Buoyant markets drive changes in asset trends for advisers
The current market outlook has enabled a unique backdrop for asset strategies as advisers face a new trifecta of challenges across capital protection and mounting compliance burden.
The latest Investment Trends report, 2021 Adviser Product and Marketing Needs, has revealed the financial advisers’ market outlook is optimistic in line with strong asset price growth. As of October 2021, advisers expected local shares to deliver capital gains of 3.5 per cent over the next 12 months, up from 1.3 per cent in 2020.
Irrespective of their current market outlook, advisers are most often saying that the legacy of COVID-19 will impact how they set client expectations moving forward.
“COVID-19 asset allocation changes are not expected to be enduring. Only one in five financial advisers believe that changes they’ve made to their process and recommendations will be for the long-term, and things are expected to return to some level of normality”, Kurt Mayell, associate research director at Investment Trends, said.
Diversification (68 per cent rated as a priority), capital growth (37 per cent), and liquidity (31 per cent) remain the top three priorities for investment selection among advisers.
Areas becoming increasingly important for advisers include protection from market downturns and responsible investing (27 per cent cite). Responsible investing is the fastest-growing priority area for advisors, almost doubling in its importance in 2021 as investor interest in this asset class builds.
In the last 12 months, advisers say that over 40 per cent of clients have requested to buy or sell investments based on environmental issues, up from 24 per cent in 2020. Almost two-thirds of advisers say that client demand would be the biggest driver for ESG investing, according to the report.
As a result, advisers report that they want to better understand the basics of responsible investments, including performance, cost, screening criteria, and the underlying mix of investments.
“Advisers who are prioritising ESG investments expect to use a wider range of products or increase their use of active management. To enable the growth of ESG investing, advisers believe that product providers should put as much effort into research and data analytics as they do on new product issuance,” Mr Mayell explained.
“As far as new client inflows are concerned, the use of managed accounts and ETFs continues to rise among advisers.”
In the lead up to the Design and Distribution Obligations (DDO) coming into effect, a third of advisers say they feel prepared to meet their new obligations.
To effectively fulfil their obligations, most financial advisers want support in general education on DDO regulation. Many would also like assistance on “Target Market Determination” related issues and practical implementation guidance.
“2021 was particularly prolific in terms of additional regulatory compliance burdens – best financial interest, fee consent, DDO and IDII among the most prominent,” Mr Mayell added.
“In relation to DDO, there are significant opportunities for education, starting with the jargon itself. Close to four in five advisers rate their understanding of ‘significant dealings’ as average or below.”
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.