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Financial advisers warn cost-of-living crisis has hit clients

30 November 2022

The 2022 Schroders UK Financial Adviser Survey found the older and wealthier clients that make up the majority of advisers’ custom have not been immune to challenging economic conditions.

By Anthony Luzio,

Editor, Trustnet Magazine

More than half of financial advisers have seen their clients change their investment plans this year in response to the cost-of-living crisis, according to the 2022 Schroders UK Financial Adviser Survey.

This May, 69% of advisers questioned said they expected some clients would have to adjust their investment plans in response to the challenging economic environment, and the results of the most recent poll showed these fears have largely been borne out.

The survey also found there has been a sharp deterioration in optimism among clients, with 15% of respondents saying they were “very bearish”, a figure that has almost doubled since May, and stood at 0% as recently as last November.

How would you describe sentiment among clients?

Source: Schroders UK Financial Adviser Survey

As a result, about 46% of respondents have increased their clients’ exposure to cash in the past year, while 40% and 35% reduced exposure to government and corporate bonds, respectively.

Change in client asset allocation 

Source: Schroders UK Financial Adviser Survey

However, Doug Abbott, head of UK intermediary at Schroders, noted the timing of the survey may have played a role.

He said: “It's really important to bear in mind the Schroders UK Financial Adviser Survey took place between 18 October and 8 November, close to the period of Liz Truss’s short-lived premiership and all of the market mayhem going on as a result.”

And, although there has been a surge among the number of respondents who have increased clients’ exposure to cash, most expect to decrease this weighting over the next 12 months, while increasing exposure to equities.

While the cost-of-living crisis has affected clients’ finances, it is worth noting that capital loss remained the biggest fear: 63% were most worried about this risk, compared with 18% for inflation and just 9% for rising interest rates.

“You have to bear in mind that advisers are talking to people who tend to be older, who have a reasonable amount of money compared with the general population, and are well down the line in terms of paying off mortgages and so on,” said Abbott.

“I suspect it would be to the contrary if you asked a bunch of younger people, or if you asked a bunch of people who weren't advised.”

Change in client asset allocation 

Source: Schroders UK Financial Adviser Survey

Sustainability and environmental, social and governance (ESG) factors remained major themes, with 76% of respondents specifically considering these as part of their fund selection process, an increase from 43% polled in 2019. Advisers said this followed a growing trend among clients for specifying that their investments should reflect ESG factors.

However, the speed of this growth appeared to be slowing. While 51% of advisers have seen an increase in the number of clients asking for sustainable investment options over the past 12 months, this was down from 75% in November 2021.

Today, only 8% of advisers entirely prioritised maximising returns and minimising risks over the sustainability of investments. But at the other end of the scale, just 7% said they would be prepared to accept a change in risk and/or returns in order to create a positive impact for people and planet.

Yet many advisers felt ill-equipped to cater for this growing trend.

Gillian Hepburn, intermediary solutions director at 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.”

Meanwhile, the trend towards outsourcing continued – 29% of clients’ assets are now managed externally, compared with 21% last year. Multi-asset funds appeared to be the fastest growing method of outsourcing – 23% of respondents expected to increase their weighting to this area over the next 12 months, compared with 8% who expected to reduce it.

Hepburn said this trend for outsourcing reflected a desire among advisers to spend more time with clients.

“As they navigate market turbulence, this time spent with clients will become ever more critical,” she added.

“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 an increase in the number of advisers who are concerned about losing assets from wealth transfers between generations.

“However, despite the perceived opportunities of wealth transfer, there still appears to be a focus on older, wealthier clients.”

The 2022 Schroders UK Financial Adviser Survey polled 439 advisers from 350 firms, representing the largest sample surveyed by Schroders to date.

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