Covid crisis demonstrates the value of a financial adviser

A Schroders survey shows how financial advisers have helped calm investor nerves at a highly uncertain time. By Doug Abbott, Head of UK Intermediary

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Towards the end of April, we carried out a survey of a representative sample of our clients in the UK independent financial adviser community. The aim of the survey was to find out what impact the coronavirus crisis is having on their clients and their businesses.

In the current situation, the value that a professional financial adviser can offer is under scrutiny as seldom before. Our survey showed that  financial advisers took the time to speak to many more clients about their investments and finances than they usually would. This is unsurprising as the coronavirus crisis in the UK intensified and markets suffered sharp falls during March.

Client education paying off

Interestingly, advisers reported that sentiment among their clients remained little changed from the end of 2019 when we carried out a previous adviser survey. Sentiment among the majority was pretty balanced between those that were neutral and those that were slightly bearish, rather than very bearish.

Given what was going on in markets, that was quite telling for us. It would seem to indicate that financial advisers have been doing a really good job of educating their clients about what they need to do during a crisis and with their portfolios over time.

Encouragingly, advisers also reported that their clients have, universally, been broadly understanding about the impact of the coronavirus crisis on their portfolios, given the extraordinary circumstances.

Capital loss the major concern for advisers’ clients

We were interested to know what advisers’ clients were most concerned about in relation to the coronavirus crisis. The three financial concerns that were mentioned most often were capital loss, reported by 91% of advisers, the impact on retirement plans, reported by 85% of advisers, and investment income loss, reported by 64% of advisers.

This indicates that while advisers’ clients may be staying invested and aren’t particularly bearish, the impact of the coronavirus is making them question what is going to happen to their portfolios. Will they lose capital, when will they be able to retire and what will their investment income look like?

These are important things to be thinking about as we look forward in a particularly difficult economic environment.

Some clients delaying retirement plans

Almost half of advisers surveyed say that some clients who are approaching retirement have delayed their retirement due to concerns about reduced capital or income. This is perhaps the most striking sign of investor anxiety about the impact the crisis may have on their finances.

Advisers realistic about the challenges but seeing some opportunity

Advisers themselves appear to have a good understanding of the severity of the economic situation. 95% expect the coronavirus outbreak will cause a major global recession, although 66% believe that fiscal and monetary policy can go some way towards mitigating the impact.

However, despite the negative outlook, many are looking at this as being a potential buying opportunity. This is interesting, given where we are now, with markets having rebounded strongly despite dire predictions for company performance and for dividends.

In our view, staying invested and seeking buying opportunities when values fall can be a good strategy in the long run.

Changing attitudes towards sustainable investing

The importance of sustainable business practices has been thrown into much sharper focus by the coronavirus crisis. Our survey suggests that interest in sustainable investing has accelerated as investors have begun to rethink their personal values and priorities.

Over a third of advisers (35%) believe that the coronavirus crisis will impact client attitudes towards sustainable investing. 88% of advisers agree that the coronavirus crisis reinforces the importance of stewardship and using an asset manager who actively engages with company management.

65% of advisers also say the crisis will increase the attention they pay to the environmental, social and governance (ESG) risks associated with investments.

Increased appreciation of active investment approaches

While most advisers say that their attitude to investing in passive funds has not changed as a result of the coronavirus crisis, a significant minority say that they are less likely to invest passively.

27% of advisers say they are less likely to invest in passive equity funds and 20% say they are less likely to invest in passive fixed income funds. Only 7% of advisers say they are more likely to invest in passive equity funds and 4% in passive fixed income funds.

We think that, given the huge pressure on many companies and governments, active management will continue to have a really important role in the period to come in helping ensure that investors’ capital is well allocated to help achieve their objectives.

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