Investors and their advisors know how tough it is to generate income in today’s low-interest-rate world. Forthright and frequent conversation about how far they’re willing to go to boost returns can help.
The responses to our recent income survey of more than 2,000 people across 17 countries, however, suggest that investors and their advisors may not be talking to each other as often as they could be.
Communication is important because the old income-generating formula, which leaned heavily on bonds and cash with a smattering of high-dividend stocks, isn’t likely to produce the income that many investors need. What’s more, finding an alternative strategy is no easy feat. It requires a good deal of research and even some soul searching to determine what risks investors are comfortable taking.
Bridging the Confidence Gap
So why does it seem that investors and advisors may not be talking enough? To answer that, let’s look at what members of both groups said when we asked them how confident they were about their ability to generate income. Sixty-nine percent of the advisors we surveyed said they were confident they could generate income for their clients. But fewer than half of investors and home-office gatekeepers—financial professionals at large brokerage firms who help evaluate and select asset managers—felt the same way.
This confidence gap was large in all the regions we surveyed. In Europe, it would be better described as a confidence chasm—79% of advisors expressed confidence compared with just 26% of investors.
But here’s where things get interesting. Globally, 61% of investors said they were not confident about their ability to meet their income needs. That number is almost identical to the 62% who haven’t talked with their advisor about new income-generating strategies.
We don’t think that’s a coincidence. Rather, we think it clearly indicates that confidence and communication go hand in hand. Consider this: In regions where advisors have had income-specific conversations with their clients, confidence is higher (Display). We see this in North America and Latin America, where nearly half of investors told us they had discussed income solutions with their advisors. In Europe, on the other hand, only a quarter of investors have had that conversation.
The Illusion of Communication
Tellingly, more than half of the retired or semiretired investors who took part in our survey said they hadn’t had an income discussion with their advisors. Yet these are the investors who are most likely to be living off the income their investments generate.
George Bernard Shaw once said that the biggest problem in communication is the illusion that it has taken place. We suspect that may apply here. Investors and their advisors undoubtedly communicate with one another. But do they always hear what the other one is saying?
That’s a question worth asking, because as we will detail in our next post, nearly three-quarters of the investors we surveyed said they thought their investment portfolios would have to change over the next 12 to 24 months in order to meet their income needs. This suggests a willingness to embrace new strategies and to think creatively.
But when we asked investors what they would do if their investments failed to generate enough income, 43% said they’d “seek additional advice or counsel.” In other words, advisors who don’t seize the opportunity to have a frank conversation about income with their clients may lose them to an advisor who will.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
