Five Factors to Confront Challenging Markets—and Drive Greater Growth
More than a decade after the Financial Crisis of 2008, concerns about volatility are again top of mind for advisors and investors alike, and uncertainty is on the rise in 2019. These are among findings revealed in the latest Special Report from our fifth annual Advisor Authority Study of more than 1,600 RIAs, fee-based advisors and individual investors. Heading into the second half of the year, here are five trends advisors need to be aware of to confront the complex dynamics of a challenging market, refine their practice, drive greater growth—and greater profitability:
Uncertainty is on the rise and volatility has returned with a vengeance—reshaping the way RIAs and fee-based advisors create “safe havens” for clients. As the partisan divide grows and trade wars intensify, investors and advisors alike say that lawmakers at home and abroad are among the top drivers of volatility. Two-thirds of investors and more than half of advisors expect volatility to increase this year. Investors say volatility is the number-one challenge that increases the likelihood they’ll work with an advisor—and in a volatile market, investors say the number-one benefit of having an advisor is to keep them focused on long-term goals.
Nearly nine in 10 RIAs and fee-based advisors have a strategy to protect clients’ assets against market risk. Nearly two-thirds say diversification is the solution used most—along with fixed annuities, fixed index annuities, liquid alternatives and smart beta ETFs—to mitigate downside, capture upside and protect clients’ portfolios. Turbulent markets bring fear—but also buying opportunities. Mixed signals on interest rates can be a double-edged sword. The yield curve inversion hints at recession, and nearly six in 10 investors are concerned about a recession this year, driving them to seek guided advice.
The most successful RIAs and fee-based advisors continue to differentiate—and create their competitive edge—through specialization, tech innovation and holistic financial planning. As fee compression creates greater pressure, asset management becomes more commoditized, and markets more turbulent, you can’t win on performance alone. Become the quarterback of your clients’ financial life, to ensure their long-term success—as well as your own. Offer holistic financial planning, including tax planning, estate planning, risk management and insurance planning. Become a subject matter expert, focused on a specific generation, profession or lifestyle. As many experts say, in today’s competitive market, the advisor who tries to serve everyone ends up serving no one.
As the “Retirement Income Challenge” grows—while the safety net continues coming under threat—RIAs and fee-based advisors have new solutions to meet this urgent need. As 10,000 Boomers per day retire in 2019, outliving retirement income is one of their biggest fears—and generating reliable income in retirement is one of their biggest unknowns. Provide a more durable solution, by protecting part of the portfolio with a guaranteed income floor, so the rest can be invested more aggressively, to help fund a retirement that could last three decades—or more. The vast majority of RIAs and fee-based advisors have a strategy to protect clients against outliving their savings. Social Security, fixed income ladders/bond ladders and variable annuities with living benefits are the top three solutions, followed by dividend yielding stocks, defined benefit plans and yield generating ETFs. Roughly four in 10 also use Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs) and Qualifying Longevity Annuity Contracts (QLACs).
To enhance value for clients, increase profitability and drive greater growth, RIAs and fee-based advisors are proactively shifting fee models. As clients demand greater transparency, and fee compression pushes costs lower, the most successful RIAs and fee-based advisors have moved beyond the basic fee for AUM model. They diversify fees for specific services, retainers, hourly fees and flat fees. While the most successful advisors do not compete on price, they will reduce fees for the right segment of younger clients and clients’ heirs, as an investment in the future of their firm. A more dynamic approach to fees helps you profitably serve a diverse range of clients, across different generations and levels of net worth, offer more customized and holistic planning, and use new categories of products.
RIAs and fee-based advisors harness the benefits of technology and stay on the right side of the “AI Divide.” Technology has become more efficient, integrated and intuitive, creating new categories of products and services that never existed, expanding access in ways that were never expected, providing greater transparency and simplicity. Top performing RIAs and fee-based advisors invest more in technology and combine high tech with the human touch to build a more efficient and more scalable practice, attract and retain more clients—and create a competitive edge. But even the most tech savvy investors still say that when working with an advisor, nothing can replace face-to-face.
Today, volatility is top of mind, uncertainty is on the rise and industry dynamics are shifting at the intersection of powerful trends. As more investors demand advice that is in their best interest, more lawmakers are advocating for change and more advisors have moved to a fee-based or fee-only model. Success in this time of change and challenge comes to those who can differentiate through holistic financial planning, unbiased advice and the competitive advantage of a unique customer experience. Overarching everything, the client must come first. So adapt now—or be left behind.
Craig Hawley is Head of Nationwide Advisory Solutions. To learn more please visit https://www.nationwideadvisory.com/