New survey data from Hartford Funds reveals disparities between client anxiety and risk aversion as well as perceptions and realities regarding international equities.
The second annual survey of more than 100 advisors provides insights on client anxiety and investment behaviors against the backdrop of today’s increasingly global investment landscape.
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"Investing has never been without some level of anxiety and this year’s survey results underscore the need for advisors to continue recognizing and addressing this behavior for more productive client relationships," said John Diehl, Senior Vice President at Hartford Funds. "The same is true of investment opportunities where consumers may lack understanding, such as international equities – particularly in the midst of geo-political turmoil. Advisors will discover that education breeds confidence, which often trumps fear and can be an effective resource in any advisor’s toolkit."
Advisors are largely split on whether or not clients have allowed anxiety to adversely impact their investment decisions in the last year, with 52 percent noting that clients have let their anxiety get in the way and 48 percent indicating the opposite.
These findings mark a 5 percent decrease in anxiety adversely impacting investment decisions over the last year. Despite the nearly even split, 35 percent of respondents believe clients’ risk aversion will increase in the coming year – a substantial jump from just a year ago when only 17 percent of respondents expected risk aversion levels to rise.
International turmoil is a current contributor to advisor anxiety, with more than 40 percent of respondents citing it as the biggest or second biggest issue keeping them up at night. Perhaps related, advisors also reported international equities as the investment option that appears to cause the greatest anxiety among clients.
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By GlobalDataNearly half (49 percent) of respondents cited this type of investment as causing the greatest amount of client anxiety, compared with domestic equities (18 percent), global/international bonds (13 percent), income-focused bond holdings (11 percent) and core bond holdings (10 percent).
Despite the anxiety caused by international equities and geopolitical turmoil, Morningstar data shows that one-year flows into international equities were more than $135B as of July 2014, compared with flows to domestic equities, which were roughly $28B during the same time period. This disparity illustrates that despite anxiety, international equities remain attractive to investment decision-makers.
Diehl added, "From media headlines about volatility to flashbacks to 2008, advisors are helping consumers juggle anxiety related to both information and memory overload. As the advisory role becomes more complex and the approach to retirement planning more holistic, navigating challenging conversations and better understanding of the client mindset is an increasingly critical component of a successful practice."
More information on how to navigate client discussions, anxiety and other challenges can be found at Business Building on Hartford Funds’ website.
The survey of 103 advisors was executed between August 11 and 12 in San Diego, CA.
