Advisers have been urged to unpick their clients’ property investment preferences to unravel their mentality and figure out the underlying cause of any aversion.
Chris Jones, head of investment proposition at Dynamic Planner, told FTAdviser the debate around property investing was often too “broad brush” and encouraged advisers to have a more “granular” discussion with their clients.
He said: “There is such a broad range of investments you can have as your property allocation...so you need to turn the debate into something more granular.
“Understanding what the client really wants is crucial. They could still benefit from the nature of property if the adviser digs a bit deeper to find out why the client is happy or unhappy with property allocation.
“Is it because they have seen how quiet the city is and think commercial property is not worth it, or is it because of the illiquid nature of property, or something else?”
Mr Jones said the underlying holdings of property funds were often “quite different” — whether it be warehouses rather than commercial or more infrastructure based — so there was a “whole range of solutions” which could fit a client’s preferences.
The same could be said for liquidity preferences.
Although clients who gravitate away from property due to its illiquid nature could opt for a closed-ended structure, Mr Jones said this was not always necessary.
He said: “It’s about honesty and transparency and clarity. If it’s quite clear you’re going into a fund which could be suspended for six months, then you probably understand that it is ok when that happens.
“You can give clients information for information’s sake, or you can give understanding. As long as the illiquidity is clearly explained, understood and matched, then there is not a problem.”
His comments came after the FCA proposed a notice period of up to 180 days for investors to redeem their cash from open-ended property funds.
Commentators have forecast the rule change could “spell the end” for retail investors in open-ended property portfolios while some investment analysts warned the proposed rules were adding to a perfect storm that put property funds at risk of liquidation.
Others have predicted the rules will see investors pivot to real estate investment trusts to gain property exposure.
The floated rules are an attempt to curb the liquidity mismatch between the underlying property held in such funds and the daily basis on which investors bought and sold units.
imogen.tew@ft.com
What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.
