{"id":56705,"date":"2016-10-03T00:35:51","date_gmt":"2016-10-02T22:35:51","guid":{"rendered":"http:\/\/beta.next-finance.net\/note\/84-of-french-advisers-warn-that-investors-may-not-be-fully-aware-of-the-risks-associated-with-passive-investments\/"},"modified":"2016-10-03T00:35:51","modified_gmt":"2016-10-02T22:35:51","slug":"84-of-french-advisers-warn-that-investors-may-not-be-fully-aware-of-the-risks-associated-with-passive-investments","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/note\/84-of-french-advisers-warn-that-investors-may-not-be-fully-aware-of-the-risks-associated-with-passive-investments\/","title":{"rendered":"84 % of French advisers warn that investors may not be fully aware of the risks associated with passive investments"},"content":{"rendered":"

According to a study of 2550 financial advisers around the globe published today by Natixis
\nGlobal Asset Management, 76% of French advisers (68% globally) say investors have a
\nfalse sense of security regarding their investments. 84% of them believe investors may not
\nbe fully aware of the risks associated with over-reliance on passive investments.<\/p>\n

On almost every measure, advisers agree that active investment management outperforms
\npassive investment, including generating alpha, providing risk-adjusted returns, taking
\nopportunistic advantage of short-term market movements and contributing to better
\ndiversification (access to alternatives and exposure to non-correlated asset classes).
\nWhile
\nadvisers see a role for passive investments in portfolio construction, they express concern
\nthat much of the shift from active to passive investments may be motivated not because
\nthey add more value but because they lower costs.<\/quote><\/p>\n

The survey found that two-thirds of French advisors\u2019 portfolio assets are still actively
\nmanaged and 57% of advisors are utilizing liquid alternative, primarily to add
\ndiversification and to reduce risk rather than to enhance returns. Many are using a diverse
\nmix of non-correlated investments to help protect their portfolios and stabilize returns.<\/p>\n

A more accurate picture of investors\u2019 risk tolerance is needed<\/strong><\/p>\n

According to 85% of French advisers (93% globally), it\u2019s important to have a more
\naccurate picture of their clients\u2019 risk tolerance. More than nine out of 10 advisers (97% in
\nFrance) have already incorporated goals-based planning into their practice and client
\nconversations.
\nThis approach places greater emphasis on understanding clients\u2019 risk
\ntolerance, financial goals and personal values as the basis for investment decisions,
\ninvestor behavior and return expectations.<\/quote><\/p>\n

“Low cost does not always equate to low risk, nor does it always make a product more
\nappropriate for an investor\u2019s portfolio,”<\/em> said John Hailer, CEO of Natixis Global Asset
\nManagement for the Americas & Asia and Head of Global Distribution. \u201dInvesting starts with
\nunderstanding risk, so it is particularly troubling that so many investors seem to be
\nignoring the inherent risks in their portfolios. Add to that the volatility and complexity of
\ntoday\u2019s markets and there is great cause for concern.”<\/em><\/p>\n

The real challenge is to manage investors\u2019 reactions to markets and volatility<\/strong><\/p>\n

Financial advisers say clients are asking for a broader range of services to achieve their
\ngoals. For example, 63% of French advisors (55% globally) say that over the past year,
\nclients have asked for help managing volatility.<\/p>\n

Protecting client portfolios from the effects of market swings and the risk of further
\nvolatility is daunting given market dynamics. According to 91% of French advisors,
\nvolatility is the biggest challenge to the growth of their business, followed by the low yield
\nenvironment that has loomed over the markets since 2008.<\/p>\n

Underneath it all is a sense that it\u2019s not the markets and volatility that worry advisors the
\nmost; it\u2019s how clients will react to volatility that gives them the greatest concern. When
\nasked about the effects of the U.K\u2019s Brexit vote, advisors predicted it would have a greater
\neffect on investors themselves than the markets.<\/p>\n

Managing clients and their emotions is a whole other level of concern for advisors.
\nAccording to 76% of French advisors, a key factor for their success is the ability to
\ndemonstrate value beyond asset allocation and investment performance.<\/quote><\/p>\n

\u201cFrench advisors are aware that their clients\u2019 ability to achieve their financial goals may be
\nundermined by three recurrent pitfalls: letting emotions drive investment decisions, setting
\nunrealistic return expectations and focusing too much on short-term market movements\u201d<\/em>,
\nexplain Mehdi Rachedi, Head of external distribution France and Monaco at Natixis Global
\nAsset Management. \u201cThat\u2019s why the role of financial advisors is so crucial. To avoid these
\npitfalls, investors need the guidance and advice from a professional, who can help them to
\nfocus on the long term and build more robust portfolios, better suited to today\u2019s complex
\nmarkets.\u201d<\/em><\/p>\n

Growing pains and business model challenges<\/strong><\/p>\n

Many advisors worldwide are planning to change their business models and fee structures
\ngiven regulatory pressures. Whether it\u2019s the U.K.\u2019s Retail Distribution Review (RDR),
\nCanada\u2019s CRM2, The European Union\u2019s MiFID I and II, or similar acts in Australia,
\nGermany, and Singapore, the goals are clear \u2013 to make advisor compensation more
\ntransparent and ensure the industry is acting in the best interest investors.
\n62% of French
\nadvisors say that meeting heightened regulatory and disclosure requirements are
\nsignificant challenges to the growth of their business.<\/p>\n

The survey found that as a result of new regulations:<\/strong><\/p>\n