Advisors Worry About Investors’ Emotional Response to Markets, Says Survey by Natixis Global Asset Management

  • Nine in ten financial advisors say investor behavior presents a top challenge
  • Deep concern about impact of interest rates, inflation on portfolios
  • Most say they’re talking to clients about alternatives; investors may disagree

BOSTON--()--Financial advisors expect continued strong demand for their services in the next year, but worry that rash investor reaction to market events could harm their businesses and their clients’ well-being, according to a survey by Natixis Global Asset Management.

“When investors make emotional decisions, they decrease the odds of reaching their financial goals,” said John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “Financial advisors cannot control the markets, but they can head off adverse reactions by creating portfolios designed to stand up in a variety of market conditions. Just as important, they can work with clients to agree on what to do before market-changing events occur. By doing this, they can help take the emotions out of investing.”

Advisors say the top three challenges they face are clients’ emotional reactions to market movements (90%), managing investor behavior and confidence (88%), and persuading clients to stick with their financial plans (84%).

This is in sharp contrast to what Natixis heard from individual investors in a separate survey1 earlier this year. Few investors acknowledged the relationship between emotions and investment success. When asked if putting their emotions aside could better enable them to meet their financial goals, only 8 percent of U.S. respondents answered “yes.”

“Managing emotions may be easier said than done,” said Hailer. “Investors may not realize the potential negative effects hasty decisions can have on their investment portfolios.”

The vast majority of advisors (84%) also expressed concern about the potential effect of rising interest rates and inflation on client portfolios. Most advisors would change investing strategies if interest rates increased (57%) or if the stock market dropped severely (53%).

Goals-based investing, more moderate expectations
Advisors seem to have embraced the principles of goals-based investing. Rather than focusing on a particular index or benchmark, 91 percent say their clients' investment portfolios are based on personal objectives.

The study found:

  • 84 percent of advisors agree their clients would be happy if they achieved their investment goals over a year even if their portfolio underperformed the market.
  • Likewise, 84 percent believe investors think more about missing their investment objectives than about falling short of a benchmark.

Use of alternative strategies
A little more than half (54%) of financial advisors say their clients question traditional buy-and-hold investing strategies, though less so in the past two years as the stock market has soared and as investors focus less on making up for past losses.

The majority of advisors (83%) say they have spoken with clients about using assets that aren’t directly correlated to the markets. While advisors say they’re telling clients about the benefits of alternative strategies, investors don’t necessarily agree. Only half (50%) of investors surveyed by Natixis earlier this year said they have discussed alternative strategies with their advisor.

“There is an opportunity for advisors to talk to clients about using alternative strategies as portfolio construction tools,” Hailer said. “It might be time to focus more on the role specific alternative strategies can play within a portfolio rather than attempting to educate clients on a wide array of very different strategies.”

Alternatives can include investments such as hedge funds, long-short strategies, real estate, commodities and private equity. The returns of these assets often don’t correlate to the broader markets, so they can be used in portfolios to limit risk or curb volatility.2

The study found:

  • Only 35 percent of financial advisors regularly use alternative strategies in client portfolios. Sixty percent use them infrequently.
  • Though 87 percent of advisors say they have a strong understanding of alternatives, they also ranked alternatives highest on a list of products and services they need to know more about.
  • Nearly three-quarters (72%) of advisors think their clients know little or nothing about alternative strategies. However, 42 percent of investors in Natixis’ earlier survey said they know a good deal about alternatives.

Business growth and resources
In the year ahead, advisors expect their businesses to expand by 18 percent on average. Many advisors (49%) anticipate that business growth will come from net new client assets, while others say it will be driven by new assets from existing clients (22%), market gains (14%) and other factors (15%).

Advisors face challenges managing their time and resources. They spend:

  • The majority of their time (57%) on existing clients – in meetings, phone and e-mail conversations, and in managing their accounts.
  • 16 percent of their workdays on general administration and regulatory paperwork.
  • 13 percent of their time on education about portfolio construction, marketing, social media and monitoring industry developments.
  • 10 percent of their time seeking new clients.

Methodology
Natixis’ 2014 financial advisor research was conducted online in June 2014 with 300 financial advisors in the United States.

About Natixis Global Asset Management, S.A.

Natixis Global Asset Management, S.A. ranks among the world’s largest asset managers based on assets under management.3 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates’ products around the world. Recognized as the #1 U.S. mutual fund family for 2013 performance in the annual Barron’s/Lipper Fund Family Ranking,4 Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.

Headquartered in Paris and Boston, Natixis Global Asset Management, S.A.’s assets under management totaled $930.5 billion (€679.6 billion) as of June 30, 2014.5 Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.’s affiliated investment management firms and distribution and service groups include Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; McDonnell Investment Management; Mirova Asset Management; Natixis Asset Management; Ossiam; Natixis Environnement & Infrastructure Luxembourg; Reich & Tang Asset Management; Snyder Capital Management; Vaughan Nelson Investment Management; Vega Investment Managers; and Natixis Global Asset Management Private Equity, which includes Seventure Partners, Naxicap Partners, Alliance Entreprendre, Euro Private Equity, Caspian Private Equity and Eagle Asia Partners. Visit ngam.natixis.com for more information.

1 Natixis Global Asset Management released its fifth annual survey of individual investors in May of 2014. Natixis’ 2014 Individual Investor Research study is based on fieldwork conducted in 14 countries throughout the Americas, Europe, Asia and the Middle East with 5,950 investors having assets of 200K+ (USD).

2Alternative investments involve unique risks that may be different than those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing.

3 Cerulli Quantitative Update: Global Markets 2014 ranked Natixis Global Asset Management, S.A. as the 16th largest asset manager in the world based on assets under management as of December 31, 2013.

4 Barron's/Lipper 2013 one-year fund family ranking based on 64 qualifying U.S. fund companies. Each fund family must have at least three funds in Lipper's general U.S.-stock category, one world (global and international), one mixed-asset/balanced (stocks and bonds), two taxable bond and one tax-exempt bond fund. Natixis was not ranked for the 5- and 10-year periods. Past performance is no guarantee of future results.

5 Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part 1.

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Contacts

Natixis Global Asset Management
David Snowden, 617-449-2507
david.snowden@ngam.natixis.com

Contacts

Natixis Global Asset Management
David Snowden, 617-449-2507
david.snowden@ngam.natixis.com