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November 16, 2011 at 09:32 AM
RIAs believe market volatility in the past 12 months has made clients more risk averse, according to an Invesco market research study released Wednesday. Only 15% believe clients will become more tolerant in the next year.
It’s not just that clients are more risk averse; 70% of advisors said volatility was their clients’ top concern and 99% said it was in their top three concerns. Accumulating assets barely registered, with just 6% citing it as a top concern.
“This new investment environment and the resulting change in investors’ risk tolerance is prompting advisors to re-evaluate how they manage client assets and which methods are most effective in mitigating risk,” Andrew Scherer, managing director of Invesco’s RIA Division, said in a statement. Forty-five percent of advisors now say managing risk is their top portfolio priority, ahead of wealth preservation, exceeding benchmarks and delivering absolute returns.
One strategy many advisors have adopted, Invesco found, is to combine actively managed products and exchange-traded funds. The report found RIAs believe ETFs will represent on average 22% of client portfolios in the next year and 30% by 2014.
Scherer cautioned that the industry has a long way to go to educate RIAs on the benefits and risks of ETFs in general, and which products are best for their clients’ needs, in particular. “Thirty-nine percent of RIAs say they don’t have an above-average understanding of ETFs and 53 percent say don’t have a high knowledge level of existing ETF products,” he said.
On Oct. 19, Eileen Rominger, director of the Securities and Exchange Commission’s Division of Investment Management, told a Senate panel that the commission would begin reviewing the adequacy of investor disclosure about ETFs, their liquidity and whether they contribute to market volatility.
