US retail investors demand more index insights from advisers despite perfect macro climate for active

That it’s an uncertain time for investors was confirmed in April after minutes from the Federal Reserve’s most recent monetary policy meeting spooked markets. For the first time, they revealed that policymakers predicted a ‘mild’ recession in the US, starting later this year. 

Against that backdrop, advisors appear to be missing an opportunity. After the years of easy money and steady economic growth following the global financial crisis, business may be about to get tougher. Yet they are failing to meet the demand from retail investors for index strategies.

The scale of the unmet demand is startling. Almost a third of investors with financial advisors say that their advisors have not discussed index strategies with them, according to the inaugural FTSE Russell Retail Investor Survey. Yet two thirds of these investors would like to discuss them, suggesting a high level of pent-up demand.

Despite the uncertainty in the economy and financial markets, our research indicates that the multi-year shift to index strategies looks set to continue. During our survey of more than 1,000 investors, we asked: in 2023, do you expect to increase, maintain or decrease your use of index strategies? Nearly four in ten (38%) of investors who already hold these strategies said that they planned to add to them. This contrasts with the conventional wisdom that index strategies prosper in buoyant not turbulent markets.

The reasons why investors like these strategies are clear: they are highly satisfied with performance. More than three quarters (77%) of survey participants holding index strategies agreed that they had performed as well or better than their other investments. What’s more, they’re investing for the right reasons. Their top reasons for investing were ‘good performance over time’, followed by ‘create a diversified portfolio’ and ‘ease of use’.

So how can advisors capitalize on this opportunity? Closing the education gap on index strategies is key. Indeed, our research showed that investors who do not own indexes say that lack of knowledge is the biggest issue. They either do not know how these strategies work or which would be suitable.

After earning the trust of their clients over the last few volatile years in financial markets, advisors could hardly be in a stronger position to provide that education and wise counsel. Almost all investors with advisors who we spoke to were satisfied with the high level of service provided. In fact, 92% said they were satisfied – a level of satisfaction that’s hard to fault.

As they contemplate how to navigate 2023’s likely tough business environment, advisors have an opportunity to maintain that exceptional level of satisfaction by meeting the untapped demand for indexes.

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. 

Please see our recent paper Retail Investor Survey - Index strategies: 2023's untapped opportunity.

© 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.