Mixed signals on investment confidence
- Advisers have turned a bit less bullish on a short-term view.
- Geopolitics is the main concern for advisers, consumers are more worried about inflation.
- Advised consumers remain consistently more bullish than non-advised.
Advisers have turned less bullish short term
Advisers are less bullish than they were 12 months ago. The percentage of advisers expecting equities to rise over the next 12 months has dipped from 77% to 64%. This is interesting since advisers have been significantly more bullish than consumers over the last couple of years, but that gap has now narrowed. Of course, advisers have also been right to be bullish as markets have climbed a ‘wall of worry’ that has included inflation, wars and UK and US election uncertainty.
What is interesting is that adviser bullishness has now dipped back to 2022 levels and that was a difficult year for stocks. This year, US stock markets have been making new highs, but with heightened two-way volatility that has seen sharp pullbacks being aggressively bought.
% who expect equities to rise over 12 mths
Advisers: How do you expect the following to trend over the next 3 years?
So, even though advisers are still bullish overall, digging into the data suggests some caution might be warranted in the short term. 74% of advisers see market volatility trending higher over the next three years. Similarly, 88% of advisers see geopolitical disruption increasing over the same timeframe.
Indeed, advisers see geopolitics as the single biggest risk to equities, with a growth slowdown a close second, however, they are more sanguine about the impact of inflation, with 71% seeing inflation trending lower. Interestingly, consumers are less concerned about geopolitics than advisers, but much more worried about inflation. Perhaps this is a sign that the higher, post-pandemic cost-of-living is spilling over into reduced investment confidence.
What is the biggest risk to equities in your view?
Biggest risk to equities filtered by adviser firm size
| Total | <£100m | £100m – £500m | >£500m | |
|---|---|---|---|---|
| Geopolitics | 40% | 33% | 40% | 52% |
| Growth Slowdown | 36% | 42% | 37% | 22% |
| Inflation | 11% | 14% | 11% | 7% |
| Valuation | 11% | 8% | 11% | 15% |
Time horizons matter
Adviser confidence on equities remains sharply higher than consumers at the longer time horizons. Over five years, 89% of advisers expect markets to rise compared to only 63% of advised consumers and 57% of non-advised consumers. Similarly, over ten years, 91% of advisers expect markets to rise versus 68% of advised and 57% of non-advised consumers.
For consumers, higher levels of short-term uncertainty seem to cloud investment confidence for the longer timeframes in a way that does not happen to advisers. Advisers are strongly guided by historical market data that points to high probabilities of market rises over these time periods.
% who expect equities to rise over:
In investing, there is a potentially significant opportunity cost in being too bearish. It generally doesn’t pay to be negative, but investors often are just by virtue of watching the news (and 55% of advised consumers say the news influences their investment decisions).
So the fact that advised consumers are more bullish than non-advised investors, over all time periods, is a very strong argument for the value of advice and the behavioural coaching that advisers provide. In our last survey, advisers told us they believe they add between 2-4% p.a. to advised over non-advised portfolios. Yet, the stats on investor confidence over the longer timeframes suggest more can be done. By illustrating ‘what if’ scenarios using stochastic cashflow tools, advisers can show clients that corrections are a feature of investing, and equities are statistically unlikely to deliver negative returns over 10-year periods.
Digging into the value of advice
The value of advice, and how to evidence it to clients, is front of mind with many advisers in the light of heightened FCA scrutiny. Encouragingly, our survey shows client satisfaction remains strong. 83% of advised consumers believe the advice they have received represents “value for money”; 13% neutral, only 4% disagree.
How important are the following factors when demonstrating the value of advice?
When it comes to putting a value on various aspects of advice, advisers and clients are in agreement that accessibility is paramount. Adviser availability even puts portfolio performance into second, although it is interesting that clients attach greater value to this than advisers do.
90% of advisers believe being contactable is important (69% very & 21% quite important) while 96% of advised clients believe it is either very (66%) or quite (30%) important. The recent budget was, by all accounts, one such moment when clients valued their ability to call their adviser for guidance.
Interestingly, advisers and clients agree that cashflow modelling tools are a great way to showcase the value of holding risk assets over time. Indeed, the FCA also placed a great deal of emphasis on the proper use of cashflow modelling tools in their recent Retirement Income Review. 70% of advisers believe cashflow modelling is important in demonstrating the value of advice, with younger advisers most positive (88%) while older advisers above 55 are less convinced (52%). Lastly, it might be useful for some advisers to consider time spent with clients as this is one area in which consumers seem to be placing greater weight in assessing value than advisers.
Analysis
...advised clients are consistently more bullish than their unadvised counterparts...
We already know that advisers add considerable value to advised over non-advised portfolios. This survey emphasises why: advised clients are consistently more bullish than their unadvised counterparts. It is fascinating to see just how much value comes from mentoring and coaching their clients to have the right mindset. Equity market education via cashflow modelling tools, like EVPro and Voyant – both of which are integrated into Scottish Widows Platform – can play a critical role in keeping news-influenced clients invested in risk assets.
