Advisers brace for impact of greater market volatility in 2025

Advisers are expecting greater market volatility in 2025, which could diminish many clients’ appetite to invest, according to a new poll of financial advisers by Wesleyan.*

• The vast majority (91%) of financial advisers believe investment markets will be more volatile in 2025, driven by uncertainty over inflation and Bank of England interest rate decisions.
• Nearly a quarter (24%) of advisers also expect more than 40% of their client base to be put off investing in real assets due to market volatility.
• 84% of financial advisers believe the performance of their clients’ investments is under threat in 2025, a rise on the 63% that said volatility would be a threat over the next 12 months in February.

The vast majority (91%) of financial advisers believe investment markets will be more volatile in 2025. They expect uncertainty over the rate of UK inflation (59%) and Bank of England interest rate decisions (56%) to be the most significant contributors to market volatility in the year ahead, along with new, intensified or enduring global conflicts (40%) and uncertainty over inflation in overseas economies (39%).

Nearly a quarter (24%) also expect more than 40% of their client base to be put off investing in real assets due to market volatility.

More than three quarters (84%) of advisers believe the performance of their clients’ investments is under threat due to market volatility in 2025. This is almost a fifth more than the 63% of advisers who told Wesleyan in February that market volatility was set to threaten their clients’ investments over the next 12 months.

More than half (56%) of advisers expect the majority of their clients at or near retirement to postpone or change their retirement plans due to the threat of market volatility in 2025, up from 51% in February.

James Tothill, Investment Specialist at Wesleyan Financial Services, said: “Volatility has defined markets in recent years. While volatility isn’t inherently ‘bad’, it can be a problem if it pushes clients away from investing in the markets and can pose particular issues for clients in drawdown if it leads to pound cost ravaging.

“The CEO of the FCA recently heralded an era of ‘predictable volatility’, so the role of advisers will be to help their clients navigate this new normal.”

Wesleyan’s survey also looked at the strategies advisers will deploy to help their clients manage the threat of market volatility in 2025.

Decreasing clients’ exposure to equities and increasing clients’ exposure to bonds were the most popular strategies, cited by 40% of advisers. A quarter (25%) also said they would be starting or increasing client investments in a ‘smoothed’ fund, which actuarily adjusts for market volatility, up from 22% in February.

James Tothill added: “Suitability will remain an important advice industry focus next year, and we can expect advisers to help their clients adopt bespoke strategies to manage the impact of market volatility, and asset allocation, based on specific circumstances. As part of this, more advisers are turning to specialist funds, such as Wesleyan Assurance Society’s own on-platform With Profits Growth Fund, that can support clients that want a smooth journey while still being invested in the market.”

* Survey of 300 UK-based financial advisers, conducted by Censuswide on behalf of Wesleyan between 29th November and 4th December 2024.

For professional adviser use only.