March 21, 2011

Advisors and Investors Not in Sync on Risk, Equities & More

A survey released by MFS finds big differences between FAs and their clients

MFS Investment Management said Monday that its latest survey had identified a number of major differences between advisors and clients, especially when it came to risk taking, portfolio allocation and generational attitudes.

While 75% of advisors perceive that investors have become much more or somewhat more risk tolerant over the past 12 months, only 15% of investors report an increase in their willingness to take on more risk.

In addition, 16% of advisors perceive that investors have become more risk averse in comparison to 12 months ago, while, in fact, 26% of investors report they are less willing to take on risk to achieve higher returns.

MFS said it polled about 600 financial advisors and about 600 investors with $100,000 or more of investable assets in early February.  Some are Baby Boomers, now 46-64, others are older or are in Generation X and Generation Y -- under age 46.

"With Gen X/Y maturing and Boomers approaching critical decision points for retirement, we believe advisors should reassess how they communicate with clients, and what the lasting impact of 2008's financial crisis has had on investors' risk tolerance," said William Finnegan, senior managing director of retail marketing for MFS, in a press release.

The survey also found that 20% of advisors think a major drop in the stock market is investors' top financial concern, but only 5% of investors say it is. Also, 72% of advisors think U.S. equities are an excellent or very good place to invest, while only 35% of investors agree.

Roughly 60% of advisors think international stocks are an excellent or very good place to invest, though only 22% of investors agree.

Generations X, Y

The vast majority, 84% of advisors, think Gen X/Y investors have a primary investing goal of growing assets, though only 39% of Gen X/Y investors report this as a primary goal.  And while 9% of advisors think Gen X/Y have a primary goal of protecting principal, 22% of GenX/Y say this is their primary goal.

In terms of portfolios, advisors think Gen X/Y have 50% of their investments in U.S. equities and 9% in cash. In fact, Gen X/Y report significantly less equity exposure, 34%, and three times greater cash exposure, 30%.

Advisors also seem to be underestimating investors' optimism about the U.S. economy over the next 5 years, with 35% of advisors reporting that investors are optimistic, while 47% of investors reported being optimistic.

"While these disconnects show a need for advisors to reconsider how they view their clients, the survey showed that advisors are underestimating investors' optimism about the future of the U.S. economy," noted Finnegan.

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