Clients need help understanding passive versus active: survey

To get the best investment outcomes, your client might require a mix of investment strategies. Explaining those strategies is key, because many clients exhibit conflicting views—particularly when it comes to passive versus active funds.

Natixis’ global investor survey finds that 83% of investors say fees are an important consideration in selecting investments, and most (66%) claim to know the difference between active and passive investing. Yet, most of these investors (63%) also believe index funds are less risky, and two-thirds think passive funds help them minimize losses.

At the same time, 72% of investors say they prefer to have an expert find the best investment opportunities, and two-thirds expect their mutual funds to have a portfolio that looks substantially different from the benchmark. Further, three-quarters say beating the benchmark is important to them.

Mistrust might be holding clients back from embracing active management when warranted. For example, investors say they’re wary of active managers who are closet benchmarkers: almost three-quarters (72%) worry that some managers charge high fees when they’re just tracking an index.

The survey suggests the active-passive discussion has been generalized into a showdown of good and bad. To overcome the noise, investors need help understanding a more nuanced argument for each approach, it says.

Understanding risk

The survey also finds that investors have potential blind spots when it comes to risk.

While 77% believe they understand the risks of the current market, and 64% think they’re prepared for the next downturn, about four in 10 admit they tend to sell off assets when markets are volatile.

Further, more than half say they’re comfortable taking risks to get gains but, when asked to choose, 80% say they prefer safety over investment performance.

Finally, the survey finds that, a decade out from the financial crisis and in the context of a rapidly changing political and technological environment, clients are concerned about trust and security. Financial advisors, however, retain a privileged status: 87% of investors say they trust their advisors—more than those who say they trust family and friends when making financial decisions (74%).

About the survey: Natixis Investment Managers surveyed 9,100 investors from 25 countries in September 2018. An online quantitative survey of 44 questions was developed and hosted by CoreData Research. Investors had minimum net investable assets of US $100,000 each.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.