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More advisers turn to outsourcing amid market turmoil

More advisers turn to outsourcing amid market turmoil
Access to investment expertise is the most common reason for advisers to outsource (Kampus Production)

More financial advisers are outsourcing their investment management as they look for expertise in navigating the choppy markets.

Schroders' annual UK Financial Adviser Pulse Survey, out yesterday (June 21) found 17 per cent of advisers had increased their investment outsourcing over the past year.

There has also been an increase in the number of advisers reporting that they outsource portfolio management for more than half of their clients’ assets, from 21 per cent in November 2021 to 31 per cent in May 2022.

The investment house had polled 225 advisers for its 2022 survey.

It found a bearish outlook amongst financial advisers on investment markets due to a combination of the cost of living crisis, stock market volatility and Russia's ongoing war with Ukraine.

Schroders said access to investment expertise and resources was the most important reason for advisers to outsource portfolio management.

Source: Schroders Adviser Survey, May 2022

But spending more time with clients and 'improved operational effectiveness' also played a part.

Doug Abbott, head of UK Intermediary at Schroders, said: “The results of this year’s Schroders’ Pulse Survey, which broadly highlight the return of market uncertainty, will come as little surprise to anyone given the macroeconomic and geopolitical context that has characterised the year to date.

"As financial advisers seek to navigate this, they will be keen to identify ways in which they can mitigate against risks and capture market opportunities where they can for their clients.

"It is therefore pleasing to see they are continuing to recognise the benefits of outsourcing their portfolio management, with the Schroders Pulse Survey showing the number of advisers reporting that they increased their use of outsourced solutions has
risen”.

Two-fifths (41 per cent) of the advisers consulted told Schroders in May 2022 that they expected equity returns to be lower than historical averages over the next five years, compared with half that number (20 per cent) in November 2021.

Sentiment on fixed income was even more negative, with 62 per cent of advisers today expecting bond returns to be lower.

Two-thirds (69 per cent) of advisers expected some of their clients to adjust their investment plans due to the cost of living crisis.

Source: Schroders Adviser Survey, May 2022

When it came to growth expectations over the next five years, the share of advisers who felt positively dropped by almost half in the past half year, from 58 per cent in November to 30 per cent in May, as more advisers said they expected more disruption as a result of geopolitics.

Unsurprisingly, more advisers now feel that interest rates will rise further. The Bank of England last week raised interest rates for the fifth time in a row, to 1.25 per cent, but three members of the Monetary Policy Committee had voted to raise the rate to 1.5 per cent.

CPI inflation is expected to be more than 9 per cent during the next few months and to rise to slightly above 11 per cent in October.

Changing landscape

The Russian war has not only lowered growth expectations, it has also changed the way advisers feel about sustainability, according to the survey.