By Michael Demilio, Senior Manager, Marketing, Investment & Wealth Solutions
US retail investors demand more index insights from advisers despite perfect macro climate for active
- Against a backdrop of increasing uncertainty, it appears that advisors are failing to meet the demand from investors for index strategies.
- Despite turbulence in the economy and equity markets, FTSE Russell research indicates that the multi-year shift to index strategies looks set to continue.
- Advisors are in a strong position to help through greater education, as our research also shows near-universal satisfaction with their services.
That it’s an uncertain time for investors was confirmed in April after minutes from the Federal Reserve’s most recent monetary policy meeting spooked markets. For the first time, they revealed that policymakers predicted a ‘mild’ recession in the US, starting later this year.
Against that backdrop, advisors appear to be missing an opportunity. After the years of easy money and steady economic growth following the global financial crisis, business may be about to get tougher. Yet they are failing to meet the demand from retail investors for index strategies.
The scale of the unmet demand is startling. Almost a third of investors with financial advisors say that their advisors have not discussed index strategies with them, according to the inaugural FTSE Russell Retail Investor Survey. Yet two thirds of these investors would like to discuss them, suggesting a high level of pent-up demand.
Despite the uncertainty in the economy and financial markets, our research indicates that the multi-year shift to index strategies looks set to continue. During our survey of more than 1,000 investors, we asked: in 2023, do you expect to increase, maintain or decrease your use of index strategies? Nearly four in ten (38%) of investors who already hold these strategies said that they planned to add to them. This contrasts with the conventional wisdom that index strategies prosper in buoyant not turbulent markets.
The reasons why investors like these strategies are clear: they are highly satisfied with performance. More than three quarters (77%) of survey participants holding index strategies agreed that they had performed as well or better than their other investments. What’s more, they’re investing for the right reasons. Their top reasons for investing were ‘good performance over time’, followed by ‘create a diversified portfolio’ and ‘ease of use’.
So how can advisors capitalize on this opportunity? Closing the education gap on index strategies is key. Indeed, our research showed that investors who do not own indexes say that lack of knowledge is the biggest issue. They either do not know how these strategies work or which would be suitable.
After earning the trust of their clients over the last few volatile years in financial markets, advisors could hardly be in a stronger position to provide that education and wise counsel. Almost all investors with advisors who we spoke to were satisfied with the high level of service provided. In fact, 92% said they were satisfied – a level of satisfaction that’s hard to fault.
As they contemplate how to navigate 2023’s likely tough business environment, advisors have an opportunity to maintain that exceptional level of satisfaction by meeting the untapped demand for indexes.
Conducted in November 2022, FTSE Russell surveyed more than 1,000 US retail investors owning stocks, mutual funds or ETFs outside the workplace on a range of topics related to indexes, index investing and their economic outlook for 2023.
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