Adviser alert: Asians want more income products

Call to action for advisers and fund houses: nine out of 10 affluent investors in Asia want you to show them more/better opportunities for generating income.

That was among the findings of a global survey of over 3,000 affluent investors across North America, Europe and Asia commissioned by Legg Mason. The US-based asset manager is set to publish the results of its survey later today.

While there is universal demand for income investing in response to low interest rates and market volatility, appetite is highest in Asia, where 60% see it as more important than five years ago, led by Hong Kong, Singapore and China.

When it comes to investing for income, 65% of investors in Asia and 78% in Australia say that growing wealth is their chief motivation, versus 51% in Europe and 59% in North America.

Another common theme from the research was that investors are receiving lower returns on their income-producing investments than they are seeking.

The largest gaps between desired and actual rates of return can be seen in Taiwan (400 basis points), China (340bp) and Japan (290bp).

“There is a universal dissatisfaction among investors for what they are getting, and this is creating opportunities for professional money management and advice,” says Matthew Schiffman, global head of marketing for Legg Mason.

In another encouraging nod to advisers, in the wake of the global financial crisis, not only have investors become more engaged in selection of their investment strategies, but they are also seeking more knowledge.

When it comes to understanding the range of income-producing products available to them, just 31% of Asians said they lacked comprehension, versus 37% for North America and 39% for Australia. In China, just 10% of investors say they do not have a good understanding.

This is likely a reflection of the fact that in Asia the proportion of affluent investors working with advisers is higher than in the rest of the world. In Hong Kong, for example, it is at 65%, compared with a global average of 35%.

“This survey breaks down what the majority of affluent investors’ concerns are by category, which will help our intermediary clients to be smarter about what their customers and potential customers want to focus on,” says Schiffman.

There is more widespread usage of fixed income products within Asia (71%), against 56% for Europe and 53% for North America. China and Hong Kong are highest at 87% and 85%, respectively. Asian investors were as likely to use high-yield as investment-grade bonds for their income needs.

They were also more inclined to use equity funds to meet income needs (52%), against 36% for Europe and 42% for North America; and most likely to increase allocation to equity income funds (40%) or to invest in equities (57%).

As another confirmation of their higher risk appetite, Asians (particularly Chinese) stand out for their willingness to invest internationally in fixed income (64%). Overall, 79% of affluent Asians say international investing for income has taken on more focus over the past five years, against 35% for North America.

But when it comes to where to invest for income internationally, the US remains the most popular choice, while Japan and China tend to be low in preference terms among investors in other Asian countries.

Nearly nine of 10 Chinese investors open to international investing say they would consider investing in the US, but just 55% of Americans would consider investing in China.

Asked how Legg Mason intends to put its survey findings to use, Schiffman suggests it will have a productive impact downstream for the firm’s network of affiliates, with a focus on satisfying demand for alternative investments and equity.

A total of 3,028 affluent investors globally participated in the survey, which was conducted from December 1, 2012, to January 30, 2013. The respondents had at least $200,000 in investable assets and were aged between 40 and 75.