A failure of Independent Financial Advisers (IFAs) to effectively diversify investors’ portfolios, combined with a slow or inappropriate response to the financial crisis and recession, has led to a significant deterioration in wealth amongst private investors.

According to research carried out by YouGov on behalf of the World Gold Council, a significant breakdown in communications and understanding between investors and their IFAs left portfolios overly exposed to higher risk assets and ill-equipped for a crisis.

Figures reveal that one in five private investors has lost more than a quarter of their wealth (excluding main residence) over the past 24 months and a half have lost more than 16 per cent.  

Additionally, more than two thirds of private investors have changed their own investment priorities over the last 24 months, with 67 per cent placing a greater emphasis on protecting their assets. However, nearly three-quarters detected little or no change in the advice they receive from their advisers.

Most worryingly, the research highlighted a significant dislocation in the investment objectives of private investors and the focus of IFA advice.  50 per cent of investors have historically given more weight to a ‘capital preservation’ strategy, a view not reflected in the advisor base, who say that their emphasis prior to the financial crisis was on capital appreciation.

Marcus Grubb, managing director of investment research marketing at World Gold Council, says, ‘It is clear that much of the private investor community was geared towards protecting their wealth and yet the focus of the IFA community prior to the crisis has been on chasing returns.

‘Not only does this expose a breakdown in communication between IFAs and the community which they serve, but the research also points to an inability of advisers to protect their clients assets by responding quickly to changing financial and economic circumstances.’

A similar poll, conducted by Tenon Financial Services, confirmed the view that IFAs have failed their clients during the economic downturn.

In a survey of over 300 entrepreneurs, three in five were found to  have had minimal or no contact with their IFA in the last eight months. Just 10 per cent had received a call from their IFA since the stock market crashed in 2008 and a further 20 per cent had only spoken with their IFA because they proactively called them.

Tenon Financial Services suggests that this could be because IFAs are concerned about communicating bad news to investors and are ill-equipped to deal with telling them how much their investments have devalued.

Peter O’Sullivan, chartered financial planner and head of Tenon Financial Services, says, ‘In the current economic climate, no news from your IFA is definitely not good news. It is vital for an IFA to keep in constant contact with their clients to ensure that their strategy still meets their needs.

It is hopeless if you just put your head in the sand and hope that when you pull it out in a year’s time, the sun will be shining and the assets will have recovered.’