Market volatility driven by economic and political uncertainty is expected to threaten most clients’ investments and retirement plans over the next 12 months, according to a new poll of financial advisers by Wesleyan.*
This research has indicated that two thirds (63%) of advisers believe the performance of their clients’ investments will come under threat due to market volatility in the next year, with a fifth (21%) believing the threat is significant.
Alongside this, more than half (51%) of advisers expect the majority of their clients who are at or near retirement, to postpone or change their retirement plans, due to the threat of market volatility over the same period.
Market volatility and risk appetite
When advisers were asked what they expected to be the most significant contributors to market volatility, the most common factor highlighted is the uncertainty over the Bank of England’s interest rate decisions, cited by more than a third (36%). This was followed by uncertainty over the rate of inflation (27%) and then the prospect of elections around the globe; specifically in the UK (24%) and a new presidential election in the USA (24%).
But despite the threat of market volatility, advisers feel that clients are divided when it comes to risk appetite. A third (33%) of advisers said they expect their clients to become more risk averse in the next year, while roughly the same proportion said they expect their clients’ appetite for risk to increase (32%) or stay the same (34%).
Wesleyan’s poll shows a similar story for capacity for loss. Almost two fifths of advisers said they expect their clients’ capacity for loss to decrease (39%) or increase (38%) in the next 12 months, while just over a fifth (22%) expect it to remain the same.
Nick Henshaw, Head of Intermediary Distribution at Wesleyan, said: "Volatility has been a defining characteristic of markets over the last few years and the results of our research show that advisers believe this will not change any time soon.
"Economic and political turbulence could affect client outcomes in the next year and advisers will have to carefully consider the interplay between their clients’ individual risk appetites and capacities for loss when developing a strategy that offsets volatility and continues to support their long-term goals."
Wesleyan’s research also looked at the strategies advisers will deploy to help their clients manage the threat of market volatility over the next 12 months.
Managing volatility for clients
Starting or increasing client investments in a 'smoothed' fund that actuarily adjusts for market volatility and decreasing clients’ exposure to equities are the most popular strategies, being cited by 22% and 20% of advisers respectively. This is closely followed by decreasing clients’ exposure to cash (19%).
Nick Henshaw added: "Advisers are turning to specialist funds to help their clients mitigate market volatility and maintain effective risk, balanced portfolios. Options like our on-platform smoothed With Profits fund provide an opportunity to create and manage portfolios that provide a good ‘middle ground’ for clients looking for exposure to the market, while also having a smoother investing journey."
* Survey of 300 UK-based financial advisers, conducted by Censuswide on behalf of Wesleyan between 15 and 22 February 2024.