Because only 4% of investors say they are aggressive investors, it is a challenge for advisers to help them allocate their portfolios appropriately, according to Cerulli Associates.
In fact, this is advisers’ biggest challenge, according to Cerulli. As a result, the company says, advisers must balance education and guidance to help reach an agreement with their investors to help them reach optimal returns.
“When investors who work closely with advisers were asked about their self-reported risk tolerance over time, only 4% classified themselves as aggressive investors,” says Scott Smith, director at Cerulli. “This result underscores the paradox of risk in investment management relationships. Advisers [know] that higher levels of equity risk will maximize long-term portfolio returns, but those interested in using advisers are the most reluctant to embrace portfolio risk.”
The solution, Smith says, is for advisers to educate investors about the potential rewards of long-term investing.
Information about how to purchase Cerulli’s report can be found here.