Appetite for investment advice remains strong in post RDR world – Natixis GAM
Survey finds twice the number of UK financial advisory businesses have increased client numbers than have seen them fall as a direct or indirect result of RDR
Countering fears that investors would turn their backs on financial advice in a post RDR world, nearly one third (28%) of UK financial advisory businesses have increased client numbers versus those that have experienced a contraction in the number of clients (16%) as a direct or indirect result of RDR, according to a survey of 150 UK financial advisers commissioned by Natixis Global Asset Management.
This continues a long term trend of growth in the demand for financial advice over recent years, which appears relatively uninterrupted by the introduction of RDR: over two thirds (67%) of UK financial advisory businesses have experienced growth over the past few years, with one in ten experiencing very strong growth, pointing to the high demand from UK savers to enlist professional, financial advice to help them reach their retirement income goals.
In line with this, UK financial advisers are confident that clients’ current investments are able to grow portfolios to meet retirement income needs (91%) and provide steady income for clients in retirement (91%).
Furthermore, many UK financial advisers (76%) believe that the need for continued professional development, resulting from the recent implementation of RDR, has been a benefit to their business.
The survey, released by the NGAM Durable Portfolio Construction℠ Research Center, is part of a global study of 1,300 advisers in nine countries, over four continents.
Putting risk first
As UK financial advisers look to build more durable portfolios that help their clients reach their retirement goals, they are specifically seeking investment strategies that manage risk, volatility and drive income. Risk is proving to be the most important factor, with nine in ten pursuing strategies that can manage this effectively; however strategies that combine all three – risk, volatility and income – are the ultimate goal with four out of five financial advisers agreeing that this is the case.
Despite UK financial advisers identifying the key factors they need to manage, on-going market volatility remains a problem, with over half (53%) citing that it is a challenge to deliver strong performance for their clients when markets are volatile. Specifically, achieving returns in a highly correlated market environment is proving difficult, with almost two thirds (62%) finding it tough to guide clients to positive returns.
Divisions over best approach to portfolio construction
As UK advisers battle with these investment challenges, along with clients that are conflicted between capital preservation and investment growth (79% of advisers agree that asset growth is increasingly becoming a priority for their clients, while 43% point out that investors are not willing to take on increased risk in order to gain these returns), it is understandable that the adviser community is divided in identifying a best practice approach to portfolio construction.
While many acknowledge that there needs to be a replacement of traditional diversification and portfolio construction techniques with new approaches to achieve results (44%), the balance still tips towards the status quo with a higher proportion (51%) of UK financial advisers favouring the traditional 60/40 equity/bond mix.
However, with 58% of survey respondents agreeing that portfolio construction is an area that they and their peers need more education, the investment management community needs to do more to ensure that advisers fully understand the broad range of options available to them.
Bringing alternatives into the mix
Despite 63% of UK advisers discussing alternatives with their clients, over half of advisers (56%) believe that some products are too complex to explain, with 40% believing that a lack of supporting information/track record poses problems while trying to communicate to clients. As a result, less than one in four (23%) of UK advisers cite regularly using them across their client base.
It is the responsibility of the investment management industry to do more to help explain these seemingly complex investment strategies. Alternatives can play a key role in diversifying portfolios, as they are uncorrelated to the broader market, so it is essential that advisers and their clients are given further guidance as to how these asset classes can best be included in the asset allocation mix.
Not all plain sailing – the regulatory burden of RDR
Despite RDR not impacting on business growth, there are elements of the regulation that are beginning to take their toll on the adviser community.
In particular, the greater administrative compliance obligations which accompany RDR are proving a strain on the UK financial adviser community (one in five have recruited people to counter the admin impact of RDR) and, on a global scale, the UK is revealed as spending almost double the amount of time as advisers in other countries dealing with the admin burden (UK spends 24.1 hours a month on admin, compared to only 12.9 hours for advisers in Europe, US, Asia and the Middle East).
As a knock on effect of this, UK financial advisers are being forced to spend less of their time meeting with prospective and existing clients. Advisers are keen to ensure that the majority of their time is spent on managing their clients’ investment portfolios, in order to steer savers towards a fruitful retirement pot.
Further guidance essential
Commenting on the findings, Matthew Shafer, Managing Director of UK Retail and Global Key Accounts at Natixis Global Asset Management said, ‘Many more UK savers are beginning to realise the importance of enlisting professional, independent advice to guide them towards their retirement goals. However the UK financial adviser community is facing a number of challenges, both from the changing industry dynamics of regulation and on the portfolio construction front. Given the backdrop, it is the responsibility of the investment management industry to provide the necessary support to advisors, so that they have the resources they require to build more durable portfolios for their clients that can help close the savings gap wherever possible.”
In order to meet retail investors’ needs in the UK, NGAM launched its UK retail offering in January 2013, with the unveiling of a new UK Open-Ended Investment Company comprising a range of sub-funds from NGAM’s underlying investment managers. Funds launched so far include the Morningstar Gold Rated Loomis Sayles Strategic Income Fund and the Loomis Sayles US Leaders Fund. The firm has an established presence in UK wholesale, with this specific vehicle for UK retail investors further emphasising its commitment to the market.