The report surveyed more than 240 financial intermediaries and 500 private investors from across the UK during June and July, and found both advisers and clients recognise that such levels of yield are not sustainable.
It noted this comes at a time when IFAs and wealth managers are increasingly challenged to make sure their clients have enough income for retirement, with a persistently volatile, low growth and low interest rate environment.
Euan Munro, chief executive of Aviva Investors, said before the financial crisis, achieving a 5 per cent target was not an unrealistic income goal, but the research shows both advisers and investors recognise this is not an obtainable level of return now without jeopardising capital.
He said: “Traditional asset classes that once generated an attractive level of income are not yielding anywhere near to what investors require, and this is driving them to diversify their asset mix.
“Investors are increasingly seeking out multi-strategy funds as a result, and our research shows their popularity is set to increase.”
Seven out of 10 investors found the concept of an income fund that generates 4 per cent over base, a year, regular monthly income, to be attractive.
The ability to offer a sustainable, regular income was reported by investors as the single most important requirement from advisers, but about six in 10 investors were not prepared to accept higher risk to achieve it.
About half of investors and investment professionals favoured using multi-asset strategies, as they offer diversification, the potential for income and growth, as well as sustainability, at a reasonable cost.
Furthermore, three quarters of advisers rate multi-strategy funds as an attractive proposition, although they are perceived as less familiar compared to multi-asset funds.
The survey also revealed that nearly six out of 10 advisers believe their role has become more challenging in the post pension freedoms world, although at the same time, advisers believe their job is also more rewarding (40 per cent of adviser respondents).
Two thirds reported managing client expectations of income levels as the key challenge, with polarisation among respondents on clients’ attitudes towards risk and return.
Four in 10 agreed their clients’ attitudes to risk and return have not changed significantly in recent years, while four in 10 also believe that they are challenged to deliver the required income levels for those who do not want to accept the corresponding level of risk.
James Tothill, head of third party relationships at Aviva Investors, added: “This research reveals an admirably positive determination on the part of advisers to ‘do right’ by their clients, but also shows that the job of achieving the right outcomes is nonetheless challenging.”
Aviva Investors’ research came after FTAdviser’s sister title Investment Adviser warned back in August that investors should be wary of multi-asset funds promising 5 per cent income that could be taking “a gamble” with capital.
The scramble for income in a low interest rate environment has led to more of these funds being launched, with 5 per cent assuming ‘magic number’ status.
Meanwhile, market volatility has caused interest in multi-asset funds to jump. Net retail sales totalled £404m in June, according to the Investment Association – the highest level since July 2014.
But some are wary.
Parmenion senior investment manager Meera Hearnden warned: “To get a 5 per cent income in the current low growth, low interest rate environment, where bond yields have compressed, would set alarm bells ringing.”
peter.walker@ft.com
