Cash versus equity investing discussions dominate amidst ongoing macroeconomic concerns and cost-of-living crisis.
The 2023 Schroders UK Financial Adviser Pulse Survey (“the Schroders Pulse Survey” or “the Survey”) published reveals the scale of conversations taking place between advisers and their clients on merits of cash versus long-term equity investing amidst growing cost of living concerns, with up to 90% of advisers surveyed reporting this.
The Schroders Pulse Survey also finds that 89% of advisers have clients who adjusted their plans as a result of the cost-of-living crisis, an increase from 53% in November 2022. Up to 60% of advisers’ clients cited higher household expenses as a reason for changing their plans, and 44% cited having to help their wider family as a reason. 66% of advisers surveyed also reported that a quarter of their clients have already adjusted their plans.
The Survey, which sampled 180 UK financial advisers, also found that capital loss remains the top-ranking concern among clients, although this had reduced since November 2022, whilst concerns around inflation saw a significant increase.
The Survey did however also find that advisers’ clients remain least concerned about rising interest rates. This may be because many advisers’ clients are at the stage of their lives when they will have paid off their mortgage.
The challenging market background may have contributed to the fact that despite some progress in the last six months in equity markets, 44% of advisers reported that sentiment among their clients remains bearish, although this has dropped from 68% since November 2022.
Interestingly, an equal 44% of advisers also stated that their clients are neutral, a swing from 26% in the last survey. This, perhaps, is an indication of the influence of recent volatility over the last few years as more clients become wary of predicting the future.
Market trends
Advisers were also questioned on their own market expectations:
- 80% of advisers expect that inflation will trend lower over the next five years and 63% expect that interest rates will do likewise.
- 31% of advisers expect equity market returns to be lower than historical averages over the next 5 years against 17% who expect to see higher returns.
- Advisers view prospects for bonds as more positive with 26% expecting returns to be higher than historical averages against 19% who expect lower returns – a significant drop from 62% who expected lower returns at the same time last year.
- Disruption is expected to remain a major theme in markets. The percentage of advisers expecting higher disruption related to technological advances has risen from 30% to 45%.
Artificial Intelligence
The jump in advisers expecting disruption from technological advances could be a reflection of the huge focus recently on developments in Artificial Intelligence (AI). When the survey dug deeper into views on the topic it found a split in opinion with 57% of advisers thinking the development of AI technology applications such as ChatGPT represented a potential opportunity for their business, while 43% saw it as a potential threat.
Despite this, it is worth noting that 73% of advisers anticipate incorporating AI based technology applications in their advice process in some way in the future, indicating that the potential of these advancements are clearly being recognised in spite of any apprehension.
Investment choices
The Schroders Pulse Survey also identified that advisers are continuing to favour high quality active management in multi-asset. 86% would recommend a fully active multi-asset fund with a robust, proven investment process with equivalent charges over a passive multi-asset fund.
An area rising in popularity and interest is private assets. In 2023, Schroders launched the first Long-Term Asset Fund (LTAF) in the UK market which will give investors greater access to private markets and support future productive finance initiatives including the transition to a low carbon economy. As this area of the market continues to develop it is encouraging to see more advisers recognising this with 21% considering using private market investments with their clients, an increase from 12% in May 2022.
Consumer Duty
The rapidly approaching Financial Conduct Authority’s (FCA) Consumer Duty will come into effect on 31 July 2023. The Adviser Pulse Survey found only 4% have not yet started to prepare but encouragingly, 19% of advisers are fully prepared. The remaining 77% stated that their preparations are in progress and that they should be ready for the end of July. Only 25% of advisers thought that the Consumer Duty would have an above medium impact on their business. It was also reported that of the four consumer outcomes, assessing and describing fair value was the most difficult to prepare for and 59% of the advisers surveyed felt that this outcome would put pressure on the ongoing charging model.
Doug Abbott, Head of UK Intermediary, Schroders, commented:
“The Schroders Pulse Survey as ever has provided a fascinating snapshot into the current challenges facing advisers, in particular how the wider macroeconomic situation is affecting client behaviour. One of the most notable findings is the number of advisers reporting clients who have queried the merits of investing in markets over the returns available from investing in cash, underscoring how the investment management industry must do more to outline how long term investing in risk assets has historically beaten inflation and delivered better returns for investors.
What is also notable that advisers expect bond markets to produce better returns compared to historical averages over the next five years and that advisers’ expectations of interest and inflation is that both will fall. Overall the results point towards the on-going need for advice given the current backdrop as well as the case for active asset allocation in an unpredictable investment environment.”
Gillian Hepburn, Intermediary Solutions Director, Schroders also commented:
“This year’s results have identified some key developments and insights that show the direction of travel for the advice industry. The rise of AI as a topic is continuing to accelerate and with 51% of advisers expecting it to be incorporated into their process within the next five years it will be fascinating to see how the industry will embrace and benefit from new technology.
Consumer Duty also continues to be front of mind with advisers. Although the majority of advisers report they will be prepared by the end of July, it is surprising to learn that 77% thought it would only have a medium to low impact on their business. We look forward to exploring this topic further in our next survey in November.
What is clear from the results are the ongoing concerns held by clients due to the turbulent economic and geopolitical situation of the last year and the impact that is having on markets and potential capital loss. Advisers can therefore demonstrate their value by having a crucial role to play by offering good quality advice, keeping clients invested and giving them the best chance of achieving their long-term objectives.”
The full 2023 Schroders UK Financial Adviser Pulse Survey Report can be viewed here.
