More Investors Prefer Risk Protection Over Portfolio Growth

Even while the industry has placed attention to product development and growth, investors continue to choose security.

U.S. investors are heavily interested in risk reduction and protection rather than aggressive portfolio growth, according to the latest research from Cerulli Associates.

The newest report, “U.S. Retail Investor Products and Platforms 2017: Retooling for the Modern Investor,” finds 77% of respondents would prefer the safer route of protecting portfolios from major losses, even if that meant periods of underperforming in the market.

“After discussing investors’ portfolios with platform providers and advisers, there is a consistent fear of looming client defections resulting from performance that lags a benchmark, or index,” says Scott Smith, director at Cerulli. 

Smith states how real-life experiences of these situations rarely occur, and remain outliers rather than consistent incidents. Instead, he noted the industry’s significant emphasis towards product development and implementation on growth during an extended bull market run, rather than just sole protection.

In fact, Cerulli found that as of year-end 2016, the retail direct channel collected $5.9 trillion in investor assets, and is projected to exceed $7 trillion in 2019. As firms advance from brokerage platforms to wealth management providers, the research firm believes an increase of retail direct segment will take over traditional adviser segments.

Still, Cerulli research shows 80% of investors younger than 40 prefer portfolio protection. Specifically, the study reports younger investors are the ones who remain concerned towards market risk, even if they are aware of challenges with increasing their asset base. It comes as a surprise, as many anticipate this age bracket as easily disposed to accepting portfolio risk, Smith says. In this case, he explains the role providers assume when optimizing an investor’s portfolio, including considering and recognizing an investor’s current goals and concerns.

The study mentioned how retirement goals are better accessible now, due to prevalent implementation of target-date solutions as default investment options in retirement plans. However, this adoption has had little effect on tackling common behaviors undermining investor outcomes.

Information about how to purchase the report can be found here