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Clients Less Anxious but Risk Aversion Is Rising, Advisors Say

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Investing can be a fraught experience for clients, but a new survey of advisors finds that client anxiety has abated over the past year.

At the same time, more advisors than in 2013 say client risk aversion is on the rise, with global tensions a major source of concern.

Hartford Funds conducted its second annual survey of 103 advisors in mid-August.

Fifty-two percent of advisor respondents said clients had let their anxiety influence their investment decisions in the last year, compared with 57% who reported this in the 2013 survey.

Forty-eight percent of advisors said their clients’ investing had been unaffected by anxiety.

However, 35% of survey participants expected their clients’ risk aversion to increase over the next 12 months, significantly up from 17% who had expected increased risk aversion a year ago.

What keeps advisors up at night? Not surprisingly, international turmoil, which 40% of respondents cited as their biggest or second biggest concern.

Perhaps related to this finding, Hartford Funds said in a statement, 49% of advisors reported that international equities were the investments that sparked the most anxiety among clients.

In contrast, other investments seemed more benign to clients. Eighteen percent of advisors cited domestic equities as clients’ biggest worry, while 13% named global and international bonds, 11% named income-focused bond holdings and 10% cited core bond holdings.

“Investing has never been without some level of anxiety, and this year’s survey results underscore the need for advisors to continue recognizing and addressing this behavior for more productive client relationships,” John Diehl, senior vice president at Hartford Funds, said in the statement.

“The same is true of investment opportunities where consumers may lack understanding, such as international equities—particularly in the midst of geopolitical turmoil. Advisors will discover that education breeds confidence, which often trumps fear and can be an effective resource in any advisor’s toolkit.”

Hartford Funds noted that despite the anxiety caused by international equities and geopolitical turmoil, Morningstar data had shown one-year flows into international equities of more than $135 billion as of July 2014, compared with some $28 billion that flowed to domestic equities during the same time period.

This disparity illustrates that despite anxiety, international equities remain attractive to investment decision-makers, according to Hartford Funds, which argued the case for these investments in an earlier report.

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