The need to manage clients’ emotions in response to market events and the risks associated with them may be a challenge for financial advisers, but 81 percent say the current market is favourable to active management, according to a survey by Natixis Investment Managers.
More than eight in ten (82 percent) also believe that the length of the current market has made investors complacent about risk and 79 percent believe that clients don’t recognise risk until it’s been realised in their investments.
Nearly three-quarters (74 percent) believe individual investors are unaware of the risks of passive investing, and 73 percent say individuals have a false sense of security about passive investing.
Two thirds (66 percent) of UK financial advisers and almost three quarters (73 percent) globally recommend alternatives to enhance portfolio diversification and help mitigate risk in an increasingly volatile market environment, with a broad application of strategies across client portfolios.
Multi-alternatives (48 percent), real estate (39 percent) and global tactical asset allocations strategies (38 percent) are most commonly cited as the best strategies for diversification, while market-neutral (28 percent) and long-short equity (16 percent) are best suited to manage volatility risk.
Additionally, almost half (45 percent) of the global financial professionals surveyed and two fifths (40 percent) in the UK reported that their clients reacted emotionally to the increased volatility in the markets earlier this year. When asked to describe their role, almost eight in 10 (78 percent) said their role was to guide clients through the emotional side of investing, acting as a voice of reason during periods of high volatility and helping clients make more rational decisions.
Financial advisers in the UK are also increasingly concerned about protecting the future of their business. Market performance and volatility (79 percent), the low yield environment (71 percent) and prospecting new clients (62 percent) were all cited as challenges to the growth of business by UK advisers. More than half (56 percent) are also feeling the strain of increased pressure on fees.