An overwhelming majority (82%) of financial advisers believe that the prolonged bull market has led to complacency among investors, and fear that the investors will panic and take emotional decisions in the event of a market downturn, according to a report by Natixis Investment Managers.
The study surveyed 300 financial professionals, including wirehouse advisers, registered investment advisers and independent brokers and dealers in the US. Of the advisers polled, 62% believe that investors are not prepared for a market downturn, while only 36% believe otherwise.
Around half (46%) of advisers said that their clients reacted emotionally to recent market movements. Only 38% of the advisers held the view that investors understand the risks of the existing market. In this scenario, advisers believe managing the emotional reactions of their clients to be their greatest challenge.
Advisers believed geopolitical events to be the biggest threat to the markets, with 68% of advisers holding the view. Other potential threats to investment performance highlighted by advisers were interest rate increases, rising volatility, asset bubbles, low yield environment, unwinding of quantitative easing, and regulation.
In particular, advisers were concerned about crypto-currencies, with 74% expecting this bubble to burst this year.
Also, 83% of the advisers said that the current risks in the market favours active management, while 80% of the advisers recommended alternative investments in the current market environment.
Natixis Investment Managers CEO for the US and Canada David Giunta said: “After an exceptional year in 2017, volatility is back, and investors are feeling as uncertain as the markets.
“Our research shows investors often make decisions based on emotions, so it’s more important than ever for advisers to fortify close relationships with their clients to help them put their emotions aside, and consider active portfolio design approaches that could be better suited to weather today’s markets.”