Seven in 10 (69%) advisers expect to increase their use of smoothed funds over the next 12 months to combat volatility in the markets, says Wesleyan Financial Services.
A survey of 300 UK advisers by the firm found that 65% had already increased their use of smoothed funds during the past year. The vast majority (88%) believe recent market volatility has made these funds more suitable for certain clients.
Two fifths (39%) believe volatility poses a significant threat to their clients’ investment outcomes, while 55% consider the threat to be low. Just 3% see no threat at all.
However, Wesleyan said almost all advisers (94%) surveyed agree that investment solutions must evolve in response to changing market conditions.
James Stacey, investment specialist at Wesleyan Financial Services, said: “Volatility is no longer being viewed simply as a short-term disruption. Advisers increasingly need to consider how periods of uncertainty affect not only investment values, but also clients’ confidence and financial decisions.
“For some clients, particularly those investing for the first time or approaching retirement, sharp market movements can make it harder to remain invested. Smoothing can help manage the investment journey and reduce the impact of short-term market movements, although it does not remove investment risk or guarantee returns.”
Wesleyan said retirement planning is a particular concern, with more than a fifth (21%) of advisers expecting more than half of their clients approaching retirement to postpone or change their plans because of market movements during the remainder of the year.
Among advisers who have increased their use of smoothed funds, the most commonly cited reasons were managing volatility arising from UK political uncertainty (43%), global geopolitical uncertainty (41%) and helping clients remain invested during unsettled markets (39%).
However, the firm said advisers continue to see obstacles to wider adoption, including cost (36%), regulatory concerns (34%), performance concerns (33%) and product complexity (32%).
Stacey added: “The findings don’t suggest smoothing is right for every investor. They show that advisers increasingly see it as one option within a broader investment toolkit.
“Providers need to address the barriers advisers have identified by being clear about costs, performance, risk and how smoothing works. Good-quality education and transparent information will help advisers assess when these funds may be appropriate for an individual client.”
Main image: smooth, boat, calm, journey, vruyr-martirosyan-g5z53Jd6caY-unsplash
