Advisors have begun to accept a new reality of market volatility and uncertainty, research shows.

Expectations for investment returns have fallen globally and financial advisors in the UK are among the most pessimistic, according to a new survey by Natixis.

The survey, conducted in July and August, involved 2,550 financial advisors in 15 countries, with 300 respondents in the UK. It showed expectations for annual returns above inflation have dipped to 3.8 per cent in the long term, down from 6.8 per cent a year ago.

Indeed, 78 per cent of advisors expect market volatility will remain at high levels and 71 per cent agree that managing client emotions will be the greatest challenge for financial professionals.

“If you look at the underlying drivers – market complexity, volatility and the growing retirement funding burden – the value of professional advice is becoming more important than ever,” said Chris Jackson, deputy chief executive at Natixis Global Asset Management. 

“Investors may feel compelled to make emotional decisions in reaction to market volatility yet by doing so they will almost always miss out on market return.”

Compared to their global peers, an above average number of UK advisors – 80 per cent – believe that in light of anticipated market volatility, active strategies will play a key role in portfolio management.

The survey found almost half of investors are not using alternative investments, with 39 per cent of advisors saying that liquid alternatives are too difficult to explain to their clients, despite the importance of non-correlated asset classes being known to both.

“For many investors, alternative investments are the missing link in achieving true portfolio diversification as they offer returns that are uncorrelated to the stock market,” said Jackson. “Portfolios that are more diversified do tend to produce better returns with lower risk.”