UK financial advisers are anticipating a rebound in UK equities, see considerable investment opportunities in the Covid-19 recovery, and are increasingly ESG (environmental, social & governance) conscious, according to the latest Schroders Adviser Survey.
Those surveyed also felt unprepared at the prospect of intergenerational wealth transfer, revealing the need for a differentiated approach when it comes to different family members.
The study, which is now in its sixth year, found that while investor sentiment had become more bearish since April, there was clear optimism going into next year.
Broadly, the 125 advisers shared similar concerns of their clients to those raised in a similar survey taken in April. They cited capital loss, impact on their retirement plans and impact on their employment situation as their three biggest concerns.
Top three financial concerns of advisers’ clients
Source: Schroders
ESG has been one of the key themes of the investment landscape this year and this was clearly reflected in the survey. However, it showed that many financial advisers lacked the confidence to navigate the various regulations and relay the correct terminology to their clients.
The study showed that some 74 per cent advisers now explicitly consider ESG factors as part of their fund selection process, up from 43 per cent in 2019.
However, the fast rate of change has led to a disconnect in investment advice, with only 17 per cent of advisers rating their confidence as ‘very high’ when speaking to the clients about sustainable investing.
There was clear optimism in the Covid-19 recovery and its potential for opportunity, as 45 per cent of advisers saw it as a distinct investable theme.
“Sustainable investing has stood the test of Covid-19 and indeed gained in importance,” said Doug Abbott, head of UK intermediary.
“Despite the year we have experienced, it is encouraging that the survey has identified pockets of optimism and resilience amongst UK financial advisers and investors.”
Advisers were also asked about the potential impact of intergenerational wealth transfer on their business. 78 per cent of those asked viewed it as an opportunity and 15 per cent thought it posed a threat.
A recent US survey suggested that two thirds of ‘baby boomer’ wealth is currently held within couples, and the first point of wealth transfer is typically husband to wife.
The same survey showed that less than 10 per cent of advisers had a differentiated strategy for attracting, retaining or advising women – especially those divorced or widowed.
Intergenerational wealth transfer impact
Source: Schroders
This is also evident in their approach to the younger generation, as only 21 per cent of financial advisers surveyed have a differentiated sales and marketing strategy for newer investors.
“Despite financial advisers continuing to agree that wealth transfer is a significant opportunity, the average age of clients remains high,” said Gillian Hepburn, Schroders intermediary solutions director.
“At a time when financial advisers are reporting that finding new clients is one of their main challenges and with Covid-19 contributing to this, potentially some of these new clients are already within the next generation of their existing client bank.
“Perhaps of greater concern should be divorced or widowed clients where less than 10 per cent of advisers have a differentiated proposition and there is the potential to lose assets as significant numbers of these women change their adviser at the points of wealth transfer.”
Change in client asset allocation
Source: Schroders
Despite the headwinds of Brexit and Covid-19, investors are coming back to UK equities in response to the attractive valuations and clear growth prospects, especially in the small-cap space.
This is reflected in the survey and despite reducing their UK equity exposure over the last 12 months, over the next year they expect to increase their allocation to the UK.