Financial services providers and advisors frequently focus on beating their benchmarks, but investors prefer an emphasis on downside protection by a three-to-one margin, according to a new report from a global research and consulting firm Cerulli Associates.
The report — Cerulli’s third-quarter issue of The Cerulli Edge – U.S. Retail Investor Edition — compares the responses of protection-focused investors with their performance-seeking peers to help better understand the dynamics facing participants in the retail investor market.
“Our most recent research suggests that providers must take a proactive stance to help investors become comfortable with the realities of equity market exposure,” Scott Smith, director of advice relationships at Cerulli Associates, said in a statement. “Balancing downside protection with the growth potential necessary to help investors reach their wealth accumulation goals is one of the most challenging scenarios facing financial services providers.”
According to the report, more than three-quarters of investors explicitly state that they would prefer a protection-focused portfolio versus one that outperforms.
The report then examines which investors are more protection-focused based on age and wealth.
When viewed on a wealth tier basis, the highest concentrations of this protection-focused opinion are among those investors with $250,000 to $500,000 (83%) and greater than $5 million (80%).
According to the report, this opinion might make sense for those in the higher wealth tiers, as their current asset levels are generally sufficient to meet retirement income needs.
However, those in the $250,000 to $500,000 level underscore the challenge that advisors may face.