Seek expert help: how investors are responding to rising inflation

Savers are more likely to seek professional advice as rising inflation and interest rates create uncertainty and a need to reappraise financial plans, according to Schroders’ survey of almost 24,000 investors globally. Significantly, this year’s survey found that older investors and those who consider their investment knowledge to be “advanced” or “expert” are most likely to value professional advice.

Investors are adjusting their investment strategies – and expectations of returns – in the light of economic uncertainty, the survey suggests. And with greater market volatility, investors also appear to recognise the merits of “active” investing, where professional managers select stocks and oversee a portfolio, above “passive” investments which blindly track a market index. The Global Investor Study 2022 is the latest in Schroders’ landmark series of surveys canvassing the opinions of almost 24,000 people who invest, from 33 locations across the world.

Backdrop of rising interest rates

The survey was undertaken between February and April this year, by which time inflation in many parts of the world was already climbing steeply. Annual inflation for April was 8.3% in the US, 9% in the UK and 7.4% in the eurozone, for example – levels which those regions had not experienced for many years, even decades.

Central banks had started to raise rates in response, with the Bank of England making its first upward move in December 2021 and the US Federal Reserve increasing rates in March. And although central banks have since raised interest rates significantly further, it was clear at the time of the survey that borrowing costs were on the rise.

Older and wiser? How investors’ responses vary by age and experience

After a sustained period of ultra-low interest rates and controlled inflation, at least in most developed economies, it might be expected that investors would not respond immediately to early signs of a shift into a higher-rate, higher-inflation world.

Yet Schroders’ survey suggests a high proportion of all investors – more than half – were likely to change their strategy. And it was clearly the more knowledgeable investors who were most likely to make a change. Just a quarter (27%) of those who described their knowledge as “rudimentary” were likely to shift investments in response to rising inflation, compared to 80% of those who described themselves as “expert”.

Seismic shift: would investors change tack in the face of inflation?

Another aspect of the 2022 survey showed a strikingly similar result. This was in relation to financial advice. Again, those who saw themselves as “beginners” were less likely to seek advice (32%) than those who viewed themselves as expert (47%).

“On the face of it this is counter-intuitive,” says Lesley-Ann Morgan, Head of Multi-Asset Strategy at Schroders. “You might expect those who see themselves as ‘experts’ to plough on alone, content with their own decision-making. But in fact what these findings suggest is that those investors who have been around the block a few times understand the significance of higher inflation and rising borrowing costs. They recognise a need to at least review their holdings, and possibly diversify further. It’s exactly at moments like this that professional advice comes into its own and is really valued.”

Who believes now is a good time to seek financial advice?

The people who would be more likely to speak with a financial adviser as interest rates rise, by investment knowledge level

Interestingly, those most likely to seek advice are aged over 71. This is a group that might be able to recall the high-inflation conditions that prevailed in the 1970s and 1980s.

But it’s not just expert advice that investors are after: it’s also expertise in investment management. “Actively managed” funds – where investments are selected and portfolios continually monitored by managers – have become more attractive to all investors compared to the six months prior to the study. Once again, this is especially the case among the more knowledgeable investor group.

The survey found 63% of those with “expert” knowledge were more attracted to actively managed funds than six months before, a significantly higher proportion than those with less knowledge (see chart, below). This suggests that many investors, particularly those with experience, recognise the value an active manager can add – particularly during periods of uncertainty and market volatility.

Greater appeal: savers are more drawn to actively-managed funds

The people who found actively managed funds more attractive than six months ago, by investment knowledge level

Expecting high returns, but optimism fades

Investors still hope for double-digit annual returns from their money over the years ahead, but their expectations appear to be moderating. Globally, investors’ average expected annual return over the next five years, from both income and capital growth, is 11.37%.

While this is higher than last year’s expectation (11.31%), the growth rate in expectations has slowed. On average, return expectations have grown 0.23 percentage points year-on-year over the last six years but the 2022 study showed the growth rate slowed by 0.06 percentage points.

Regional variation in return expectations is pronounced. People in South Africa were particularly optimistic, expecting returns of 16.05%, perhaps inspired by the better-than-expected performance of the local market in 2021. By contrast, investors in Italy and France projected returns of 9.8% and 9.2%, respectively.

“Global markets have moved a great deal since the survey was undertaken,” says Lesley-Ann Morgan. “But what we see continually through these surveys is a commitment to remaining invested, and people clearly feel there are returns to be made and opportunities out there. The key behavioural change reflected here is that investors want to rely more on financial advisers and expert, active investment managers.”