Advised investors less willing to take on risk post pandemic

Advised investors less willing to take on risk post pandemic

The coronavirus pandemic has made a third of financial adviser clients more risk averse as capacity for loss becomes a bigger factor in investment decisions, according to research. 

Abrdn found 33 per cent of advised investors want less investment risk than they did before the UK went into lockdown.

When asked why their risk appetite was lower, half (51 per cent) pointed to a change in their investment or financial priorities and two in five (42 per cent) cited a reduced capacity to absorb loss.

Abrdn polled 1,001 UK adults who have a financial adviser that they speak to at least once every year, in September 2021.

Neil Young, IFA at Plan with Neil, said it was good to hear that advised individuals appear to understand the concepts of risk and are adjusting their investments because of it. 

“Obviously the pandemic has affected people in different ways and it is only natural that these would see clients deviate away from their past risk profile as their new experiences shape them,” he said.

“The problem is that there are many millions who need to be having conversations about money with professionals to understand their risk profile/capacity for loss better.

"Unfortunately, the general public who don’t take advice often fall into two camps - sat with far too much in cash or going into high-risk investments using online trading platforms.”

However, despite a third of clients wanting less risk, a quarter (27 per cent) said they want more risk.

Half of these cited greater confidence in the advice they received as a reason behind this.

Alastair Black, head of industry change at Abrdn, said: “Seismic events like Covid-19 can cause big shifts in investor risk appetite. However, the divide we’ve identified between those who now want less risk and those who want more is considerably more significant than we expected. 

“It confirms the uneven financial impact of the pandemic, and the challenge advisers are currently facing to support clients with very different outlooks.”

Abrdn said the research also underlined the link between capacity for loss and investment risk, and how the former was having an even bigger effect on client decision making in the wake of the pandemic. 

Black added: “This comes almost five years after the FCA said advisers must consider capacity for loss during suitability assessments, both separately from, and in addition to, attitude to investment risk.

“Looking ahead, it’s encouraging to see those that are happy to take on more risk cite confidence in their adviser. This shows how invaluable advice has been during such a turbulent financial period, and the value advisers will continue to deliver as clients shape their portfolios as the UK’s enters a new phase of its post-pandemic recovery.” 

Tim Morris, IFA at Russell & Co Financial Advisers, said in his experience clients were willing to take on more risk, stating the speed of the economy’s recovery had helped with that.