Financial Advisors Aim to Stabilize Nervous Clients

In the latest Financial Professional Outlook (FPO), a quarterly survey of U.S. financial advisors by Russell Investments, advisors report they are taking a variety of actions to stabilize a nervous client base. Survey results show only 9% of advisors are “not doing anything differently” in response to decreasing margins and abnormally risk-averse clients.

Commenting on the findings, Phill Rogerson, managing director, consulting services for Russell’s Private Client Services business, said: “Facing both declining revenue and a more demanding clientele, some advisors are taking a longer-term approach. Many are transitioning their clients to a fee-based planning focus, while others are making short-term changes in response to investor demand for guaranteed income products and tactical market calls. We believe the most successful financial advisors will be those who focus first on goals-based planning and second on providing a diversified, global investment solution to implement the plan.”

Most advisors who responded to the survey also said they are facing current business challenges proactively – 45% of advisors note that they are transitioning transactional clients to fee-based accounts, and 39% indicate that they are now selling more annuities. Twenty-six percent indicated they are using new methods of prospecting.

According to Suzanne Krasna at FSC Securities Corporation, “This is my 28th year as a financial advisor, and the last three have been the most challenging – but of course this is true for all of us. New approaches to marketing, managing and operating my business – and even re-inventing portions of my business model – require more time, thought and planning.”

Russell’s Rogerson noted, “We also asked financial advisors how their approach to assessing and managing client portfolio risk has changed in the past few years, and many tell us they are either being more conservative or reducing risk in client portfolios. Client fear and uncertainty appear to be the primary motivation for this shift.”

“We have educated our clients about volatility related to risk. As a result, we have moved most clients down in risk one or two categories based on our tiered risk structure,” said John Keefe at Keefe Associates, Inc. Advisors implement many strategies to help clients achieve diversification, respond to risk Although no single approach is dominant, financial advisors tend to be employing a wider range of investment products and strategies in order to keep their clients engaged. In the new Russell survey, advisors identify asset allocation investment strategies as the main tools to help their clients achieve diversification.

The investment strategy that financial advisors said they most widely employ is strategic asset allocation (SAA). Of advisors responding to the survey, 90% said they are using strategic asset allocation to some extent and 35% are using this investment strategy extensively. Interestingly, the strategy used next-most frequently to achieve diversification is tactical asset allocation (TAA) with 85% of respondents using TAA to some extent and 27% using it extensively. Advisors appear to be adopting tactical allocation approaches in response to higher volatility and greater risk aversion.

“The global financial crisis shook many investors’ faith in the value of diversification. I am glad to see that advisors still recognize diversification as a core element of successful investment management,” Rogerson said. “That said, the increasing popularity of tactical asset allocation is undeniable, and advisors must be careful of the substantial risk that can be introduced with tactical shifts.” More than half of advisors expect to increase emerging market allocation Of the 348 advisors responding to the latest Financial Professional Outlook, 59% expect to increase the allocation to emerging market equities, an 11 percentage point increase from the June survey. For advisors who are shifting their allocations, emerging market equities has been the top asset class for planned allocation increases across all three iterations of the FPO. More about Russell’s Financial Professional Outlook More information about the FPO, including a video and a full report of findings can be found at: www.russell.com/Helping-Advisors/YourBusiness/FinancialProfessionalOutlook.asp About Russell Investments Founded in 1936, Russell Investments is a global financial services firm that serves institutional investors, financial advisors and individuals in more than 40 countries. Over the course of its history, Russell’s innovations have come to define many of the practices that are standard in the investment world today, and have earned the company a reputation for excellence and leadership. The firm has $140 billion in assets under management (as of 6/30/10). For more information about how Russell helps to improve financial security for people, visit us at www.russell.com.

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