Survey of Financial Advisors Quarterly Report - AREF - Survey of... · ! ! !1 Introduction This Survey of Financial Advisors provides a unique source of reliable insight into the

The Association of Real Estate Funds

Survey of Financial Advisors Quarterly Report

April 2015

      1

Introduction This Survey of Financial Advisors provides a unique source of reliable insight into the advisor industry and the evolving advice environment. A minimum of 300 online interviews are conducted with advisors every quarter, including at least 200 wealth advisors (IFAs and restricted advisors); the base also includes mortgage advisors and paraplanners. Respondents are sourced from a regularly refreshed panel of 2,000+ advisors. Core reports include: Business Trends, Mortgage Business Tracker, plus two investment reports, focussing on platforms and asset management This report has been designed for AREF (previously for IPF) to present the findings from their regular tracking, which monitors use of and attitudes towards property investments. The results shown in this report are based on 237 advisors who generate 25% or more of their income from savings, investments or pensions. Fieldwork was undertaken between 7th and 26th April 2015. Headlines • The average allocation to property is 8%, whilst the average equity allocation is close to 50%,

these are looking broadly stable over the last few quarters. • On balance there are somewhat more clients with “too little” investment in property than

“too much” still suggestive of growth potential. • Overall average expected returns from property investments started increasing in May 2013,

and reached a plateau over the last few quarters at around 5% over 1 year. • The increasing trend in usage of authorised UT/OEIC property funds, pension funds, and life

funds has abated this quarter; investment trusts and REITs, however, have increased somewhat.

• There is a decrease in advisors saying that they do not use PAIFs. • Bricks and mortar funds, particularly those investing in the UK, continue to be the best

vehicle for advisors’ needs.              

Cover photo: 180 West George Street, Glasgow (Old Mutual Property Fund)

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Recommended % of portfolios allocated to property investments The distribution had been shifting towards more advisors allocating more than 10% of portfolios to property, however, this trend is now stabilising.

The majority of advisors maintain that clients should invest 10% or less (69% in this survey, compared to 68% in January 2015), with 26% recommending allocations of 10% or more (25% last quarter). The smaller minority (1%) recommend no allocation at all (2% last quarter). The average proportion remains at 8%.

Changes in recommendations to invest in property The percentage of advisors advising that their clients should increase their property investment has risen to 29% in this survey, from 27% in January 2015.

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The percentage of advisors advising that their clients should increase their property investment reached a peak of 40% of in January 2010:

Recommended % of client portfolio allocated to equities Meanwhile, the proportion being allocated to equities remained unchanged in this survey at 49%, typically making up half of a client’s portfolio.

11%  

6%   5%  

12%  

17%  

40%  

35%  

28%  

20%   21%  

16%   15%  

9%  12%  

10%  13%  

20%  

25%  29%  

25%  27%  

29%  

0%  

10%  

20%  

30%  

40%  

50%  

May  08  

(241)  

Sep  08  

(249)  

Jan  09  

(263)  

May  09  

(247)  

Sep  09  

(241)  

Jan  10  

(264)  

May  10  

(264)  

Sep  10  

(281)  

Jan  11  

(295)  

May  11  

(276)  

Sep  11  

(316)  

Jan  12  

(270)  

May  12  

(270)  

Sep  12  

(273)  

Jan  13  

(248)  

May  13  

(243)  

Sep  13  

(245)  

Jan  14  

(223)  

May  14  

(229)  

Sep  14  

(264)  

Jan  15  

(227)  

Apr  15  

(237)  

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Average recommended portfolio allocations:

Clients level of property investment Fewer clients are seen to be under-invested this quarter with 34% of advisors saying so this quarter as opposed to 40% last time. The proportion of advisors stating that their clients’ exposure to property is too big increased in this survey, with a total of 24% indicating their clients had a greater exposure than they would advise.

8%

49%

0%

10%

20%

30%

40%

50%

60%

May 08

(241)

Sep 08

(249)

Jan 09

(263)

May 09

(247)

Sep 09

(241)

Jan 10

(264)

May 10

(264)

Sep 10

(281)

Jan 11

(295)

May 11

(276)

Sep 11

(316)

Jan 12

(270)

May 12

(270)

Sep 12

(273)

Jan 13

(248)

May 13

(243)

Sep 13

(245)

Jan 14

(223)

May 14

(229)

Sep 14

(264)

Jan 14

(227)

Apr 15

(237)

Property Equities

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Average expected annual returns from property investments The overall average expected returns from property investments remain at the increased levels recorded in the last two surveys.

