The researchers quizzed 216 private investors and wealth managers as part of the annual UK Investment Trust Study.

They found three-fifths (60%) of investment trust investors described themselves as “fans” who prefer trusts to other kinds of investment. This was up from 55% the year before. However, the percentage is still below the record high of 64% saying this in 2021.

Other notable findings included 25% of investment trust buyers said they were “agnostic” about the vehicles, while 15% saw them as more specialist and only used them from time to time.

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The average age of respondents to the survey was 63, with “fans” being slightly older on average at 65 than non-fans at 61. Fans hold an average £305,000 in trusts, representing 56% of their total portfolio. The comparable figures for non-fans are £105,000 and 23%.

The study also found the biggest perceived benefits of investment trusts over other kinds of fund, such as Oeics (open-ended investment companies), include the fund manager not being forced to sell to meet redemptions, mentioned by 68% of respondents, and being able to buy or sell shares in investment trusts quickly (57%).

Dividend smoothing, pointed to by 55% of those spoken to, and long track records of dividend growth (49%) were also major plus points. Only 3% of respondents saw no benefits in investment trusts over an Oeic.

A third of respondents (33%) said they expect to invest more in investment trusts over the next six months, with 57% expecting to invest the same, and 9% less.

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Among those looking to invest more, the top reason was attractive discounts to net asset value, mentioned by 85% of respondents.

Nick Britton, research director at the Association of Investment Companies (AIC), said: “It’s encouraging to see sentiment towards investment trusts improving towards the end of last year, with more respondents describing themselves as fans than we saw in 2022.

“Clearly, the benefits of investment trusts are well recognised among this group, including the fact that they are not forced sellers of assets into down markets.”

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Abbie Hines-Lloyd, senior research manager at Research in Finance, added: “This wave of our survey captured an increase in positive sentiment for investment trusts as discounts were bottoming out towards the end of October.”

Research by Nextwealth, sponsored by Aegon, found that nearly three quarters (71%) of the 200 advisers interviewed pointed to this as a major worry.

The researchers defined this as clients ‘outliving their money’. The significant increase in the cost of maintaining a moderate retirement, along with a continuing rise in how long people are living are the underlying factors driving it.

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The second biggest concern cited by the advisers was inflation and the cost of living in general at 64%, and long-term care costs at 49% of advisers was third.

Aegon noted that the PLSA Retirement Living Standards reported a substantial increase in the amount needed for a moderate retirement over the past year.

In terms of client expectations for retirement, the researchers found 76% of advisers reported clients hope to maintain the same standard of living in retirement as before retirement, 65% said clients expressed a desire to assist their children or grandchildren financially, while 45% of advisers said their clients wished to travel or live overseas.

Steven Cameron, pensions director at Aegon, said: “While the prospect of living longer brings many benefits, this research shows there are many challenges that come with navigating and making the most of your retirement years.

“71% of advisers say that clients are concerned about running out of money before they die, which raises real issues about the adequacy of current savings behaviours, as well as highlighting the value of advice at and through retirement, including if drawing a flexible income.

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“Worries about high inflation and the cost-of-living crisis also feature high on the list, with advisers finding that 64% of retirement clients raise concerns due to the current economic climate.

“It’s not surprising that worries over the cost of long-term care features as a top three concern for retirement clients,” Cameron added. “These findings highlight how important it is for Government to provide more certainty over social care funding, so advisers can help their clients to plan ahead.

“These findings reinforce the research we’ve conducted on how living longer has impacted the retirement landscape. Those approaching or in their ‘Second 50’ are bearing more of their own financial risks. This means that personalised financial planning based on an understanding of clients’ hopes and fears is crucial for tailoring strategies that meet individual needs and provide peace of mind.”

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The researchers also found just 18% said they ‘regularly’ review their funds.

There was some variation between older and younger investors with people aged between 55 and 64 more likely to review their funds. Of this age group, 62% said they had reviewed their pensions in the past year with 27% reviewing them regularly.

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The study also found nearly one in four (23%) pension investors do not know the level of risk on their main pension fund, while around 41% believe it is very low risk or low risk.

Many investors seem to have too little money in their funds, with 38% of those questioned having less than £75,000 saved, across all age groups.

Faye Church, senior chartered financial planner at Investec Wealth & Investment, said: “Anyone contributing to a pension should be reviewing their funds at least annually. So many people invest in the default fund available and then forget about it.

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“There can be a huge difference between investment selection and performance, which in turn dictates the growth of the pension fund, especially when you consider someone contributing in their 30s won’t be able to access the funds for another 20 years or so.

“Part of the investment review should focus on risk through asset allocation, as the longer you have to invest the longer you have for any peaks or troughs to even themselves out. Given most people can’t access their pensions until 55, this brings with it an opportunity for younger savers to obtain some good long-term growth within their pension.”

Research by NextWealth for Aegon UK found 68% of advisers said some or most of their clients have stayed in work longer than earlier planned, or deferred accessing retirement savings.

More than half of advisers (59%) said clients are reviewing the amount, or timing, of passing wealth to the next generation.

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Other notable findings included 53% saying their clients wanted to decrease their level of investment risk, although 36% noted they had seen clients increasing their investment risk.

NextWealth also found 53% of advisers said their clients were looking to guarantee some income through a combination of an annuity and drawdown.

The research was conducted in November 2023 and gathered responses from 200 financial advisers.

