Advisors' Clients Fret Over Capital Losses, Inflation – Schroders

Amanda Cheesley Deputy Editor London 1 December 2022

Advisors' Clients Fret Over Capital Losses, Inflation – Schroders

Schroders, a European investment manager, this week published its November 2022 UK Financial Advisor Survey, completed by 439 advisors from 350 firms. 

The survey by Schroders shows that over half of advisors have seen their clients change their investment plans amid the cost-of-living crisis.

It found that 63 per cent of advisors ranked capital loss as the greatest concern for their clients. Inflation was ranked next as a concern, followed by generating sufficient income and rising interest ranks, the survey reveals.

However, expectations for inflation ih the future have reversed, with 58 per cent of advisors now expecting it to come down over the next five years. They also expect interest rates to trend lower. 

The survey found that advisors have significantly increased clients' holdings in cash and alternatives over the past 12 months. They have reduced holdings in government and corporate bonds and have also reduced exposure to UK equities and emerging market equities, the firm added.

Doug Abbot, head of UK intermediary at Schroders said: “The findings of the survey are in many ways unsurprising. Following many months of market uncertainty as a result of global and domestic factors, clients have become even more bearish than we saw in previous iterations of this survey.”

“Interestingly, advisors are anticipating inflation and interest rates to reduce in the future and expect to see their cash and government bond allocations come down in favour of equities over the next 12 months,” he continued.

Over 20 per cent of advisors now expect equity and bond market returns to be higher than historical averages over the next five years, the highest figures since November 2019.

Despite the market headwinds, 76 per cent of advisors said they are considering sustainability and ESG factors as part of their fund selection process, up from 43 per cent polled in 2019, but slightly lower than the 80 per cent figure in 2021, the firm continued. 

Over the past few years, an increasing numbers of advisors’ clients have begun to explicitly specify that their investments should reflect ESG factors in some way. Advisors believe that environmental factors are the most important of the three, the survey adds. 

Gillian Hepburn, intermediary solutions director at Schroders said: “This year’s survey finds that, despite clients’ interest in sustainable investment solutions, the number of advisors who feel confident about discussing this topic with clients has reduced.”

“Some forty per cent of advisors would like more educational support on sustainable investing,” she continued.

After the Financial Conduct Authority released a consultation paper on the Sustainability Disclosure Requirements and with the upcoming Consumer Duty regulation, Schroders said that the main business challenge for the majority of advisors remains regulation. This was followed by servicing existing clients, succession planning and/or exit strategy, and finding new clients.

Only 18 per cent of advisors said they are fully prepared for the upcoming regulation on The Consumer Duty, which aims to set higher and clearer standards of consumer protection across financial services.

The survey also found that advisors are increasingly using outsourced investment solutions to help manage an increasing proportion of their clients’ assets, with 20 per cent of them reporting that they increased their use in the last year, up from 17 per cent in May.

Meanwhile, the percentage of advisors that will accept new clients with less than £50,000 ($60,000) has been declining steeply and is now at 32 per cent, down from 52 per cent in 2019, Schroders said. The percentage of advisors who will only accept new clients with more than £200,000 has risen to 17 per cent. While the age profile of clients remains largely unchanged from last year’s survey, with 68 per cent of advisors surveyed having clients with an average age of 51 to 64, the firm continued.

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