Capital Protection, Geopolitical Turmoil Weighs On Minds – Schroders Survey

Tom Burroughes Group Editor London 14 June 2024

Capital Protection, Geopolitical Turmoil Weighs On Minds – Schroders Survey

The survey of UK financial advisors, conducted in late April and early May, lifts the lid on what advisors think clients are most concerned about, as well as what advisors consider are the biggest threats and opportunities to their businesses.

A survey of UK financial advisors, carried out just before the UK general election date of 4 July was announced, finds that almost three-quarters of them (73 per cent) expect more disruption to be caused by geopolitics over the coming five years, and 57 per cent predict technology to cause more disturbances.

The Schroders UK Financial Adviser Pulse Survey, issued yesterday and produced once every six months, drew replies from 276 advisors. The survey was conducted from 25 April to 8 May. 

The study was drawn up against a background of a mass of elections around the world, a continuing war between Ukraine and Russia, violence in Gaza, disruption to shipping in the Red Sea, and worries about Taiwan, amongst others.

While the survey also showed more optimism about equity and bond market returns, it also reflected how advisors have political turmoil on their minds, perhaps unsurprising in a year when the UK, the US, India, Mexico and the European Union have held or are to hold elections. 

The share of advisors who think that equity market returns will be higher than historical averages over the next five years has risen to 28 per cent. For bond markets, the figure is 30 per cent, the study showed. Some 69 per cent of advisors expect higher global growth over the next five years, against 53 per cent in November 2023.

A high concern remains over protecting capital. Some 47 per cent of advisors said they were most concerned about losing capital, although that has dropped from 63 per cent taking that view in November last year. Inflation has fallen, but this ranks as the second greatest worry for clients.

“There’s clearly been more noise about geopolitics generally,” James Rainbow, head of UK at Schroders, told journalists at the firm’s offices in the City yesterday. “Whilst it is there, it is not cutting through to sentiment in terms of expected market returns.”

With a UK general election under way – the ruling Conservative Party and main opposition party, the Labour Party, issued manifestos this week – the survey found that 74 per cent of advisors said their clients have asked if a change of government will affect their finances. (To see a story about the Labour Party’s manifesto, click here.

With interest rates having risen over the past two years – although starting to ease from their highs – the survey found that in November last year, 90 per cent of advisors said they were talking to clients about the pros and cons of holding cash versus putting money into long-term investments.

Sustainability losing its cool?
It appears that the energy price shock of 2022 – inflated by Russia’s invasion of Ukraine – and underperformance of certain “green” investments versus broader indices, has dampened some clients’ enthusiasm for so-called sustainable investing. The survey found that in May, 26 per cent of advisors showed a fall in clients seeking sustainable solutions; only 18 per cent reported a rise.

Asked if this suggested a more profound shift in sentiment, Rainbow said: “We still think this is a positive long-term trend.” Among large institutional investors – unlike private clients/retail – there has been no diminution of interest in sustainability, he said. 

Consumer Duty
The arrival of the UK’s Consumer Duty framework from the Financial Conduct Authority (FCA) last July, which is designed to drive up standards, was explored in the Schroders study. It found that 67 per cent of advisors said it would not prompt more outsourcing of all or some investment propositions; 63 per cent of advisors said the duty’s focus on achieving a “fair outcome” for clients would put pressure on charging models, up from 59 per cent taking that view a year earlier.

The FCA's Consumer Duty is a new principle that requires firms to act proactively to deliver good outcomes for retail customers. The duty aims to improve customer care and protection, and help consumers make informed decisions. The duty has four outcome areas: products and services, price and value, consumer understanding, and consumer support.

The introduction of the new duty has already caused firms, such as St James’s Place, to change fee charging structures.

ISAs and AI
In March, the UK government announced plans to launch a new ISA, the “UK ISA,” sometimes also referred to as the British ISA, which would enable an additional £5,000 allowance to be invested in UK Companies on top of the existing £20,000 across other types of ISAs. This is likely to be launched in late 2024 or early 2025. When asked in the Pulse Survey, 80 per cent of advisors responded that they would consider recommending the British ISA if introduced.

The survey also covered AI, asking advisors whether they thought the development of tech apps such as ChatGPT was an opportunity or a threat; 76 per cent said it was an opportunity, up from 70 per cent taking that view in November 2023. There remain doubters: this May, 15 per cent said they would never think of incorporating AI into their services, 51 per cent said they expected to do so in the next two to five years.

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