March 16, 2023

FTSE Russell Wealth Survey Reveals Investors’ Surprising Views on Their Advisors and Index Funds Highlight Need for Education

  • 92% of Retail Investors Satisfied with their Advisors
  • Performance - Top Reason Investors Choose Index-Based Strategies
  • Investors’ Confusion About Indexes and Index Funds Presents Untapped Educational Opportunity for Advisors

FTSE Russell has released the results of its inaugural Wealth Survey today. While the findings offered much good news for financial advisors, it also revealed surprising gaps in retail investors’ understanding of index-based investing as well mixed views on their outlook for 2023.

US investors were overwhelmingly satisfied with the performance of their index funds and their advisors during a turbulent 2022, and many intend to increase their use of index-based strategies. Yet, despite broad awareness, only about a quarter of retail investors report they are using index funds, and most indicate they are not very knowledgeable. Perhaps most surprising, half of respondents note their advisors have never discussed index strategies with them, despite two thirds (66%) of investors indicating they would want to discuss index investing with them – presenting a significant, untapped opportunity.

Susan Quintin, Head of Business Management, Investment & Wealth Solutions at LSEG, said: “Historically, investors have been very risk intolerant and were attracted to index funds primarily for their low cost. Our survey reveals that today investors are choosing index funds for performance and diversification above cost but at the same time acknowledge poor understanding of indexes and index-based strategies. This open invitation to advisors represents a significant and likely overlooked opportunity to engage with clients.”

Investors Embrace Index Funds, But Not Necessarily for the “Traditional” Reasons

Contrary to perception, cost was not among investors’ top reasons for choosing to use index funds. More important were good performance over time (44%), creating a diversified portfolio (42%) and ease of use (38%). However, once an investor chooses to use index funds, they prioritize fees, diversification (# of holdings) and recommendations from trusted sources. Based on the survey results, that trusted source is most likely their advisor.  

“Untapped” Opportunity for Advisors

Advisors are extremely well positioned to engage with and deepen relationships with their clients. The vast majority of investors (92%) report being satisfied with their advisor, with 59% very satisfied. In addition, 90% agree their advisor helps them manage expectations during volatility or times of uncertainty.

Retail investors plan to increase their index-based holdings, creating an opening for advisors, yet almost half of investors with advisors (45%) say they have not discussed this. What’s more, two thirds of those with advisors would like to do so – showing the scale of this missed new business opportunity. In fact, virtually all investors with advisors are happy for their advisors to incorporate index-based strategies into their portfolios to varying degrees – 32% are happy with an allocation of over 25%, and 29% with one of 10-24%. Only 7% are averse to this.

“Traditionally, many advisors believed that recommending index-based solutions wouldn’t be seen as an opportunity to demonstrate value, but investors are telling us that not only are they seeking to incorporate more index funds into their portfolio, they would also like more guidance from their advisors on how best to use these strategies,” added Ms. Quintin. 

Among those investors who don’t invest in index-based strategies, the number one barrier to investing is lack of knowledge. They’re either not familiar with how they work or simply don’t know what kind of index would be most suitable.

Trend Toward Passive Likely to Accelerate, Based on Investors’ Views

Data from Lipper showed that for 2022, U.S. ETPs attracted a net $593.4 billion, while conventional U.S. funds handed back a net $1.074 trillion. Combined the fund business (including ETFs) experienced $480.5 trillion in net outflows. This shift to index-based strategies looks set to continue or even accelerate in 2023 based on feedback from investors. Reflecting the stark falls in equity and bond markets, index strategies made losses in 2022, yet investors remain highly satisfied with them. Three-quarters (77%) feel their index funds have outperformed other investments in their portfolios. This finding contrasts with conventional expectations that stark losses in turbulent markets would undermine index-based strategies’ popularity, when in fact, the opposite is true. 

Suggesting that 2023 will be another year of investors favoring index-based strategies, nearly four in 10 (38%) US retail investors who invest in these strategies plan to up their investments this year. Even some of those not already investing in index-based strategies plan to start. The FTSE Russell research found that a third (32%) of those individuals aware of index strategies but not already investing plan to do so this year.

Investors Revealed Mixed Views on their Investment Outlook, Approach for 2023

On the stock markets, 46% believe the markets won’t return to previous highs until 2024 or later, but views overall were mixed with 28% expecting hitting previous highs by mid-2023 or sooner. This mixed sentiment may explain the split views of how to navigate 2023. Investors are as likely to take chances for larger gains in 2023 as they are to avoid investment risk.

When asked if they will take a “Risk On” or “Risk Off” approach next year, investors were evenly split at 37% with 26% “Not Sure.” Unsurprisingly, younger investors were more willing to take on risk. However, when asked about their likely action if the major stock markets should decline in 2023, 40% said they would maintain their current portfolio and 35% see it as a buying opportunity. Only 13% said they would move to a more conservative portfolio.

Conducted in November 2022, FTSE Russell surveyed more than 1,000 US retail investors owning stocks, mutual funds or ETFs outside the workplace on a range of topics related to indexes, index investing and their economic outlook for 2023. For more information, visit the FTSE Russell website.

Global Media

Simon Henrick
Lemuel Brewster
+44 7977 239714
newsroom@lseg.com

About FTSE Russell

FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 70 countries, covering 98% of the investable market globally. 

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Approximately $16 trillion is currently benchmarked to FTSE Russell indexes. For over 30 years, leading asset owners, asset managers, ETF providers and investment banks have chosen FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives. 

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance and embraces the IOSCO Principles. FTSE Russell is also focused on index innovation and customer partnerships as it seeks to enhance the breadth, depth and reach of its offering. 

FTSE Russell is wholly owned by London Stock Exchange Group. 

For more information, visit www.ftserussell.com.

© 2023 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe Limited (“FTSE FI Europe”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) The Yield Book Inc (“YB”) and (7) Beyond Ratings S.A.S. (“BR”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “The Yield Book®”, “Beyond Ratings®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products, including but not limited to indexes, data and analytics, or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset nor confirmation that any particular investor may lawfully buy, sell or hold the asset or an index containing the asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB, BR and/or their respective licensors.