It’s been a choppy start to the year. The markets have swooped, swerved and swooned. What is the impact on investors? So far, the anecdotal evidence is that advised customers are behaving sensibly.
Our conversations with adviser platforms over the past few weeks indicate that there haven’t been wholesale switches to lower risk investments, nor has there been a spike in redemptions. However platforms are seeing lower sales figures: as investors ride out the storm, they aren’t continuing to invest.
At a lively half-day event we held yesterday for subscribers to our research, this issue was widely discussed. Many attendees were of the view that advised and workplace investors are staying the course, but that DIY customers may be panic selling.
And really, who can blame them? Yesterday’s sober and understated headline from the Daily Express “PENSIONS CHAOS AS SHARES COLLAPSE” could certainly pique concern among the most disciplined long-term investors.
Research that we published last week on consumer views on investing suggest that investors are weathering the downturn reasonably intact. Typically as markets rise, consumers are more likely to say they invest and as they decline, they are more likely to say they don’t invest.
This isn’t an attempt to deliberately mislead market researchers. As markets decline, investors might sell some positions or move to lower risk investments. As markets rise, they buy or consider buying and so are more likely to say they invest. (There’s probably also a behaviour-psychology bias too: people like to be associated with winning investments in good times and don’t identify themselves with losing investments when times turn dark…)
But in this downturn, investors are still identifying as investors and in ever-greater numbers. I mentioned in our Friday newsletter two weeks ago that nearly 2 million more UK adults say they hold risk-based investments.
Since the pension freedoms came into effect, investors have been more engaged with their finances. As an industry we have a window of opportunity to engage with our customers. Investors are more open to it than in the past and as an industry we are interested in connecting directly with customers. Hence Platforum has declared 2016 the year of the customer.
Yesterday we shared with our subscribers a host of data and insights that we’ve developed on how the market is taking shape. Here are a few of the findings
- Not all platforms will cross the chasm: The gulf is regulatory burdens, commitment from a parent company and technology investments. Platforms need to be bigger than before to be profitable because of the increased costs to comply with regulatory requirements. There are platforms that may not cross the chasm because of a lack of muscular support and resources from the parent company. And there is the on-going investments required in technology. We expect some platforms will want to be sold – whether there will be buyers remains to be seen. We also expect some platforms to be stuck in the ravine in between: left to wither as assets dwindle over time.
- Consolidation of the advisory market: This will be fuelled by the rise of larger firms and a shrinking in the number of smaller advisory firms. We also expect to see the return of the banks. Santander has been very open about their plans and we expect to see announcements from others as well. We expect most bank propositions will include a combination of in-person advice in branches, telephone support and robo.
We also shared thoughts on robo and automation, pricing and the return of internal investment selection. We challenged platforms to bite the bullet if they need to upgrade their underlying technology — and do it now rather than later.
Why are we so adamant on these points? Keep an eye out for our new research in the coming weeks and months!