UK investors suffer crisis of confidence

New research reveals a 38 percentage point drop in confidence amongst UK investors due to Covid-19

London-based ad agency AML Group in partnership with The Nursery Research and Planning has launched the Investor Index – a barometer of confidence levels amongst UK retail investors and the impact of Covid-19.

Conducted online, 500 people with investments of £10,000 or more from across the UK were surveyed and asked a number of questions to gauge levels of confidence pre and post Covid 19. The sample – representative of a broad demographic – included retired and non-retired respondents. The study also included eight in-depth interviews with financial advisers.

Older investors take confidence hit

Current confidence levels amongst UK investors are low as they grapple with the uncertainty of Covid-19 – dropping 38 percentage points. The study has also revealed that older investors (aged 55+) have taken the biggest hit with a 54 percentage point drop in confidence levels post pandemic whilst the younger investors (18-34) (that indicated relatively low levels of confidence pre-Covid19) have remained relatively optimistic throughout the crisis indicating a drop of just 19 percentage points.

Interestingly men are considerably more downbeat than women with post-Covid19 confidence scores dropping 41 percentage points and 33 percentage points respectively.

Commenting on the findings Christian Barnes, Head of Strategy at AML Group says: “It’s perhaps surprising (or a good example of confirmation bias) that despite the growing talk at the top of the year of looming market corrections, economic shutdown in China and a general sense of uncertainty, those arguably most threatened by big market falls should still have been the most confident in mid-April.”

Financial fears

Not surprisingly, almost half of investors (48%) are thinking more about their finances as a result of the coronavirus pandemic with 34% focusing more on their family’s financial security. Of those investors surveyed, 1 in 8 are feeling cash strapped and worried about monthly finances such as their mortgage and bills with 16% concerned about financially supporting loved ones. However whilst there is obvious concern and unease amongst the retail investor community only 8% have divested or cashed-in an investment which suggests most are playing the long game and are optimistic about the future.

Bouncing back

44% of investors are confident that the markets will bounce back; this is highest amongst the wealthiest, and those already retired. Across the board, approximately a quarter (23%) believe this situation to be a short-term dip with a return to ‘normal’ within six months with almost one-third (30%) seeing the pandemic as an opportunity for savvy investors.

Commenting on these findings David Alterman Chief Operating Officer at The Nursery Research and Planning said: “despite a drop in confidence and short term concerns, it is interesting that we also see a strong sense of optimism for the future and a belief that growth will return”

A tougher job for ethical

The research has shown that whilst UK investors like the idea of ethical investments they are increasingly focused on their own financial security and placing more importance on low levels of risk and short term growth.

And whilst 35% of investors continue to believe it is important that their investments consider their environmental and social impact, only 25% rank the ethical and social standing of products in their top five reasons for actually making an investment.

“Self-interest and protecting those near and dear is overriding a wider sense that ethical investing is a good thing for the future,” says Christian Barnes “the need for a ‘short term fix’ is distracting and distorting their focus and there is clearly a perception that ethical investing carries a performance penalty. Which, ironically, of course proved not to be the case in the recent initial market collapse.”

Ask the adviser

As well as capturing a snapshot of current investor activity and concerns, the Investor Index also sought to explore the role of the financial adviser and the impact of Covid-19.

Following in-depth interviews with eight financial advisers including small and large IFAs and Wealth Managers it has become clear that the role of the financial adviser (FA) and their relationship with clients has changed dramatically due to the current crisis.

As confidence levels amongst investors dip, so the FA becomes a more integral and trusted source of advice and expertise. According to the research, 34% of investors who use an FA have stated that they ‘always get advice from experts’ compared to just 25% pre-pandemic – a dramatic increase that has also seen the role of the FA flex to meet the changing needs of the UK investor. No longer just a source of financial advice, the FA is now fulfilling multiple roles including life coach, planner and predictor. It seems investors have not only fled in fear to their advisers but that advisers have also done much to pull investors towards them.

In conclusion:

“Our study shows that there is clearly work to be done to guide investors in more rational ways of investing when sentiment naturally drives responses to crises. Whether it’s by fund providers or advisers, correcting the myths over ESG fund performance or remaining exposed in defiance of market and macroeconomic forecasts, for examples, are useful opportunities. In line with so much of how brands are increasingly behaving across business sectors, our study suggests that the softer skills are likely to be the most effective tools in achieving this.” Christian Barnes, Head of Strategy at AML Group

summary of key findings:

• 38 percentage point confidence drop amongst uk investors (£10,000+)
• older investors (55+) post biggest confidence drop – 54 percentage point
• 48% are more focused on their finances due to covid-19
• 12% worried about paying bills, mortgage etc
• 28% of those pre-retirement are concerned about their retirement plans
• london& south record the biggest drop in confidence
• financial advisers hit their stride – with almost half of investors (42%) who usually use an fa saying they are currently more likely to act on advice from a financial advisor
• ethical investing of less importance as investors focus on short term gains
• 40% of investors indicate ethical funds are a ‘nice to have’ with 23% stating that ‘financial security outweighs ethical considerations’.
• 44% confident markets will bounce back
• 23% confident it will return to ‘normal’ in 6 months