The Chancellor’s Autumn Budget and Spending Review at the end of October generated a raft of press coverage and analysis.

In general terms, the picture painted was a stark one, highlighting a squeeze on disposable income for many people. One study highlighted how households would, on average, be paying £3,000 more each year in taxes by 2024-25.

Meanwhile the Office for Budget Responsibility (OBR) forecast inflation averaging 4% over the next year, wiping out growth of 3.9% in average earnings with a warning that inflation could rise to 5% in the short term.

It’s against this background, and 18 months of living with the pandemic, that a third of advised individuals (33%) abrdn asked say they now want to take less risk with their investments than when before the coronavirus crisis hit.

The finding represents a pretty big swing and certainly bigger than we expected.

abrdn’s research, conducted with over 1,000 advised individuals, also reveals that just over a half (51%) of those who want to take less risk say it’s because their financial priorities have changed.

Meanwhile, two in five clients (42%) cite a reduced capacity to absorb loss as the reason they want to take less risk with their investments.

This statistic is also particularly significant and not only because capacity for loss has arguably never been more important than during the pandemic, but because our research highlights how a client’s attitude to risk is undeniably linked to their capacity to absorb loss.

A complete understanding of the client

Capacity for loss has been high on the agenda for the FCA ever since pension freedoms were introduced in 2015. When the regulator published its first review of DB transfer advice two years later, it specifically stated the need for advisers to consider capacity for loss both separately from and in addition to attitude to investment risk.

Certainly, they’re two very separate measures. Capacity for loss is a fact based, objective measure examining whether the client can afford to take risk, while attitude to investment risk is a subjective, behavioural measure looking at whether the client feels comfortable taking risk.

However, both these measures taken together can not only inform each other but give an adviser a complete understanding of their client’s overall financial circumstances and goals.

They shouldn’t be assessed in isolation.

For advisers, looking at a client’s capacity for loss during a review can potentially show how the client can still afford to live comfortably and take more risk with their investments and can even help the client understand their attitude to risk.

Highlighting the value of advice for clients

While a third of the advised individuals we asked want to take less risk, over 18 months into the pandemic, abrdn’s research findings also reveal that just over a quarter (27%) want to take more risk with their investments. The reason for this, half of this group say, is because they’re more confident in the advice they receive.

These figures underline the value clients have received, and continue to receive, from their advisers during the coronavirus crisis. As I’ve previously written about, at the start of lockdown, as markets plummeted, advisers provided clients with the reassurance and guidance they needed about the sustainability of their portfolios.

Many clients would have had especially reassuring conversations with their advisers if there was a pre-agreed planning strategy in place, such as a Withdrawal Policy Statement. A plan comes into its own during a crisis and it’s a good reference point for discussions about what adjustments can be made to a client’s portfolio.

However, the real value here for the client is that it gives them a sense of control and peace of mind.

As abrdn’s research findings highlight, the pandemic has really brought people’s concerns and the need for resilience in long-term planning to life. And advisers have gone the extra mile and continually demonstrated the value of good advice, reassuring clients that they can be confident about their savings, not only now, but in the future when economies stabilise and there’ll be opportunities to potentially increase income.

Clients are in good hands

Following the Autumn Budget, the OBR also reported that real household disposable income would stagnate over the long term, only recovering to above its pre-pandemic level in the second half of 2023. In these current circumstances, it means there’ll be many more opportunities for advisers to underline their value and continue to give clients that confidence and peace of mind.

Our research findings also highlight the value of advisers having regular catch-ups with clients so they can readjust client portfolios as required or discuss clients’ goals and reset expectations if needed.

The coronavirus crisis has also allowed advisers to extend advice beyond the core market of the older generation. The way families have pulled together during the pandemic has given advisers another great opportunity to reach out and provide advice to where it’s needed, the younger generation within families.

With a significant number of advised individuals now more confident in the advice they receive, our research findings show that clients choose an adviser in order to have a professional manage their hard-earned savings under steady stewardship. through market uncertainty and beyond.

The coronavirus crisis has highlighted the value of advice and it bodes well for the future of our industry.

Read Alastair Black’s blogs about Assessing Capacity for Loss and How uncertain times can underline the value of advice.

Read Noel Butwell's blog on How the pandemic has reshaped the way clients engage with their adviser.

Or get in touch with your usual abrdn contact for more information about how we can support you.

The value of investments can go down as well as up and your clients could get back less than they paid in.

The views expressed in this blog should not be regarded as financial advice.