Financial Professionals Prefer Proven Over Trendy

Thu, 01 June 2023  |  investing 

Since the start of the COVID-19 pandemic, traditional investment vehicles have been challenged by trending investment opportunities that have burst onto the marketplace. But despite these opportunities, financial advisers seem to maintain a strong preference for those investment vehicles that have stood the test of time, according to the 2023 Trends in Investing Survey, conducted by the Journal of Financial Planning and the Financial Planning Association® (FPA®), the leading membership organization for Certified Financial Planner™ professionals.

In the wake of a challenging year in 2022, investors sought guidance from their financial professionals on navigating the evolving investment landscape. Against this backdrop, FPA and the Journal of Financial Planning surveyed 191 investment professionals from February 14, 2023, to April 7, 2023, to gauge their perspectives on emerging opportunities for their clients. The survey focused on the utilization of alternative investments and the growing interest in exchange-traded funds (ETFs).

While the survey revealed a stronger interest in alternative investments among professionals (28%) since before the pandemic, concerns regarding liquidity (48%) and cost (41%) remain prevalent. Furthermore, some respondents expressed reservations about the ability of these products to meet clients' needs (38%).

"As traditional stock and bond asset classes suffered from losses and volatility in 2022, it's not surprising that interest in alternative investments increased among financial professionals. However, overall use of alternatives remains relatively low," says 2023 FPA President James Lee, CFP®, CRPC®, AIF®. "Going forward, advisers will need more education on how alternative investments can provide potential diversification and risk mitigation benefits to overcome concerns about liquidity, fees, and expenses."

While alternative investments are catching the attention of some financial advisers, the survey highlighted that over 90 percent of investment professionals currently use or recommend exchange-traded funds (ETFs). Notably, half of the respondents indicated plans to increase their utilization of ETFs over the next 12 months (50%), while only three percent plan to decrease their use. Investment professionals are embracing a balanced approach, combining active and passive strategies, after a shift toward either one in recent years.

Other key survey findings include:

• Other commonly used investments include cash and equivalents (76%), non-wrap mutual funds (64%), individual stocks (51%), and bonds (47%).
• Despite a generally bearish economic outlook, over 71% of respondents expressed confidence in the traditional 60/40 portfolio's ability to deliver historical returns.
• General volatility (85%) and inflation (82%) ranked as the top concerns among investors. While interest in COVID-19's impact on financial situations waned (15%), the survey noted a decline in client interest in Environmental, Social, and Governance (ESG) or socially responsible investing (22%) compared to previous years.
• The survey findings also emphasized the importance of regular portfolio re-evaluation. Approximately two-thirds of respondents reported revisiting allocations as part of their ongoing strategy (68%), driven primarily by economic factors (63%) and concerns about inflation (53%).
• Despite the increasing utilization of ETFs, the survey highlighted that investment professionals continue to adopt a balanced approach, with 64% implementing a combination of active and passive strategies.

Of those surveyed, 79 percent are Certified Financial Planner™ professionals, 53 percent indicated they work as an independent IAR/RIA, and 47 percent say they have more than 21 years of financial services experience. The 2023 Trends in Investing Survey provides valuable insights into the current investment landscape and the strategies employed by investment professionals to navigate evolving market conditions.

Additional research by FPA is available at www.financialplanningassociation.org/learning/research.