Advisers face into uncertainty via fixed interest and cash

Market volatility and fears of recession have been reflected in the asset allocations being recommended by financial advisers, according to the latest research released by Investment Trends.

The research, contained within the 2023 Adviser Product & Marketing Needs Report, reveals that advisers’ allocation to cash and fixed income has surged to a combined 15% of new client inflows in 2023, up from 12% in 2022.

What is more, Investment Trends says that these allocations are expected to keep growing if advisers follow through with their intentions.

Investment Trends head of research, Irene Guiamatsia said the further shift to cash and fixed income came as one in four advisers acknowledged the significant impact of yield considerations and recessionary fears in their approach to portfolio construction.

“With the backdrop of the most accelerated rate hike cycle in recent history (domestically and in most OECD countries), the pendulum has certainly fully swung the other way, reigniting demand for cash and fixed income as asset classes of choice”, Guiamatsia said.

She noted that the study also reveals 24% of advisers are aiming to (further) boost their allocation to cash/fixed income in the next 12 months.

“The 24% is up from 14% in 2022 and the highest in three years. Advisers also plan to expand the breadth of products they use (20% cite), with ETFs and managed accounts poised to continue to benefit from those intentions,” Guiamatsia said.

The analysis found that advisers are increasingly selective when deciding on a product provider to recommend to their clients with three features in particular – performance, low cost, and active management expertise – have become vastly more important in the past two years.

“The primary factor for preferring a fund manager continues to be the manager’s investment philosophy, and it’s vitally important to communicate this clearly. But advisers have stepped up the amount of scrutiny they place on both performance and fees.”

Conversely, subpar performance and a lack of trust continue to be leading factors prompting advisers to have discontinued or contemplate discontinuing their association with a fund manager for new client inflows.

As most of the workforce shifts back to face-to-face as the preferred engagement format, advisers are increasingly calling for a return to traditional engagement models, including BDM visits and in-person events like roadshows, conferences or breakfast/lunch briefings.