Steven Cameron, pensions director at Aegon UK, said: “The challenging economic conditions of late have impacted most people, including those approaching or in retirement. This research shows just how widespread behavioural changes are, which in turn shows just how valuable retirement advice is, especially in times of change.

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“The recent high interest rate levels and the corresponding rise in annuity rates may also have led to more clients seeking to guarantee some income, including through combinations of annuity and drawdown.”

“Overall, the research paints a picture of many clients changing their behaviour around retirement, but in a wide variety of ways. This shows the important role advisers play in tailoring their advice to individual needs and preferences, particularly amongst those approaching or in retirement.”

Based on data from five years of Dimensional Fund Advisors’ annual Global Adviser Study, the research provides insight into the characteristics of some of the most successful advice firms in the world.

In this interview, Professor Di Maggio explains what advisers can learn from his research into Dimensional’s data.

1. Why did you decide to research what drives growth for financial advisers?

Financial advisory firms play a central role in shaping individuals’ investment decisions and financial well-being, and the industry has been growing at a staggering pace. However, the existing research has focused on the impact of financial advice on investors’ behaviour, and very little is known about the types of services and practices that help these firms grow. The survey data collected by Dimensional allows us to fill this gap by analysing the inner workings of financial advisery firms.

2. What data was available to you?

In this paper, we focus on advisory firms in the US, with the majority being independent, fee-only advisers. We study survey years 2015 to 2019, because the unique Covid-19 situation may impact the data in 2020. On average, we have about 900 firms each year that collectively serve 191,000 clients and manage about $250bn. The sample provides a broad representation of advisery firms across US states, clienteles, asset size, and age. And even though we focus on the US, it’s fair to assume the findings can be used to gain insight into other markets.

3. Advisory firms assess their performance in many ways. Some care more about revenue growth or revenue per advisor, and others may pay more attention to client or employee retention. Your focus is growth. What are your main findings?

Correct. We examine how the growth in assets under management (AuM), revenue, or number of clients is related to advisers’ service offerings, client sources, and practice management challenges.

Let me illustrate our key findings with two real firms that participated in the survey. Over our sample period, 2015 to 2019, one firm (let’s call it the high-growth firm) more than doubled its initial AUM of $250m (£207m, €238.5m) and achieved an average annual growth rate of 22%. In contrast, another firm (let’s call it the low-growth firm) saw its AUM stay relatively flat, growing at 4% per year. So, what did the high-growth firm do differently?

Well, let’s start with service offerings. The high-growth firm had more clients receiving education planning and retirement planning services than the low-growth firm. The high-growth firm also increased the number of services, whereas the low-growth firm offered fewer services over time.

This is representative of what we find in the paper. Firms offering a larger variety of services tend to grow more. Specifically, a 10-percentage-point increase in clients receiving education planning, retirement planning, insurance services, or account aggregation is associated with about a half percentage point of additional growth in AUM, revenue, and clients in the same year.

In addition, investment solutions play an important role. The use of model portfolios, a greater number of model portfolios, and the use of small-account solutions are associated with stronger growth.

EXHIBIT 1

A Tale of Two Firms

Illustrative example: AUM for high- and low-growth firms ($m)

Source: Dimensional’s Global Advisor Study

The depth vs breadth of service offerings is often an important trade off advisors need to make when structuring their practices, and the results confirm the importance of having a broader portfolio of services and investment solutions when growing an advisery firm. Intuitively, that breadth provides advisers with the opportunity to serve a broader set of clients with diverse needs. Furthermore, areas such as retirement planning create deeper, longer-term engagement with clients.

4. The two firms in your example differ in their number of clients gained from referrals. Can you elaborate on that?

That’s right. The low-growth firm gained few clients from referrals. In contrast, referrals served as an increasingly important client source for the high-growth firm.

Again, this is consistent with the results in our paper. The most important channels for sourcing clients are referrals from existing clients and referrals from centres of influence, or COIs (such as CPAs, attorneys, and insurance agents). We find that gaining 10 more clients from client referrals is associated with an increase of 1–2 percentage points in AUM, revenue, and client growth in the same year and an increase of 0.5–1 percentage point in later years.

Interestingly, referrals from COIs appear to have twice as large an effect on growth as referrals from existing clients. COIs’ greater impact might be due to their industry-specific knowledge as well as their experience working with multiple advisers. Lastly, we find firms that gain new clients from multiple sources and meet with more prospects also grow more.

5. What challenges negatively impact growth?

Going back to our example, the low-growth firm struggled with fee compression, the rising average age of their client base, and developing a marketing strategy—none of which were top challenges for the high-growth firm. Indeed, our analysis shows that practice management challenges like these are associated with weaker growth.

In particular, among all the challenges studied, the rising average age of the client base and a lack of a succession plan or exit strategy appear to be the most detrimental. Compared with advisors who do not struggle with these challenges, those who do struggle exhibit 5–9 percentage points lower AUM, revenue, and client growth over the same time periods.

Fee compression is interesting because, while it might be a top challenge for some firms, we’ve not seen overall fees decline in Dimensional’s study. In fact, between 2018 and last year, we actually see fees increased slightly. That said, we do observe some profitability compression as firms offer more services and the costs of doing business increase.

DATA APPENDIX

The data used in the What Drives Growth for Financial Advisers? Evidence from a Multi-Year Survey analysis are generated from an annual survey of financial advisors administered by Dimensional Fund Advisers. For more details about the data and methodology, please see the paper.

This article was written for International Adviser by Dimensional Fund Advisers and Professor Marco di Maggio who provides consulting services for Dimensional Fund Advisers LP.