We have all heard the adage “listen to your clients” – understanding their financial goals and risk tolerance is essential – but investment professionals may also want to ask themselves whether or not their clients are listening to them.

Active and passive – mixed signals
There is evidence to suggest that some investors may not understand some of the key differences between active1 investment strategies and passive2 investment strategies, or index funds. Only 58% of investors surveyed3 by the Natixis Center for Investor Insight believe that index funds are cheaper than active strategies, despite the fact that passive strategies – in most circumstances – charge lower fees. What’s more, six in ten investors (62%) believe index funds to be less risky than actively managed strategies and believe that index funds help to minimize portfolio losses (63%).

This data suggests that investment professionals have an opportunity to educate their clients on passive investing. Most index-based strategies do not manage risk or work to minimize loss – they simply mirror the holdings and performance of the index they were designed to replicate. Moreover, those investors who are looking for help with managing risk and volatility can consider a range of actively managed strategies.

Helping clients hear opportunities’ knock
For many clients, index funds represent an efficient and affordable way to invest. However, this doesn’t necessarily mean they offer access to the best investment opportunities – as 57% of investors we surveyed indicate. Both index funds and actively managed investment strategies involve different risks and rewards, and each can offer potential solutions to clients. The most effective investment professionals may be those who help their clients understand what strategies they own and why they own them. It is only by helping client’s consider the full range of strategies available to them – and how they fit with their financial goals and risk tolerance – that investment professionals can feel confident that they’ve done their best to help them lead better financial lives.

Understanding the investor mindset
Understanding investor sentiment is central to addressing a range of client needs. Access our most recent research on the attitudes and behavior of investors worldwide at im.natixis.com/research.

Al Barbaro is available for meetings, conferences, and speaking engagements. If you are a financial professional and would like to learn more, contact your Natixis representative.

 


1 Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index.

2 Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio.

3 Natixis Investment Managers, Global Survey of Individual Investors conducted by CoreData Research, February-March 2017. Survey included 8,300 investors from 26 countries.

This material is provided for informational purposes only and should not be construed as investment advice.

All investing involves risk, including the risk of loss.

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