Financial advisors are seeking strategies to help manage volatility for a broad spectrum of clients ranging from younger clients to retirees, each with very different investment needs, according to a Natixis Global Asset Management study.
The study reveals that 56 percent of advisors say it’s difficult to build portfolios that can simultaneously reduce risk and enhance return, and 53 percent say it’s challenging to balance drawdowns for retirees with the need to keep their portfolios growing.
“U.S. advisors face a juggling act every day as they work to serve the rapidly changing needs of both their older and younger clients,” said John T. Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “Not only do they need new, more innovative strategies for managing retirement assets, they’re also looking for updated techniques to manage risk and return for younger investors.”
Sixty-nine percent of those surveyed say they need to replace traditional diversification and portfolio construction techniques with new approaches in order to achieve results, compared with 46 percent last year.
Eighty-four percent of advisors say they have discussed the use of alternatives with their clients, and 89 percent of advisors use alternatives with their clients. However, only 25 percent use them frequently, and mostly with their high-net-worth clients.
According to a separate investor survey released by Natixis earlier this year, 72 percent of investors would consider alternatives if their advisor recommended them.
But advisors often find it difficult to explain how these investments can complement more traditional assets such as stocks and bonds. The survey of 1,300 advisors from nine countries found advisors are not using alternatives more broadly because they only recommend strategies they can easily explain to clients, they have a lack of knowledge about alternative strategies and advisors believe clients think alternatives are too risky.
“These findings clearly show that it’s time to simplify the way we talk about alternatives and portfolio construction,” Hailer said. “We have an opportunity to do a better job of explaining the role alternative investments can play in a portfolio -- whether they are designed to smooth volatility or increase returns by taking on more risk. It’s important to help investors understand the characteristics of the strategy -- potential risks, volatility, and what to expect in various market environments.”