New research published today by Schroders’ 2022 UK Financial Adviser Pulse Survey (“the Schroders Pulse Survey”), reveals that a combination of the cost of living crisis, stock market volatility and the Russia/Ukraine crisis, has led to a sharp rise in bearish sentiment amongst financial advisers and their clients.
Bearish sentiment rose from just 12% of those surveyed in November 2021, to 57% in May 2022. Correspondingly, only 7% of respondents were bullish in May 2022, compared to 41% last November.
The Schroders Pulse Survey, which sampled 225 UK financial advisers, also found that 69% of advisers expect that some of their clients will have to adjust their investment plans due to the cost of living crisis.
This has consequently led to the following market expectations:
· 41% of advisers reported in May 2022 that they expect equity returns to be lower than historical averages over the next five years, compared to 20% in November 2021;
· Sentiment on fixed income remains more negative with 62% of advisers today expecting bond returns to be lower;
· Expectations that growth will rise over the next five years have fallen sharply from 58% in November 2021, to 30% in May 2022, while expectations of higher interest rates have increased from 79% to 85% over the same period;
· There has been a sharp rise in the number of advisers who expect more disruption as a result of geopolitics, from 42% in November 2021 to 69% in May 2022.
There has also been an increase in the number of advisers reporting that they outsource portfolio management for more than 50% of their clients’ assets, from 21% in November 2021 to 31% in May 2022.
A further 17% of advisers surveyed have increased their use of outsourced investment solutions over the last year.
Similar to previous Schroders Pulse Surveys, access to investment expertise and resources was identified as the most important reason influencing their decision to outsource portfolio management. ‘Spending more time with clients’ and ‘improved operational’ effectiveness were also rated as being either important or very important by over 60% of advisers.
Sustainability considerations have become mainstream with advisers and their clients over the past few years, while 90% of advisers agreed that events over the past two years had reinforced the importance of stewardship and using an asset manager which actively engages with company management.
Some 83% of advisers surveyed also indicated that the past two years had increased the attention they paid to the environmental, social and governance risks associated with investing. Almost three quarters (71%) also reported that they are preparing for anticipated changes in regulation which may include them having to discuss suitability preferences with clients.
The Covid-19 crisis and Russia’s invasion of Ukraine are both likely to have had an impact on the growing importance placed on incorporating sustainability into investment decision-making, alongside mounting evidence of the impact of climate change.
A new consumer duty for financial services, aimed at ensuring companies “put themselves in customers’ shoes” when communicating and designing products, is on the horizon, expected to be introduced by April 2023. Just over half (53%) of advisers say that they are unsure about what impact this will have on their business and are likely waiting on the final regulations to be published. Some 17% expect it to have a negative impact on their business.
Doug Abbott, Head of UK Intermediary, Schroders, commented: “The results of this year’s Schroders Pulse Survey, which broadly highlight the return of market uncertainty, will come as little surprise to anyone given the macroeconomic and geopolitical context that has characterised the year to date.
As financial advisers seek to navigate this, they will be keen to identify ways in which they can mitigate against risks and capture market opportunities where they can for their clients. It is therefore pleasing to see they are continuing to recognise the benefits of outsourcing their portfolio management, with the Survey showing the number of advisers reporting that they have increased their use of outsourced solutions has risen”.
Gillian Hepburn, Intermediary Solutions Director, Schroders also commented: “As financial advisers once again find themselves having to adapt to a rapidly-changing investment landscape, the importance of ESG and stewardship as a means of mitigating against unforeseen risks has been thrown into sharp focus.
Schroders Pulse Survey results have found that advisers are now concerned about their business losing assets as a result of wealth transfer, with up to 54% reporting this concern. Yet, we continue to observe a lack of strategy for advising younger clients and only 11% of advisers have a strategy for retaining, attracting and advising women.
As 60% of wealth in the UK will be in the hands of women by 2025 – due largely to the baby boomer generation passing wealth from a husband to a wife, this is a challenge which we believe advisers cannot ignore as many of these widows choose to change adviser.”
The full report on Schroders 2022 UK Financial Adviser Pulse Survey Report can be viewed here.