More advisers turn to outsourcing amid market turmoil

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.

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.

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.

There was a growing importance placed on incorporating sustainability in investment decision making, said Schroders, which suggested advisers were also receptive to the "mounting evidence of the impact of climate change".

Sustainability has become a mainstream term with advisers and their clients over the past few years and 90 per cent of advisers agreed that events over the past two years had reinforced the importance of stewardship and using an asset manager who actively engages with company management.

A considerable 83 per cent of advisers also indicated the past two years had increased their attention to the environmental, social and governance risks associated with investments, while 71 per cent reported they were preparing for possible changes in regulation, which may include them having to discuss suitability preferences with clients.

The government has set out a roadmap for a UK version of the EU's SFDR rules, which is expected to force advisers to raise ESG preferences with their clients.

Gillian Hepburn, intermediary solutions director at Schroders, said: "As financial advisers once again find themselves having to adapt to a rapidly changing investment landscape, the importance of ESG and stewardship as a means of mitigating against unforeseen risks has been thrown into sharp focus."

Meanwhile, more than half (53 per cent) of advisers told Schroders they were unsure about what impact the Financial Conduct Authority's consumer duty would have on their business.

Somewhat surprisingly, 17 per cent expected it to have a negative impact on their business. Advisers have previously told FTAdviser they thought the new rules would have little impact on firms which already run a client-centric business model.

The consumer duty is aimed at ensuring companies “put themselves in customers’ shoes” when communicating and designing products. It is expected to be introduced by April 2023.

carmen.reichman@ft.com