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Volatility changes attitudes to risk

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13/05/2008

Stock market volatility has prompted a dramatic switch among investors in their attitude to risk, research among independent financial advisers (IFAs) by Prudential shows.

More than 75% of advisers say clients’ attitude to risk has changed in the past year due to volatility. And analysis of industry data by Prudential shows the change in attitude has been reflected in net retail sales of individual savings accounts (ISAs) – the cautious managed sector is by far the best-selling among the 30 classified by the Investment Management Association for November, December, January, February and March.

Prudential believes the new rules on ISAs that have come into effect in the 08/09 tax year which allow savers in cash ISAs to transfer money into equity accounts will provide a further boost to the sector. Around £22.6bn was invested in cash ISAs during the 2006/07 tax year.

Research among IFAs shows six out of 10 advisers say more than half of their clients are now looking to a more cautious investment strategy in response to current stock market conditions.

Gary Shaughnessy, managing director of Prudential Retail Life & Pensions, said: “Stock market volatility is changing attitudes to risk among investors but the change in attitude should not necessarily mean a switch away from equity investing.

“All the evidence shows that in the long-run equities outperform cash and that investors who stay out of the stock market are not necessarily maximising their potential returns. The new ISA rules which came into effect this tax year are an opportunity for advisers and their clients to reassess their investment strategy and to shift some cash savings into funds investing in shares.”

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