Investors working with advisers are more confident

Advised investors are more confident that they will have adequate funds for retirement (61%) compared to just 50% of do-it-yourself investors.
By Morningstar |  24-12-18 | 
 

The most successful investors combine their own personal knowledge with professional advice to generate a significant advantage. According to the findings of Legg Mason Global Investment Survey 2018, advised investors see around 0.64% higher returns from income-producing assets and lower cash holdings. The online survey covered 16,810 investors in 17 markets across Europe, Asia Pacific, Latin America and the U.S.

The survey found that advised investing delivers better results against key goals and often enables investors to hedge more effectively against downside risks. It doesn’t preclude investors from acting with conviction and placing money in assets of their own choice, but it is far more likely to mean they focus on a specific goal and investment outcome and manage their investments accordingly. Advised investors see average returns of 6.2% from income-producing assets compared to 5.6% for DIY investors.

Advised investors are more invested and have lower cash savings than DIY investors (29% versus 35%) and lower equities allocations (22% versus 33%) but higher allocations when it comes to fixed income (18% versus 12%), real estate (16% versus 12%), alternatives (10% versus 5%) and gold (6% versus 3%).

The study found that advised investors are more open to new ways of investing, taking into account goals-based investing. In addition, they tend to have long-term goals, often as a result of the risk profiling done by the advisers.

Investors working with advisers are also more confident in their approach, more knowledgeable and more excited. They see many opportunities and feel they have more choice through investment options given to them by the adviser. While DIY investors mainly believe in domestic stocks as the best investment opportunities in the next 12 months, with international stocks second best, advised investors have a stronger belief in real estate, gold, alternatives (almost twice as much as DIY investors), crypto-currencies and fixed income.

Comfortable with volatility

Typically, advised investors outsource their asset allocation and de-risk when necessary. Volatility is seen as a positive thing and advised investors agree that, if managed properly, returns can be higher.

In times of increased market volatility, advised investors are more likely to take action compared to DIY investors. Nearly half (43%) would de-risk their portfolios by moving money into lower-risk investments or putting it into cash savings.

Advised investors hold twice as much in actively managed mutual funds compared to DIY investors (45% versus 22%). They also have higher allocations in active strategies (52%) compared to DIY investors (46%).

Advised investors are also likely to be more confident in their investments and the opportunities for the next 12 months than DIY investors (60% versus 47%). Consequently, they make fewer changes to their investments; on average, they make changes 2.2 times per year compared to DIY investors, who make changes 2.8 times per year.

In times of financial crisis, the majority of advised investors would adjust their portfolios (89% versus 73% DIY investors). They are most likely to turn to multi-asset strategies (34%) to take actions such as buying property (31%). A quarter (24%) would invest more in equity funds or use target maturity strategies. Also, 21% would invest more in alternatives (versus 9% of DIY investors) and 19% in bonds (versus 11% of DIY investors).

Investors who take financial advice are significantly more confident they will have adequate funds for retirement (61%) compared to just 50% of DIY investors. Advised investors are less open to technology as they have a stronger belief in the human touch due to positive experiences with their advisers.

Transparency on fee

Transparency on costs and fees is becoming far greater than it has been in the past, and the cost of advice is coming down. While investors are right to look at the fees they pay, they need to balance this against the value of the advice they receive and the returns they are generating.

Excerpts from Legg Mason Global Investment Survey 2018. Access the full report here.

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