Our top 10 questions designed to help advisors navigate the decade ahead

The past decade has been one for the record books. There has been unprecedented change in almost every aspect of life including technology, transportation, politics, etc. For me personally, I used to view going to the movies and dining at a local restaurant from time to time as a highlight, but now, streaming any movie I wish at any time on demand and ordering dinner via Uber Eats is equally as attractive. The decade ahead (I refer to it optimistically as the soaring 20s, given the advancements technology alone is expected to help us achieve) is anticipated to be equally unparalleled.

However, the potential impact many of these changes could have on financial advisors may not be as rosy. Over the last 15 years in the industry, I’ve conducted several thousand meetings with advisors. That experience has given me the ability to discern whether the advisor is prepared to handle their client’s needs—and whether they can do it while adapting to the constantly evolving world.

To help advisors understand just how much and how fast the world is changing, I’ve created the following list.

Top 10 questions every financial advisor should consider in preparation for the decade ahead

Do you think that the following factors will increase or decrease?

  1. Compliance requirements/regulatory pressures
    Increase  /  Decrease

  2. Advisory fees (on average)
    Increase  /  Decrease

  3. Challenges to accurately asset allocate
    Increase  /  Decrease

  4. The number of available investment solutions
    Increase  /  Decrease

  5. Client expectations, and the complexity of their needs
    Increase  /  Decrease

  6. The number of competitors to advisory business
    Increase  /  Decrease

    From a market and economics perspective:

  7. Growth stocks finished 2019 with their best year since the Global Financial Crisis ended in 2009 (according to the Russell 1000 Growth Index versus the Russell 1000 Value Index).
    • Do you expect this trend to continue?
      Yes  /  No
  8. The U.S. is experiencing the longest bull market in history (based on the S&P 500, this is the longest the U.S. has gone without a recession). 
    • Do you expect this trend to continue?
      Yes  /  No
  9. The U.S. Federal Reserve (the Fed) raised interest rates nine times leading up to January 2019 (until quickly deciding to begin reducing rates, with three cuts in place by the end of 2019).1
    • Do you expect this trend to continue?
      Yes  /  No
  10. Household debt to Gross Domestic Product in Canada reached 102% in the third quarter of 2019, the highest level ever.2
    • Do you expect this trend to continue?
      Yes  /  No

3 strategies for business planning and client reviews

Given the pace of change in the financial services industry, and in the economic environment, I'm assuming most of your answers are biased toward an increase in change. If that’s the case, I encourage you to consider three strategies to help you conduct your business planning and client reviews over the coming weeks:

  1. Be willing to have courageous, forward-looking, expectation-setting conversations with your clients about asset allocation and how investment returns may not come from the same sources in the future that we’ve seen over the last decade. By way of example, the image below shows that asset class returns in the 10 years ending in December 2019 were almost a complete reversal from asset class returns achieved in the prior decade ending in December 2009.
          
    Click image to enlarge

     

    Lack of repeatable patterns
    Morningstar Direct, Russell Investments. *Annualized return in CAD, except Emerging Markets Debt and Global High Yield which is in USD. Canadian equity=S&P/TSX Composite Index, US Equity=S&P 500 Index, International Equity=MSCI EAFE Index, Emerging Markets=MSCI Emerging Markets Index, Dev. Ex-US Equity=MSCI World Ex-US Index, Canada Bonds=S&P Canada Aggregate Bond Index, EM Debt=JPM EMB Index, Global High Yield=Bloomberg Barclays Global High Yield Index, Global Infrastructure=S&P Global Infrastructure Index, Global REITS=FTSE NAREIT All Equity REITS Index (01/01/2000-03/31/2006) & FTSE EPRA NAREIT Developed REITS Index (04/01/2006-12/31/2019), Commodities=S&P GSCI Canadian Dollar Total Return Index. Indexes are unmanaged and cannot be invested in directly. Past performance is not indicative of future results. Index performance does not include fees and expenses an investor would normally incur when investing in a mutual fund. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets.

     

  2. Ask your investment partners—like us—how they can help you solve to each of the specific questions posed above. Press them on the answers.

  3. Consider the opportunity and competition ahead of you as you adapt to the new landscape in the next decade:
  • Your clients are likely to look different in the future: Clients born after 1965 represent 21% of wealth management clients in 2018, up from 16% in 2015. Moreover, the average assets of these clients grew by 6.1% in those three years, compared to 3.5% growth in average assets for older clients.3

  • You and your financial advisor peers are likely to look different in the future. In 2018, the average age of a financial advisor in Canada was 50.4 years, up from 46.7% in 2009. As advisors approach their own retirement age, they are likely to think differently about their practice and priorities.

  • Your set of investment solutions may evolve. A 2019 study by Pollara sponsored by the Investment Funds Institute of Canada found that most investors have more than one type of investment product in their portfolios. About half of investors who hold mutual funds also hold stocks, two-fifths also hold Guaranteed Investment Certificates (GICs), one-third also own bonds and one-fifth also hold Exchange-Traded Funds (ETFs). About one-third of investors surveyed indicated they planned to make changes to their mutual fund holdings over the following year.5

Delivering the outcomes your clients are seeking

Change is hard. But change can also be the basis for a tremendous range of positive results, including the potential for growth, new opportunities, efficiency and value—not to mention potentially even better outcomes in client relationships for those open to looking at the world differently. We believe the best advisors focus on helping their clients stick to their long-term financial plans—their outcomes. And we believe this focus on outcomes is where advisors deliver the most value.

Reaching your full potential as an advisor

With 2020 still in its early days, have you taken the time to set outcomes for yourself? We believe an outcome-oriented approach is not just for investing. We recommend the same approach for yourself and your practice. If even the most highly trained athlete in the world seeks coaching on a regular basis to adapt to new training methods and refine the very thing they love doing, perhaps advisors should consider doing the same.  


Federal Open Market Committee, https://www.federalreserve.gov/monetarypolicy/openmarket.htm

Refinitiv DataStream

Price Metrix. State of Retail Wealth Management 2018

Advisors Report Card 2018, Investment Executive

Strategic Insights Investor Survey September 2019

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