Schroders UK Financial Adviser Survey 2022: More than half of advisers have seen clients change investment plans as capital losses top concerns

by | Dec 1, 2022

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The 2022 Schroders UK Financial Adviser Survey published today has revealed that more than half (53%) of advisers have seen their clients change investment plans amid the cost of living crisis.

This follows the 2022 Schroders UK Financial Adviser Pulse Survey which earlier this year found that 69% of advisers had anticipated significant portfolio changes.

With 439 advisers from 350 firms surveyed, this year’s report represents the largest sample surveyed by Schroders to date. It identified that 63% of advisers ranked capital loss as the greatest concern for their clients. Inflation was next, followed by generating sufficient income and rising interest rates as the biggest concerns. Just 39% of advisers expect interest rates to trend higher over the next five years compared with 85% surveyed in May this year.  

The survey also found that a significant number of advisers have increased client holdings in cash and alternatives over the past 12 months, while 20% intend to reduce cash holdings next year in favour of equities. Holdings in government and corporate bonds have also fallen this year by 40% and 35% respectively. 

 

Sustainability

Despite the market headwinds, 76% of advisers reported they were specifically considering sustainability and ESG factors as part of their fund selection process, an increase from 43% polled in 2019. This follows an increasing number of advisers’ clients who have begun to explicitly specify that their investments should reflect ESG factors.

Additionally, the survey also found:

 
  • 56% expect an investment manager to consider sustainability/ESG factors as part of investment decision making in order to minimise risk and maximise returns
  • Only 8% of advisers prioritise maximising returns and minimising risks entirely over the sustainability of investments
  • 51% of advisers have seen an increase in the number of clients asking for sustainable investment options over the past 12 months. This is however down from 75% in November 2021
  • 89% of advisers think that events over the past two years have reinforced the importance of stewardship and using an asset manager which actively engages with company management
  • However, 37% of advisers do not think they receive enough information to demonstrate that investment managers which actively engage are driving change

The report also highlighted how the events of the past 12 months have heightened the focus on a number of key ESG-related challenges, with issues related to fossil fuels and renewables, as well as the Ukraine conflict driving conversations. 

Following the war in Ukraine in February of this year, and its impact on energy prices and the climate crisis, over half of advisers report that clients have initiated conversations about fossil fuel related investments or including investments relating to clean energy and renewables, as the table below shows:

“Have any of your clients initiated ESG/sustainability conversations with you that have referenced:”

 

Adviser business challenges 

The main business challenge for the majority of advisers remains regulation. This is followed, in order, by: servicing existing clients; succession planning and/or exit strategy; and finding new clients.

Arguably, the most significant upcoming regulation is The Consumer Duty. The survey however found that only 18% of advisers are fully prepared for it coming into force. Moreover, just 6% of advisers said they have not started to look at it yet despite the survey being conducted after the plans were due to be completed.

 

How prepared are you for Consumer Duty regulation?

Outsourcing

Overall, the pace of advisers using outsourced investment solutions has accelerated, with up to 20% reporting that they have increased their use of outsourced solutions in the last year, up from 17% in May 2022 and 16% last November 2021.

 

The survey also found that advisers are using outsourced solutions to help manage an increasing proportion of their clients’ assets, with up to 43% of advisers now reporting that they outsource over a quarter of their clients’ assets under management. The proportion of advisers who do not outsource the management of any of their client portfolios has dropped to 22% which is a significant reduction from 33% at the same time last year. The survey indicated this is a trend we can expect to continue across all types of outsourcing solutions over the next 12 months.

How do you expect your allocation to the following services to change in the next 12 months?

Access to investment expertise and resources are the main reasons why advisers outsource portfolio management. This was rated important or very important by 70% of advisers. Furthermore, improved operational effectiveness, effective volatility management, spending more time with clients and reduced business risk continue to be rated as important or very important.

 

Wealth transfer 

Previous surveys have found advisers are increasingly concerned about wealth transfer, and this year is no different, with nearly 60% of advisers concerned by the prospect of losing assets amid intergenerational wealth transfers. This has risen from 54% in May 2022.

Moreover, 46% of advisers report that the average age profile of their clients has increased over the past five years. Overall, 68% of advisers surveyed have clients with an average age of 51-64.

Yet, despite an increased industry focus on the risks and opportunities posed by wealth transfer, only 26% reported having a specific wealth-transfer target. Additionally, the percentage of advisers with a differentiated strategy for younger investors or for retaining, attracting and advising women also reduced.

This challenge, particularly around attracting younger generations, is brought sharply into focus with the declining percentage of advisers that will accept new clients with less than £50k – now at only 32%, down from 52% in 2019. Meanwhile, the percentage of advisers who will only accept new clients with more than £200k has risen to 17%.

Doug Abbott, Head of UK Intermediary, Schroders, said: 

“The findings of Schroders UK Financial Adviser 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 advisers 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. What is however positive to note is that despite market headwinds, clients appetite for sustainable investment opportunities remains strong, with 89% of advisers reporting that they think events over the past two years have reinforced the importance of stewardship and using an asset manager who actively engages with company management.”

Gillian Hepburn, Intermediary Solutions Director, Schroders, said:

“This year’s survey finds that, despite clients’ interest in sustainable investment solutions, the number of advisers who feel confident about discussing this topic with clients has reduced. Some 40% of advisers would like more support but it’s also interesting to observe that a considerable proportion of advisers (37%) do not think they receive enough information to demonstrate that an investment manager who actively engages is driving change.

“As a provider of investment solutions, it is also noteworthy to see the continuing upward trend for advisers to outsource portfolio management, citing a wish to spend more time with clients in order to understand their needs. As they navigate market turbulence, this time spent with clients will become ever more critical.

“Directly engaging with clients at this time will perhaps also be helpful when developing strategies for advising the next generation, as this year’s survey has found that the number of advisers who are concerned about losing assets as wealth transfers between generations has increased. However, despite the perceived opportunities of wealth transfer, there still appears to be a focus on older, wealthier clients.“ 

The full report on Schroders 2022 UK Financial Adviser Pulse Survey Report can be viewed here.

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