UK financial advisers are prioritising diversification in client portfolios as they take on a more cautious outlook for markets, new research suggests.

They are boosting allocations to alternatives and emerging markets, according to the latest Schroders UK Financial Adviser Survey.

The study shows that over the past 12 months, more than a third, 36%, of advisers increased their exposure to alternatives and just under a third, 32%, to emerging markets, with the survey indicating the upward trend is likely to continue into next year.

Looking ahead, 31% of advisers said they expect lower equity returns while 19% anticipate lower bond market returns relative to long-term historical averages. The figures have climbed from 18% and 13%, respectively, in November 2024.

Advisers are also anticipating high disruption due to geopolitics with 60% mention it, as well as higher disruption as a result of technological advances which was picked by 68%.

The latter is likely driven by the rapid developments in AI, as well as concerns about overvaluations and fears of bubbles in developed markets, Schroders said.

the survey also examined fiscal debt sustainability, with results demonstrating a clear majority, 61%, of advisers expecting significant disruption from rising public debt burdens.

The growing sense of disruption is also reflected in expectations for higher market volatility, with 61% of advisers anticipating increased volatility - up from 34% in May 2023 and 43% a year ago - prompting more to seek uncorrelated return drivers across a broader range of assets.

That is reflected in the findings, which show that 60% of clients invested in multi-asset and MPS portfolios have access to liquid alternatives and gold in their asset allocation.

Ahead of next week’s Budget on the 26 November, the survey found that advisers were concentrating Financial Planning efforts on the areas most exposed to potential tax changes. The primary area of attention has been tax-free cash withdrawals from pensions, amid concerns that the current 25% tax-free allowance (capped at £268,275) could be reduced or replaced with less favourable terms.

Inheritance tax (IHT) planning has also been a priority, with 27% of advisers reporting that they have reviewed estate planning strategies with their clients.

Jamie Fowler, head of UK wealth at Schroders, said: “As we approach the end of another year and look ahead to 2026, the results of this year’s survey underscore the impact that global disruption and ongoing volatility are having on asset allocation decisions. Growing caution towards developed markets means advisers and clients will increasingly need to access a broader range of investments.”

• Survey conducted between 21 October and 1 November among 221 advisers.