Despite a double-digit correction in stocks and bonds and near double-digit inflation in the first half of 2022, financial professionals across the globe believe they will see their businesses grow over the next year, with 5% growth expected by European and UK financial advisers, according to Natixis Investment Managers’ 2022 Financial Professionals survey.
Natixis IM surveyed 1050 financial professionals in Europe and the UK including wealth managers, registered investment advisors, financial planners and independent broker dealers.
The findings show that many will have an uphill battle to reach their growth ambitions as they adapt investment strategies at the same time as managing ambitious client expectations.
Navigating a volatile market environment
Geopolitics, inflation and volatility are the top three market risks for European and UK financial professionals. Notably, concerns over geopolitical risk strike closest to home, running highest among financial professionals in Europe (78%) and the UK (72%), compared to a global average of 57%.
The war in Ukraine has had a significant impact on inflation, at a time when the global economy was in post-pandemic recovery and energy demand was high. Over two-thirds of financial professionals in Europe (64%) and the UK (68%) see it as a top portfolio risk.
Meanwhile, the volatility experienced in the first half of the year – one of the longest bouts since the financial crisis – represents more uncertainty for financial professionals. Over a third (31%) in Europe see it as a key risk but that number rises to almost half (48%) in the UK.
However, few think the market slide will continue through year-end. On average, financial professionals in Europe project most major indexes will post modest gains by the end of December including: 4.1% (2.2% in the UK) for the S&P 500, while UK professionals anticipate 4.7% gains for the FTSE 100.
Darren Pilbeam, Head of UK Sales Natixis IM, said, “Geopolitical turmoil and market volatility have resulted in a perfect storm hitting stock markets and investment portfolios. To grow their businesses, financial professionals will have to adapt. In the short-term they’ll need to reset investment strategies for turbulent markets and emotional clients. In the long-term they’ll need to re-evaluate their market assumptions and determine how much the world has really changed if they are to hit their growth expectations.”
In this volatile environment, and with stock and bond performance correlated and values depressed, alternatives are on the rise. More than three fifths of those surveyed (68% in Europe and 64% in the UK) say the current market conditions make alternative investments, such as infrastructure, private assets and commodities, more attractive.
Of all asset classes, financial professionals are most likely to see commodities as increasingly appealing in an inflationary environment (73% of financial professionals in Europe and 61% in the UK).
Optimistic outlook on the rest of 2022
Despite the current environment, financial advisers believe they can grow their businesses over the next three years, with 10% annualized growth expected by European and UK respondents. With market performance challenging, advisers will need to focus on securing new clients and assets, and optimistically, those surveyed in Europe anticipate adding 25 new clients to their book of business per year, while financial professionals in the UK have a more modest expectation of 16.
To do this, more than half of financial professionals are segmenting their prospects by age in pursuit of new clients and new assets. Overall, 84% of European financial professionals (93% in the UK) are targeting individuals between the age of 50 and 60 while another 54% (86% in the UK) are focused on those between the ages of 60 and 65.
Referrals from clients have been imperative as a way of growing business for financial professionals with 77% in Europe and 91% in the UK surveyed mentioning this. Another 50% in Europe (41% in the UK) believe success will depend on their ability to build relationships with next generation heirs.
Advisers are also focused on improving access to technology (44% in Europe; 38% in the UK) with client-facing apps and customer relationship management tools, as a critical step to ensuring success. Here, the biggest barrier to entry is simply the cost of implementation, according to 47% of advisers in Europe (45% in the UK).
Delivering value for clients
In the knowledge that market conditions are unlikely to provide the tailwinds that have driven performance over much of the past decade, financial professionals will need to adapt portfolio and business strategies to hit growth expectations. Half of professionals (48% in Europe and 50% in the UK) say in this new environment, success will come down to demonstrating how they deliver value for clients beyond portfolio construction. For this, financial professionals are looking to the following:
- Model portfolios: More than eight out of ten (85% in Europe and 82% in the UK) surveyed say they are now using model portfolios in their practice and four-fifths say their clients value them for their financial planning services.
- Tax Management: 69% of financial professionals in Europe (76% in the UK), say investors fail to incorporate tax considerations into their investment decisions. Nearly three quarters (73%) of European financial professionals report that minimizing taxes is one of the ways they are looking to demonstrate value to clients, which increases to 91% in the UK.
- Estate planning: In the wake of the Covid-19 pandemic, clients are assessing their lives and finances. 59% of advisers in Europe (77% in the UK) say clients are asking “What happens if I die? Have I done enough to provide for my family?”.
James Beaumont, Head of Multi Asset Solutions, Natixis IM said, “Financial professionals are adapting their businesses to focus on more than just asset allocation, instead focusing more widely on demonstrating value. On top of this, financial professionals are having to manage anxious clients and temper expectations to avoid emotional selling decisions. They must work hard to keep clients grounded and focused on things that they can control, such as their expectations.”