Investors unprepared for market volatility
A vast majority of advisers (82%) are concerned the prolonged bull market has lulled investors into a false sense of security, according to a recent report by Natixis Investment Managers¹.
64% of advisers surveyed believe their clients are unprepared for a market downturn. Advisers fear unprepared investors will panic when volatility strikes and make emotional investment decisions, leading to costly mistakes. Almost half (46%) of advisers surveyed claimed their clients reacted emotionally to recent market shifts.
Managing the emotional reactions of clients could be one of the greatest challenges facing advisers, according to the research.
David Giunta, CEO for the US and Canada at Natixis Investment Managers states: “After nine years of steady growth, volatility has returned to the markets, and investors are having to get reacquainted with the feeling of uncertainty. Our research shows investors often make decisions based on emotions, so it’s more important than ever for advisers to fortify close relationships with their clients to help them stick to their plans.”
Potential threats to investment performance
The report also highlighted many other areas for concern. Geopolitical events are considered the biggest potential threat to markets, with 68% of respondents believing it could negatively affect overall investment performance, closely followed by interest rate increases, rising volatility and asset bubbles.
Crypto currencies appear to be a major cause for concern with almost three-quarters (74%) of respondents expecting this bubble to burst in 2018.
83% of advisers surveyed believe current market conditions call for active management of investments. Survey respondents indicated 67% of their assets are currently allocated to active management. Alternative investments are also favoured, with 80% of advisers surveyed currently recommending alternative strategies to clients.
The report indicates that advisers will need to adopt a two-pronged approach in order to not only overcome challenges the market may throw at them but to also effectively communicate with their clients to successfully guide them through future market fluctuations.
David Goodsell, Executive Director of Natixis Investment Managers’ Center for Investor Insight states: “Financial professionals see a world in flux in the coming year, and their ability to serve their clients will require a unique pairing of skills. On one hand, they will need a strong analytical grasp of the forces driving the market in order to adjust investment strategy. On the other, they will need to understand the motivations of investors in order to avoid emotional decisions that could disrupt their long-term goals. Advisers will need to be in close communication with their clients, and their advice will need to come from both the right side and the left side of the brain.”
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All figures correct as at 19.11.2018.