The new PNC study shows investors seek greater transparency from financial institutions, more comprehensive wealth management solutions and more attention from financial advisors.
By Sheila Mulhern
Affluent investors are demanding even more from financial advisors and want more transparency from financial institutions. Image courtesy of AKR Photography.
A new survey released by PNC Wealth Management found that investors are pessimistic about investing conditions with 57% indicating a negative outlook for the economy in the next six months however they are not completely deterred despite market conditions with only 16% reporting a negative outlook in their personal investments.
Investors still confident amid negative economic outlook
Approximately half of affluent Americans are apprehensive about investing in the current markets during a volatile market however 44% indicate that the economic recession has not caused fear in their investment strategy and 47% remain optimistic regarding their personal portfolios.
Opinions vary over asset allocation
The current opinions regarding asset allocation investment models show that over half (54%) agree that the current asset allocation models are a useful investment strategy and are confident with investment choices that use this approach. About 30% of affluent investors remain uncertain that asset allocation is the best investment and 15% say these models haven’t worked and new models are needed.
Investors want more from Financial Advisors
The survey also showed that 75% of investors expect greater transparency from financial institutions and that 57% stress more comprehensive wealth management solutions are needed. Results also showed that 43% of investors are also seeking more attention from investors.
Not surprisingly, investors ratings of financial institutions showed below average results with 41% rating them a “C” saying they didn’t make much of a difference, 31% rating a “B” saying they helped but could have done more and only 15% rating an “A” for making a strong, positive difference in investors portfolios. In ratings where investors felt financial institutions were harmful, only 11% rated these cases as a “D” or “F”. Thomas P. Melcher, Executive Vice President and Managing Director of Hawthorn, the division of PNC Wealth Management, feels this should be a major wake-up call in the financial advisory business. “These results clearly tell us that most wealthy investors are willing to listen to a provider who has a better story and that managing wealth is more than managing their investments. They want someone to help them. But whoever help them is going to have to work.”
Washington Life asked PNC’s Managing Director for Wealth Management, Steve Thormahlen for his opinion on some of the survey results.
Washington Life: Why are investors more pessimistic ?
Steve Thormahlen: This is a very interesting aspect of the Wealth and Values Survey. While investors seem to be more pessimistic about the overall prospects for the stock market (34% this year versus 28% last year), they remain largely positive about the components that make up their own investment portfolio. Only 16% expressed pessimism about their personal holdings.
It stands to reason that affluent investors spent the past year getting their house in order and are feeling reasonably good about what they have done.
PNC's Stephen Thormahlen offers additional insite on the survey results. Image courtesy of PNC.
WL: What do investors express as their main areas of concern that is causing the pessimistic outlook?
ST: The survey indicates that investors hold a much gloomier outlook for the overall state of the U.S. economy. The recession that was deep and global affected so many investors large and small that coming out the other end with optimism is difficult to imagine for many. Throughout the recession, uncertainty led to many opportunities, but investors’ taste for risk did not improve with the economy.
WL: What are reasonable expectations on returns when using asset allocation investment strategies?
ST: Return expectations will be largely dependent on one’s risk tolerance and time horizon. Equities, which carry more risk than bonds and cash, will also provide higher returns. An investor with a long-term view of things ought to allocate more assets to higher risk classes, while at the other end of the spectrum, an investor with a shorter time horizon or nearing retirement may want to consider a less risky allocation.
Domestic equities have seen normalized returns in the 7-8% arena; international and emerging market stocks will provide higher returns, while considerably more volatility.
Fixed income returns will vary with maturity and lately these income returns have been moving downward to where 10-year Treasuries are below 3.0% and money market rates are near 0.25%.
WL: What can advisors do to improve portfolios?
ST: Most investors who go it alone when managing their investment portfolio only look at the tip of the iceberg of possibilities. They will stick with what is comfortable for them, maintain concentrated positions and not necessarily use the full array of global opportunities.
PNC Wealth Management approaches investment management in a completely different way. Our Integrated Investment Approach seeks to find the investments that best fit an investor’s own goals and risk profile. We are able to take an individual approach with each client. We do not believe in a “one size fits all” mentality.
WL: Why aren’t investors happy with their financial institutions?
ST: I sense this grade is a reflection of investors’ frustration with the stock market in general, the state of the economy and the rather paltry returns that have come from the equity markets for the past 10 years. With 46% of investors giving their bank an A or B grade, I think it says that wealthy investors are willing to listen to a provider who has a better story and that managing wealth is much more than just managing investments. They want someone to help them, but understand they are going to have to work to earn that trust.
WL: Do you think financial advisors need to execute stronger communication with clients or do investors need to express their needs more clearly?
ST: Clearly, when it comes to communications the onus is on financial advisors to provide clear, frequent and purposeful exchange of information. The portfolio managers and wealth planners on each of our wealth management teams are very skilled at asking probing questions that will uncover the true needs of investors in a way that is collaborative and very useful.
WL: How do you explain the seemingly contradictory nature of a negative economic outlook with confidence in personal portfolios? Are investors wise to be confident?
ST: Almost two-thirds (61%) of the respondents say they’ve stopped worrying about the recession and have gotten on with their lives. I sense they realize that control over their investments ultimately rests with them and they have spent the past year getting their investment houses in order.
Investing in today’s world is complex and changing constantly and investors would be wise to stay ever vigilant. We can help in that regard.
WL: How have the November elections and impending change in government influenced investors’ outlook?
ST: Our survey was conducted weeks before the November elections, so these results could not indicate any change in their outlook. Obviously, the general public wants change in the direction of the economy and I would imagine our survey participants would not be that much different.
