Despite a sharp correction in the stock and bond markets and very high inflation in the first half of 2022, financial professionals believe they will see their business grow in the coming year. Advisors in Europe and the UK expect growth of 6% to 7%. This is according to research by Natixis Investment Managers.
Natixis IM surveyed 1050 financial professionals across Europe and the UK, including asset managers, registered investment advisers, financial planners and independent brokers. The findings also show that many will have to make a lot of efforts to realize their growth ambitions, as they will have to adjust their investment strategies while meeting the ambitious expectations of their clients.
Geopolitics, inflation and volatility are the top three market risks cited by European and UK financial professionals. The geopolitical risks have become very visible this year, so the concern is high here: 78% of financial professionals in Europe and 72% in the United Kingdom are concerned about these risks, while the global average is 57%.
The war in Ukraine has had a significant impact on inflation, at a time when the global economy was recovering from the pandemic and energy demand was high. More than two-thirds of financial professionals in Europe (63%) and the UK (68%) consider this a major risk to their portfolio.
Meanwhile, the period of volatility in the first half of the year – one of the longest periods since the financial crisis – means more uncertainty for financial professionals. More than a third (31%) in Europe see this as an important risk, while that number rises to almost half (48%) in the UK.
However, few think that the market crisis will continue until the end of the year. On average, financial professionals in Europe expect most major indices to post modest gains by the end of december, including: 4.2% (2.6% in the UK) for the S&P 500, while UK professionals expect a 4.7% gain for the FTSE 100.
Martijn Langenberg, head of retail and wholesale distribution Netherlands for Natixis IM, says “ “geopolitical turmoil and market volatility have led to a’ perfect storm’ that affects the stock markets and also investment portfolios. In the short term, financial professionals will not only have to adapt their investment strategies to these turbulent markets, but also the way they approach their clients. In addition, they will have to re-evaluate their visions of the market and determine to what extent the world has really changed if they want to meet growth expectations.”
In this volatile climate, alternatives are emerging. More than three-fifths of respondents (68% in Europe and 64% in the UK) say current market conditions make alternative investments, such as infrastructure, private assets and commodities, more attractive. Of all investment categories, financial professionals find commodities most attractive in an inflationary climate (46% of financial professionals in Europe and 51% in the UK).
Despite the current climate, financial advisors think they can grow their business over the next three years, with expected annual growth of 13% among European respondents and 9% among UK respondents. Given challenging market conditions, advisors will need to focus on attracting new clients and capital. One is optimistic, because in Europe, respondents expect to add 44 new customers a year to their portfolio, while financial professionals in the UK expect 35 new customers.
To achieve this, more than half of financial professionals segment their prospects by age in the search for new clients and new assets. In total, 84% of European financial professionals (93% in the UK) target people aged between 50 and 60, while another 54% (86% in the UK) target people aged between 60 and 65.
Referrals from existing clients are cited by 77% of respondents in Europe (and by 91% in the UK) as an important way to expand their business. Another 50% in Europe (40% in the UK) think that success will depend on their ability to build relationships with heirs of the next generation.
Advisors also focus on improving access to technology (44% in Europe; 38% in the UK) with client-facing apps and CRM tools as crucial steps to success. The biggest threshold, according to 47% of consultants in Europe (45% in the UK), is the high cost of implementation.