Mass Affluent Investors Need Reality Check on Risk, Expectations

Study finds investors unhappy with 14.2% returns over past year, yet most say they are low to moderate risk takers.

Advisors must make clients understand that their portfolio should not resemble a casino in risk — or returns.  (Photo: AP) Advisors must make clients understand that their portfolio should not resemble a casino in risk — or returns. (Photo: AP)

A new study by AssetMark, a consultant to independent financial advisors, finds critical gaps in knowledge, expectations and communication between advisors and their mass affluent clients.

Nearly half of investors in the study said they would risk 25% to 100% of their portfolios for commensurate returns. At the same time, the vast majority said they were moderate to low risk takers.

The annual Mass Affluent Investor Risk Barometer examines investor sentiment and the role advisors play in helping them negotiate risk and reward tradeoffs.

Koski Research conducted the online study on behalf of AssetMark from April 16 to 24 of 501 mass affluent investors, those with investable assets between $250,000 and $1 million. Respondents were age 30 to 70, worked with a financial advisor and were primary or shared decision makers regarding investments.

“We believe it’s important for advisors to educate their clients and talk to them about the need to be realistic when balancing risk and reward,” AssetMark president and chief executive Charles Goldman said in a statement. 

“Our research indicates that too many investors overestimate their ability to cope with significant losses.”

The study included these findings:

  • 95% of mass affluent investors claimed they were in the market “for the long haul,” yet 58% expected advisors to change their investments frequently to keep up with changing market conditions
  • 90% of respondents said growth was a primary objective, with 43% looking for growth and 47% for growth and income
  • Yet, 68% of all investors, and 77% of those over age 50, were more concerned about the safety of their investments than about maximizing their returns
  • Three-quarters of respondents expected their investment portfolios to increase in the next year, on average by 12%, even though the average return for the S&P 500 over the past 10 years was 7.7%
  • 65% said they had kept the same amount of risk in their portfolio since 2008

“We found that investors expect more from their portfolios than is realistic and this can cause some dissatisfaction,” said Zoe Brunson, AssetMark’s director of investment strategies, said in the statement.

Brunson noted that 48% of investors had reported that the size of their portfolio, on average, had increased 14.2% in the last year, and were unhappy with their year-to-date returns.

“It’s critical that advisors set the right expectations with their clients,” Brunson said. “Focus on building a portfolio to meet client goals rather than chasing last year’s winner. Aim to be balanced across strategies that do well in rising markets and strategies that also do well in falling markets.”

The study findings were reinforced by advisor sentiment, Goldman said. More than half of the advisors polled at AssetMark’s recent premier consultant meetings said ensuring that clients understood the tradeoff between risk and reward was the largest challenge they faced in meeting client expectations this year.

“Uncovering the specific issues where clients most need guidance and understanding investors’ varying perspectives on risk help advisors strengthen their relationships by instilling confidence and clarity.”

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