IFA survey: simplicity the key to luring investors out of cash

Relief as US Fed delays tapering asset purchases; Oil prices rise on Ukraine fears; State Street confidence index falls in March; complex regulations forcing a shift in asset management strategies

BlackRock headquarters

Nearly half (48%) of UK financial advisers think investors could be tempted out of cash by investment solutions that are easy to understand, according to a recent BlackRock survey of 122 financial advisers. Factors that would lure investors from cash include guaranteed returns, according to half (52%) of those interviewed, while 43% of advisers said that lower costs on non-cash investments would encourage their clients to other types of financial products.

The survey also revealed that 48% of those asked said they consider the failure to factor in longer life expectancy as the greatest risk to their clients' financial futures, while one third (30%) are concerned about a lack of financial planning. "In order to encourage investors to take steps out of cash, advisers need to be able to offer simple investment solutions which are focused on delivering outcomes for their clients," says Jeremy Roberts, head of UK retail sales at BlackRock.

Janet Yellen, the new chair of the US Federal Reserve, caused confusion with her first press conference as Fed chair over her plans to end the central bank's asset purchase programme, but as it became clear that the Fed is in no hurry to turn off the stimulus spigot, investors breathed a sigh of relief. Nevertheless, if the US economy continues to bounce back from its "weather-induced lulls," Legal & General Investment Management expects to see more pressure on the Fed to scale back quantitative easing, or at least make a good case for why it should continue. The UK, meanwhile, is enjoying a "goldilocks" moment, says L&G, with strong growth and below target inflation contributing to a positive domestic economic outlook. In the euro zone, things are less peachy. European Central Bank president Mario Draghi has made it clear he will not tolerate inflation dipping below its current level of 0.5%, though whether that means further rate cuts or additional quantitative easing measures is anyone's guess.

Equity investors may be ignoring events in the Ukraine, but oil traders are not, says Russ Koesterich, global chief investment strategist at BlackRock. Oil prices hit a six-week high in the week preceding Easter, spurred on by fears of escalating violence in eastern Ukraine and sanctions against Russia. The asset manager is recommending investors turn to energy stocks as a potential hedge against geopolitical risk, figuring that if events in the Ukraine deteriorate and oil prices move higher, energy companies are likely to outperform the broader market. Equity buyers remained unflappable in the week preceding Easter, pushing the Dow Jones Industrial Average and the S&P 500 to their biggest gains so far this year. Even the Nasdaq composite index, which has taken something of a beating recently, jumped 2.4%.

Global institutional investor confidence fell in March, with European institutional investors dragging the State Street Global Investor Confidence Index (ICI) down. Worldwide, the Global ICI fell by 2.5 to 120.2, with the European ICI falling by 1.5 points to 108.6, although according to State Street, institutional investor behaviour could be affected further by geopolitical risk in Ukraine, Turkey and other emerging markets. Other markets showed a rise in confidence, with the risk sentiment remaining largely unchanged in North America, while confidence among Asian investors increased, with the Asian ICI rising 7.4 points to 114.3 from the February reading of 106.9, despite policy and credit fears in China.

The ICI was developed by Kenneth Froot and Paul O'Connell at State Street Associates and measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. A reading of 100 is neutral and is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets.

The complexity of regulatory reforms in Europe and the US has forced a shift in strategy in the world of asset management, according to the buyside amassed at TSAM Europe 2014. The chief concern appears to be coping with the collection and use of the huge amounts of data that regulators now require, as far as panellists from BNY Mellon, Citi, the Investment Management Association and Northern Trust are concerned.

The natural conclusion: we need more data sharing agreements to cope with the continued industry debate on the sharing of data and collaboration between Europe and the US. Collaboration between these regions and the rest of the world, to overcome regulatory pressures, is the way to ensure rules around the world match up.