate to reach out.

Kind regards,


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