Even after nine years of roaring bull markets, our industry is still working to restore many investors’ trust. The 2018 CFA Institute Investor Trust report shows we have succeeded far more with institutional than retail investors: 44% of retail investors trust financial services providers, compared with 70% of institutions.
It does not help that equity markets have grown expensive and growth and income are getting harder to deliver, but better understanding and meeting the needs of retail investors remains crucial. Like it or not, “Main Street” wants more from us before they will move forward with us.
To that end, Legg Mason brought together a group of our distribution partners who collectively manage more than $675 billion for clients. We asked them about the major issues investors bring to them, and the top challenges they face in helping clients achieve their investment goals.
The financial advisors reported their clients’ two top priorities as managing downside risk and achieving growth. That seems contradictory, since conventional wisdom holds that risk-taking is necessary to achieving growth. Yet it leads to two important questions for investors:
Are the risks they take the right ones? And are they thinking enough about the long term?
Advisors reported being most worried about U.S. equities: More than half are overweight to them, and nearly 80% believe their clients should reduce U.S. stock exposure.
The stocks that led the market’s historic rise are now highly weighted in the major indexes. Some (particularly the FAANGs — Facebook, Amazon, Apple, Netflix and Google parent Alphabet) are not only very richly valued, but they could face high-profile challenges from consumers and regulators.
Most of the financial advisors suggested that U.S. investors should consider investing outside their home markets. There may be more room for growth in other countries, both developed and emerging markets. Clients may not be familiar with those markets, however, so we must help them understand where the best opportunities may be — and the pitfalls to avoid.