A sizeable gap has opened up between adviser and investor confidence, new research from Scottish Widows has revealed.
More than three quarters (77%) of advisers expect equities to rise over the next 12 months, but only just over half (53%) of advised clients and 43% of non-surveyed investors agree, according to the Scottish Widows Investor Confidence Barometer.
The gap also remains high looking at the longer-term, with 84% of advisers believing that equities will rise, compared to 66% of advised clients and 61% of non-advised investors.
While stock markets have recovered since the market bottomed in October 2022, persistently high interest rates, mortgage rates and food and energy prices have continued to fuel investor uncertainty. Of those surveyed, nearly two thirds (62% of advised and 63% of non-advised investors) believe inflation will remain an ongoing feature for the next few years. It is a significant jump from May 2023, when 47% of advised and 48% of non-advised investors believed inflation will remain prominent for the next two to three years.
Investor pessimism has dented returns, according to the report, with 28% of advised clients increasing their cash holdings in response to market uncertainty but 34% admitting their biggest mistake over the last 12 months was “taking too little risk.” The same answer was also cited by 28% of non-advised investors.
Barry MacLennan, chief executive officer at Scottish Widows-owned Embark Investments, said: “It’s understandable investor confidence has taken a knock given the current economic and geopolitical uncertainties. However, stock markets typically look through the gloom, so it can be damaging in the long run to take portfolio risk off the table due to short-term, negative news.”
Scottish Widows said advisers were recognising the need to coach their clients through volatile times, with 66% reporting that they use behavioural profiling or tools to segment their clients according to their financial personality.
Behavioural coaching also appears to be flowing through to client understanding, with 57% of advised clients stating they are aware of emotional biases compared to just 39% of non-advised investors. Nearly three fifths (59%) of advised clients believe that market declines can be a good time to buy, yet only 47% of non-advised investors felt the same.
The research also found that 63% of advised clients believe that emotional decisions cost them between 1% and 4% per year, but a higher proportion of non-advised investors believe that they have been completely unaffected by emotionally-driven investment decisions.
MacLennan added: “With investors admitting that taking too little risk has been one of their biggest mistakes, a key part of the adviser role is to keep their clients on track from a risk-reward perspective, by focusing on long-term outcomes. The benefits of behavioural coaching to advised clients are clear in these results, especially in the evidence that advised clients are more aware of emotional biases and the risks they may pose to investment decisions.”
