Advisers favour conservative approach in high interest rate environment

In its 2023 Adviser Product & Marketing Needs Report, financial services industry research firm Investment Trends found advisers’ allocation to cash and fixed income has surged to a combined 15 per cent of new client inflows in 2023, up from 12 per cent in 2022, which the firm said it expected to continue.

Investment Trends said 24 per cent of advisers are aiming to further increase their allocation to cash/fixed income in the next year – the highest mark in three years and up from 14 per cent of advisers in 2022.

The report, which aimed to provide an in-depth analysis of advisers’ evolving investment product needs and communication preferences, added that one in four advisers acknowledge the significant impact of yield considerations and recessionary fears in their approach to portfolio construction.

“With the backdrop of the most accelerated rate hike cycle in recent history (domestically and in most OECD countries), the pendulum has certainly fully swung the other way, reigniting demand for cash and fixed income as asset classes of choice,” said Irene Guiamatsia, head of research at Investment Trends.

Advisers also plan to expand the breadth of products they use (20 per cent), with ETFs and managed accounts poised to continue to benefit from those intentions.

They are also increasingly selective when deciding on a product provider to recommend to their clients, the research found. Investment Trends added that performance, low cost, and active management expertise stood out as three factors that have become “vastly more important” over the past two years.

“The primary factor for preferring a fund manager continues to be the manager’s investment philosophy, and it’s vitally important to communicate this clearly. But advisers have stepped up the amount of scrutiny they place on both performance and fees,” Dr Guiamatsia said.

Subpar performance and a lack of trust, however, continue to be key factors prompting advisers to either discontinue or contemplate discontinuing their association with a fund manager for new client inflows.

Looking further into the relationship between advisers and fund managers, Investment Trends said on the back of a shift towards more face-to-face engagement throughout the workforce, advisers are also increasingly interested in a return to traditional engagement models. This includes BDM visits and in-person events like roadshows, conferences or breakfast/lunch briefings.

“Advisers tell us they currently receive more contact from product issuers than they would like. While this is the expected outcome of a wide (and growing) product range, it certainly underscores the need to make each interaction with advisers count,” concluded Dr Guiamatsia.