By Craig Hawley
Looking back, 2018 was another year of the unexpected and unprecedented. Lawmakers at home and abroad dominated the headlines, impacting markets and portfolios, and raising concerns of advisors and investors alike. Regulatory reforms, technological innovation and the power of consumer demand transformed the way registered investment advisors and fee-based advisors served their clients and managed their practices.
The year 2018 also marked the 10-year anniversary of the 2008 financial crisis. This collapse shook the fundamental trust between advisors and clients, which took a decade of hard work to restore. In a recent poll by Nationwide Advisory Solutions, the vast majority of RIAs and fee-based advisors say clients today are more likely to follow their recommendations (90 percent), increase engagement (89 percent) and stick to a financial plan (84 percent). Nearly two-thirds of advisors say investors today are better prepared for a market downturn.
Today’s investors are also more likely to demand holistic financial planning, customization and advice in their best interest. This presents a business opportunity for RIAs and fee-based advisors facing competition, commoditization and fee compression in the year ahead.
- Volatility, rising rates and tax reform 2.0 will reshape the way RIAs and fee-based advisors attract and retain clients. Turbulent markets bring fear, but they also bring buying opportunities, especially for younger clients. Rising rates are a double-edged sword, especially for aging clients. Tax reform drives all clients, especially the affluent, to seek guided advice. As you adjust strategies to meet the needs of each generation, you can better serve current clients, retain clients’ heirs and attract new clients of all ages.
Investors say volatility is one of the top three macro factors adversely impacting their portfolios, and protecting assets is their No. 2 financial concern, according to our most recent Advisor Authority study of more than 1,700 advisors and individual investors. Become the trusted counselor on volatility — guarding clients from short-term reactions, keeping them focused on long-term goals.
Have a strategy for protecting assets against market risk. Our findings show diversification, fixed annuities, fixed indexed annuities and liquid alternatives are leading solutions. Tools for risk management, risk monitoring and portfolio stress testing are rising in importance and should be integrated into your practice in 2019.
RIAs and fee-based advisors cite rising interest rates as the No. 1 factor adversely impacting clients’ portfolios. Although rates remain relatively low for the foreseeable future, gradual increases are expected to continue. Rising rates may drive down stock prices or create greater volatility. And as rates rise, bond prices fall, eroding the value of current fixed income holdings.
Aging clients will likely suffer most. Trim bond durations, pair short-term bonds with less rate-sensitive bonds such as TIPS, create bond ladders to reinvest regularly at higher rates, and consider single premium immediate annuities as an option to generate income. At the same time, rising rates can benefit clients, making savings accounts, money markets and certificates of deposit more attractive.
Tax reform is top of mind, especially for affluent investors. RIAs, fee-based advisors and investors alike say taxes are one of the top three factors adversely impacting portfolios. Taxes tie for investors’ No. 2 financial concern — and are the No. 1 concern for the ultra-high net worth. Although more than half (56 percent) of investors say they will benefit from tax reform, nearly eight in 10 (79 percent) RIAs and fee-based advisors say their clients will benefit — and have adapted their approach to tax-advantaged investing in response.
- RIAs and fee-based advisors will succeed — and create a competitive edge — through specialization and holistic planning.
As fee compression persists and asset management becomes increasingly commoditized, you can’t win on performance alone. Become the quarterback of your client’s financial life, offering a more holistic approach and comprehensive solutions, from risk management to tax-advantaged investing to insurance planning. Nearly three-fourths (73 percent) of RIAs and fee-based advisors have increased their focus on a more holistic approach to financial planning over the past decade.
Instead of focusing on portfolio returns, focus on your clients — their wants, needs and top concerns. Offer solutions across each stage of their financial lifecycle — tax-deferred accumulation, helping them prepare for and live in retirement, legacy planning and wealth transfer. Likewise, identify your ideal client and specialize in the unique issues they face, to ensure their long-term success — as well as your own.
- The most successful RIAs and fee-based advisors harness technology and stay on the right side of the “AI Divide,” to enhance value for clients and drive growth.
Advisor Authority shows that more than two-thirds of RIAs and fee-based advisors are concerned about fee compression, and see technology as a driving factor. But it also reveals that the most successful advisors — those who earn more and have more assets under management — say technology is not an adversary, but a powerful ally to help build a more efficient and scalable practice and create a competitive edge.
As technology becomes more integrated and intuitive, you can leverage it to add new categories of clients you’ve never served before, offer new products you’ve never used and expand access in ways you never expected. With artificial intelligence, you can consolidate disparate data, customize solutions for individual clients and provide more holistic advice. You can re-tool your practice and keep costs low, passing savings back into clients’ portfolios — or straight into their pockets.
Adapt Or Be Left Behind
Powerful forces are setting the course for 2019, and there is no turning back. Sit on the same side of the table as your clients as you tackle their top concerns. Increase specialization and holistic planning to ensure success for your clients and for your practice. Make technology your ally — not your adversary — as innovation rises and fees race to the bottom. In the year ahead, one thing is clear: You must harness these trends to adapt — or be left behind.
Craig Hawley is head of Nationwide Advisory Solutions. Craig may be contacted at firstname.lastname@example.org.
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