Clients relying on advisers to guide them through volatility

Clients are relying on financial advisers to help them navigate volatile markets and avoid ‘costly’ short-term decisions, according to a report from M&G.

Its Investor Compass report noted that investment turbulence was becoming more common due to an increased frequency of market shocks.

This was evident through the VIX index, often referred to as Wall Street’s ‘fear gauge’, which has peaked above 30 more often since 2020 than across the whole of the previous decade.

More than four in five (81 per cent) advised investors said their adviser made them less likely to make knee-jerk reactions during market volatility.

Furthermore, 91 per cent of clients said advice made their investment journey feel calmer and more manageable.

M&G noted that while volatility can feel uncomfortable, investors who sold during recent immediate shocks translated temporary falls in the value of their investments into real losses rather than benefitting from the subsequent recovery.

Its research highlighted a confidence gap between advised and non-advised investors, as while 23 per cent of non-advised investors with larger portfolios lacked confidence in making decisions during volatility, this fell to just 7 per cent of advised clients with larger portfolios.

A fifth (20 per cent) of non-advised investors with smaller portfolios said they would consider making changes during volatility, compared with fewer than 10 per cent of advised clients.

Around 60 per cent of advised investors with smaller portfolios said they remained calm and focused on long-term goals during sharp market falls, compared to 40 per cent of non-advised investors with smaller portfolios.

While the research underlined the behavioural value advisers provide during market turbulence, it also indicated that this value may still be under-recognised.

More than half (51 per cent) of advisers believed behavioural coaching accounted for less than 30 per cent of the value they deliver, despite reassurance and discipline being among the most tangible benefits clients experience during periods of volatility.

“Volatility is an inevitable part of investing, but it can test even the most experienced investors,” commented M&G Life chief investment officer, Ciaran Mulligan.

“While market sentiment can shift quickly during periods of uncertainty, history shows that staying invested and focused on long-term goals is often the best response.

“The biggest risk is rarely volatility itself, but making short-term decisions that can derail long-term plans.”

M&G managing director of individual life & pensions, Anusha Mittal, added: “Our latest research shows that advisers play a critical role in helping clients avoid short-term reactions and stay focused on the bigger picture.

“Through our work with advisers and clients across the UK, we see first-hand how valuable reassurance and perspective can be during periods of market uncertainty.”

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