Invesco commissioned a study to take the pulse of investors and financial advisors in the first (1Q) and second quarters (2Q) of 2018. The first round of research was conducted in January. The second round was conducted in April to gauge the investment climate after February's market adjustment causing volatility to spike.1 The research findings reveal differences in how financial advisors and investors view the market, rising interest rates and portfolio income.
Is now a good time to invest?
Investors blame the market for their struggles, advisors disagree
While investors are most likely to cite the market as their top financial obstacle, advisors say investors' top financial obstacle is a lack of discipline or planning.
|Investor assets||Percent of investors |
worried about rising
Notably, the more affluent investors are, the less likely they are to report concern over rising interest rates. This may be because investors think of interest rates as something that affects their loan obligations or access to credit, while advisors may see the full impact of interest rates on their clients' financial goals.
Informed advisors understand the long-term impact that interest rates have on the market as well as their clients' retirement incomes. Still, while 81% of advisors are concerned about the effects of rising interest rates on the market, only 60% of those who reported this concern recently gave their clients advice regarding rising interest rates. Moreover, this topic seems especially challenging for newer advisors, as less than 55% of advisors with fewer than 10 years of experience advised their clients on the subject of interest rates, compared to 68% of advisors with more than 10 years of experience.
|Years of advisory |
|Percent of advisors |
who have advised their
clients about rising interest rates
|Fewer than three years||52%|
|Three to 10 years||55%|
|More than 10 years||68%|
The disconnect between advisors and investors impacts portfolio expectations
Differences in opinion between investors and advisors are not just limited to general concerns and market outlook. One area where these unspoken differences in perspective may cause tangible disappointments down the road is in expectations for portfolio income.
94% of advisors know which investments in their clients' portfolios are designed to provide income, and 93% have a clear idea of the yield client portfolios can generate. When it comes to the investors, however, one-third do not know how much of their portfolio is designed to create income, and four in 10 do not know what kind of yield to expect from their portfolios. Moreover, investors are most likely to believe their portfolio's income investments target a yield of 6% or more, whereas advisors target a yield of 4% on average.
Both a lack of clarity and the potential for unrealistic expectations from investors indicate that there is an opportunity for advisors to deepen client conversations around goals for income from investments.
A time for conversations to mitigate investor confusion
Advisors largely recognize the psychological impact of this year's volatility on investors, and eight in 10 said that it made their clients more cautious. Correspondingly, over half of investors say their advisors reached out to them during this period of volatility. Despite a cautious outlook, investors' general approach to investing remains steady, and a majority (67%) say they pay close attention to their investment portfolios without making changes in response to market conditions. Going forward, most investors intend to stick to the current strategies set out by their advisors.
Given that both investors and advisors expect further volatility this year, now is a sensible time for advisors and investors to confirm their steps forward. Furthermore, advisors can expand the scope of client conversations to go beyond concerns stemming from near-term volatility so that these discussions address impactful issues that investors might not understand, such as interest rate risk.
1 Stock market volatility represented by the CBOE Volatility Index® (VIX®), which measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices. An investment cannot be made directly into an index.
A bull market is a financial market of a group of securities in which prices are rising or are expected to rise.
A bear market is a condition in which securities prices fall and widespread pessimism causes the stock market's downward spiral to be self-sustaining.
Invesco hired market research firm GfK to conduct surveys to better understand the pulse of financial advisors and investors. The first round of research (initial pulse) was conducted in January. The second round (re-pulse) was conducted in April to gauge the investment climate after February's market adjustment causing volatility to spike.
Methodology (initial pulse):
GfK conducted an online survey of 1,015 investors who use a financial advisor and have at least $100K in investible income using KnowledgePane™ and 811 financial advisors using an opt-in sample. The investor survey was conducted from January 18-23, 2018, while the financial advisors survey was fielded from January 18-27, 2018. Importantly, these surveys were fielded before the market changes that began on February 5. The margin of error for the KnowledgePanel investor sample is +/-3.4 percentage points.
GfK conducted an online survey of 500 investors who use a financial advisor and have at least $100K in investible income using KnowledgePanel™ and 403 financial advisors using an opt-in sample. The investor survey was conducted from April 10-17, 2018, while the financial advisors survey was fielded from April 10-26, 2018. The margin of error for the KnowledgePanel investor sample is +/- 4.8 percentage points. Totals may appear as though they do not to sum to 100% due to rounding and respondents who refused their participation.
GfK maintains a proprietary panel called KnowledgePanel®, which is the largest online probability-based research panel in the US. The respondents were paid an honorarium for their participation in the research. Investors received about $1.50 per survey. Advisors received $2 in e-currency. E-currency is money that you can use on items the panel offers – typically gift cards.
Invesco is not affiliated with GfK.
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