Financial advisers in the UK have increased allocations to alternatives and emerging markets (EM) as they look to diversity portfolios to strengthen their resilience, according to Schroders.

Schroders’ latest UK Financial Adviser Survey showed that 36 per cent of advisers had increased their exposure to alternatives over the past 12 months, while 32 per cent had added to EM allocations during the same period.

This trend was likely to continue into the next year, the report stated, as advisers look to diversify in anticipation of greater market volatility.

The study suggested a more cautious outlook for markets, with 31 per cent of advisers expecting lower equity returns and 19 per cent anticipating lower bond returns relative to long-term historical averages, up from 18 per cent and 13 per cent year-on-year respectively.

Advisers were also expecting greater disruption due to geopolitical tensions (60 per cent), technological advancement (68 per cent), and rising public debt (61 per cent).

This reflected growing expectations for greater market volatility, with 61 per cent of advisers forecasting increased volatility, up from 34 per cent in May 2023 and 43 per cent last year.

Expectations of higher volatility has driven advisers to look for uncorrelated return drivers across a wider range of assets, with 60 per cent of clients invested in multi-asset and MPS portfolios having access to liquid alternatives and gold in their allocations.

Budget

Looking ahead to the Budget next week (26 November), tax-free pension cash withdrawals were the primary area of attention for clients amid rumours that the tax-free allowance could be reduced or replaced.

More than a third (35 per cent) of advisers reported carrying out financial planning tasks relating to tax-free pension withdrawals, while 27 per cent had reviewed estate planning strategies, and 10 per cent had made additional pension contributions for higher rate taxpayers.

Almost one in 10 (9 per cent) had looked at capital gains tax (CGT) planning and 7 per cent had reviewed wealth transfer strategies.

Two fifths (40 per cent) of advisers cited regulation as their primary concern, although this was down from 57 per cent a year ago, while the proportion most concerned about client servicing rose from 16 per cent to 20 per cent over the same period.

Schroders also identified an ageing client base, leading to adviser concerns about the impact of intergenerational wealth transfer, with 66 per cent expressing concerns, up from 62 per cent last year.

Despite these concerns, 85 per cent did not have a differentiated strategy for younger investors and 93 per cent do not offer a tailored approach for women.

Artificial intelligence was becoming more commonplace, with 48 per cent of advisers already implementing the technology, up from 21 per cent a year ago.

“As we approach the end of another year and look ahead to 2026, the results of this year’s survey underscore the impact that global disruption and ongoing volatility are having on asset allocation decisions,” Schroders head of UK wealth, Jamie Fowler, said.

“Growing caution towards developed markets means advisers and clients will increasingly need to access a broader range of investments.

“This is where active management truly comes into its own. With these trends expected to persist, the need for more diversified and resilient portfolios is rising.

“Data shows that while cash may seem safer, the chances of its value being eroded by inflation are much higher.

“In light of this, and with potential changes in the upcoming UK Budget, advice is crucial to help clients navigate uncertainty, remain invested, and make informed choices to achieve their long-term financial goals.”

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