By Mark Lambert, Head of Onshore Distribution at HSBC Life (UK)
Fears of a global recession and worries about rising inflation top the list of concerns advisers have about investment returns from all asset classes. Nearly half (48%) of wealth management advisers questioned for HSBC Life’s Bonds Pulse Adviser Survey[1] highlighted worries about recession, while nearly two out of five (39%) pointed to concerns about the return of inflation.
Below those macroeconomic worries, their third biggest fear was market corrections around the world driven by inflated equity valuations – with more than a third (34%) of advisers pinpointing concerns about equities over the next five years.
This may be a familiar story for wealth management advisers looking to maximise returns for their clients, while also trying to find the most suitable asset classes to invest in for the medium to long term.
In my mind, it highlights the need for both advisers and clients to be selective about where they invest; and also helps explain the growing popularity of open architecture onshore bonds. Traditionally, onshore bond demand is driven mainly by the three I’s of investment, income and inheritance which are core considerations for advisers and their clients in the financial planning process.
It remains the case – around a fifth of the advisers we spoke to said that ‘mitigating inheritance tax’ is a major driver of demand for onshore bonds, while a quarter (25%) said clients ‘investing for growth’ are driving demand for onshore bonds.
Growing demand for bonds
But it isn’t the whole story. Our research found that for the year ahead, nearly nine out of 10 (87%) advisers expect demand for bonds to grow – with almost a third (31%) anticipating substantial growth.
Over a fifth (22%) of the advisers we questioned expect substantial growth in the volume of onshore bond business, while two-thirds (65%) expect some growth. I was fascinated to discover that well over a quarter (28%) of advisers believe demand is being driven by the weakness of the alternatives to onshore bonds.
It was clear from the wealth management advisers we spoke to for our survey, that they are very much focused on growth in the onshore bond market in the year ahead and expect to see strong demand and an increase in the business they write.
HSBC Life has witnessed this change, securing significant increases in the levels of business we have written over the last four years.
The transformation is reflected in our research – over a quarter (26%) of advisers say they always recommend onshore bonds to clients as part of a portfolio while 59% say they regularly recommend them highlighting how highly advisers rate onshore bonds.
Changing clients
The advisers we surveyed estimate that, on average, around a quarter (26%) of their client base hold onshore bonds. The most important segment of their client base for onshore bonds are high net worth clients looking for a spread of investments.
More than two in five (44%) wealth advisers rated high net worth clients as the ‘most likely’ to drive demand, whilst 36% highlighted clients who are five years away from retirement. Clients looking to mitigate Inheritance tax and those looking for income remain important with 29% saying bonds are most suited for them.
The changing products and ESG
Our study also noticed that advisers are seeing an increase in demand for ESG and sustainable investment options as the market for onshore bonds expands. Nearly two out of five (38%) advisers are seeing a substantial growth in demand from clients for ESG and sustainable investment propositions, and a high proportion (60%) are reporting moderate or slight growth.
However, not all clients are convinced – advisers say the biggest issue they face when recommending onshore bonds is a perceived lack of investment choice; in fact, a majority (84%) say it is the biggest issue they face – 61% said clients don’t know about bonds or understand them, the same proportion of clients believe they are too expensive.
Most onshore bonds, like the HSBC Onshore Investment Bond, offer clients access to thousands of funds via open architecture and are available on a range of platforms. They offer investment choice and tax-efficiency with competitive charges. Demand is growing across the market and the landscape has changed so maybe it is time to look at onshore bonds again if you are not already considering them.
[1] Research conducted by independent research agency PureProfile using an online methodology among 100 UK-based wealth management advisers between September 22nd and 29th 2021
Mark Lambert, Head of Onshore Bond Distribution, HSBC Life (UK) Ltd
Mark’s career in financial services has spanned over 20 years and he currently holds the Chartered Wealth Manager designation from the Chartered Institute for Securities & Investment. His roles have encompassed the provision of Independent Financial Advice at American Express’s IFA business, National Wrap Platform Sales and the distribution of Private Banking Solutions into the IFA marketplace with UBS. Mark joined HSBC Life in 2017 and he is head of the distribution team for their open architecture Onshore Investment Bond supporting Financial Advisers across the UK.
