New research reveals IFAs think nearly half of retail investors do not understand the need, or how to achieve, diversification.
The independent results, commissioned by Scottish Widows Investment Partnership (SWIP), reveal just 3% of IFAs feel investors are best placed to make their own asset allocation decisions.
SWIP global strategy head Ken Adams says he is alarmed IFAs feel retail investors don’t understand the need for diversification.
“Putting all of your eggs in one basket is a highly risky investment strategy as the dot com bubble only too clearly highlighted,” he says.
“Despite the crash in technology stocks in 2000, it is evident that still more work needs to be done to educate retail investors on the need for diversification and the importance of asset allocation when creating a portfolio.”
The research also shows 91% of IFAs review client portfolios at least annually; while advisers agree asset allocation is the primary investment decision for investors – with 78% of IFAs making decisions on a client’s behalf.
Adams says he is reassured by this figure.
Commissioned in May, the survey polled over 200 UK IFAs, asking their views on asset allocation and multi-asset funds.
It provided a positive growth indicator for the diversified asset fund market, as 77% of IFAs currently offer multi asset funds and 45% offer diversified asset funds to retail investors.
IFAs identified the attraction to diversified asset funds, including the ability to enable smaller clients to access a much broader range of asset classes than traditionally available, as well as reduced administration for small client portfolios.
With just 13% intending to use the fund as a one stop shop client portfolio, most IFAs see diversified asset funds as a central portfolio in which to create client specific funds around.
SWIP balanced funds head Jeff King says he is encouraged by the interest and enthusiasm for these funds.
“We see diversified asset funds as the next generation of cautious managed funds,” he says.
As for the future of global equity markets, 59% of IFAs expect to see similar or higher levels of returns compared with the past five years, while 32% anticipate lower returns.
But 84% predict similar or higher volatility levels over the next five years.
Adams says SWIP’s own projections concluded there is a risk of lower returns going forward and he expects to see a period of increased global equity market volatility.
“In these conditions products such as diversified asset funds, which aim to generate smooth returns, will really start to come into their own,” he says.
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