Over a one-year period, 92% of respondents recorded expectations of between 1 - 10%, a decrease of 1% since January 2015. When asked about three-year returns, 27% predicted returns of between 1% and 5%, with the largest group (46%) expecting total returns over three years to range between 6% and 10%, compared to 49% in the last survey. Those expecting returns to exceed 10% per annum increased from 19% in the last survey to 22% this time. Looking at five-year returns, 24% expected returns of between 1% and 5%, with the largest group, 40% expecting returns over five years to range between 6% and 10% (44% in January 2015). 33% expect returns over this time period to exceed 10% per annum (26% in January 2015).

  6

Minimum threshold rate of return for commercial property Advisors report that their clients expect an average minimum return of 3.6% above the risk free rate for their commercial property investments (3.7% in January 2015).

Minimum threshold rate of return for equity investments By comparison the expected average minimum return fell from 4.9% in January 2015 to 4.7% in this survey.

      7

Likely geographic areas for property investments UK property continues to be the most likely location to be recommended by financial advisors with 70% of advisors indicating that they would support investment in this market (75% in the last survey). Investing in global real estate is advocated by 39% of advisors, and saw the biggest increase of 4% since the last survey whilst interest in European real estate saw a meaningful recovery.

Anticipated demand for sectors over the next 6 months Demand for most property sectors showed a decrease in this survey. The only sector which saw a rise was the residential sector from 12% to 15%. The biggest fall was the healthcare sector, from 17% in the last survey to 11% in this survey.

  8

Importance of features of property as an investment As has been the case for some time, diversification and regular, stable income are still viewed as the primary benefits that investment in property offers, with 37% and 29% of advisors listing them both as first choices and 75% and 70% placing them in the top 3 characteristics. Capital growth is the third key attribute although only 17% of advisors list it as their first choice; 56% in total list it in their top 3. Only 4% of respondents list liquidity as the most important characteristic whilst 59% list it as the least important.

Investment products likely to be used for collective investments UK authorised property funds remain the most popular route to investment with 75% of survey respondents saying they were most likely to recommend the use of these for investments over the next six months (81% in January 2015). These were followed by Pension Funds which saw a decrease at 62% (68% in January 2015) and Life Funds at 52% (54% in January 2015). The listed alternatives, REITS and Investment Trusts are far less popular, with 21% of advisors recommending the use of REITs for collective investments (18% last quarter) while 23% indicated they would opt for investment trusts (a 2% increase since the last survey). 1% of advisors would consider property derivatives (a 2% decrease since the last survey).

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Use of PAIFs There is a decrease of 8% in advisors saying that they do not use PAIFs. Placing clients in the feeder fund when they would be better placed in the underlying fund is an issue for 19% advisors (an increase of 4% since January 2015) although there was also a small increase in the number of advisors always able to use the underlying fund.

Investment vehicles ‘Bricks and mortar’ funds are rated the best fits with investment requirements, 28% of respondents considering UK invested funds to be a ‘very good’ fit (31% in January 2015) and 30% a “good fit” (32% in January 2015). Global ‘bricks and mortar’ funds were considered next most compatible with requirements (at 16% ‘very good’ and 31% ‘good’ fit respectively). The poorest fit was considered to be direct investment into the residential sector with 45% saying that it represents a ‘very poor fit’ with requirements and 12% a “poor fit”.

  10

Ethical investments As with previous surveys, the proportion of clients who raise the topic of socially responsible or ethical investment issues with their advisors remains low. Just over half of respondents (59%) said fewer than 10% of their clients had raised these issues (57% in January 2015), while a third said none of their clients had mentioned this to them.

Notes: The source of all information is: NMG Group, April 2015 This research is funded and commissioned by The Association of Real Estate Funds (AREF) as part of our growing research activities, in support of one of our key objectives of influencing the evolution of the real estate funds industry. The Survey of Financial Advisors is carried out four times a year on behalf of AREF by NMG Group and is part of a wider Financial Advisor Census. The results shown in this report are based on 237 advisors who generate 25% or more of their income from savings, investments or pensions. Fieldwork was undertaken between 7th and 26th April 2015. For further information, please contact [email protected]. Disclaimer This document is for information purposes only. The information herein is believed to be correct, but cannot be guaranteed, and the opinions expressed in it constitute our judgement as of this date but are subject to change. Reliance should not be placed on the information and opinions set out herein for the purposes of any particular transaction or advice. AREF cannot accept any liability arising from any use of this document.