Our top 10 questions designed to help advisers 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 advisers may not be as rosy. Over the last 15 years in the industry, I’ve conducted several thousand meetings with advisers. That experience has given me the ability to discern whether the adviser is prepared to handle their client’s needs - and whether they can do it while adapting to the constantly evolving world.

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

Top 10 questions every financial adviser 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. Between 1 January 2010 and 1 January 2020, the cumulative total return of Eurozone stocks (MSCI EMU) has lagged US stocks (S&P 500) by 146 percentage points.
    • Do you expect this trend to continue?
      Yes  /  No
  9. The European Central Bank’s key deposit rate has been negative since July 2014.1
    • Do you expect this trend to continue?
      Yes  /  No
  10. 8. UK GDP growth has fallen from a post-2008 peak of 2.8% in the second quarter of 2014 to a rate of 1.1% in the fourth quarter 2019.2
    • Do you expect this trend to continue?
      Yes  /  No

Three strategies for business planning and client reviews

If you’re like the countless number of advisers I’ve shared this with, 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
    *Annualised return. Non-U.S. Equity – MSCI EAFE Index; Global Equity – MSCI World Index; Emerging Markets – MSCI Emerging Markets Index; Global Real Estate – FTSE NAREIT All Equity Index (1/1/1995-2/18/2005) & FTSE EPRA/ Developed Index (2/18/2005-12/31/2019); Cash – Bloomberg US Treasury Bill 1-3 Month Index; Global High Yield – Bloomberg Global High Yield Index (1/1/1990-12/31/1997) & BofAML Global High Yield TR Hdg Index(12/31/1997-12/31/2019); Infrastructure – S&P Global Infrastructure Index; U.S. Bonds – Bloomberg U.S. Aggregate Bond Index; U.S. Equity Large Cap – Russell 1000® Index. Balanced: 30% Russell 3000® Index; 35% Bloomberg U.S. Aggregate Bond Index; 20% MSCI EAFE Index; 5% MSCI Emerging Markets Index; 5% FTSE EPRA/NAREIT Developed Index; 5% Bloomberg Commodity Index. Please note that this chart is based on past index performance and is not indicative of future results. Indexes are unmanaged and cannot be invested in directly. 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 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:
  • 312,300 financial advisers are estimated by 2026, as the number of advisers is expected to grow.3
  • 37% of financial advisers are expected to retire over the next decade.4
  • $17.7 trillion invested in open-ended mutual funds,5 while at the same time many assets are in transition. Dalbar reports that the average mutual fund equity investor holds a fund for an average of 3.3 years.6

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 advisers focus on helping their clients stick to their long-term financial plans - their outcomes. And we believe this focus on outcomes is where advisers deliver the most value.

Reaching your full potential as an adviser

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 advisers should consider doing the same.  

The bottom line

We’ve been partnering with financial advisers for over 30 years. If you’re already working with your local Russell Investments sales and service team, that’s great! We have specific deliverables already created to help you address each of the 10 questions above. And if not, consider calling us today at 020 7024 6000.

1 Refinitiv Datastream, January 2020

2 Refinitiv Datastream, January 2020

3 Source:  Forbes, Here’s how much financial advisors earn in every U.S. state, https://www.forbes.com/sites/andrewdepietro/2019/02/23/financial-advisors-salary-state/#478c29f149b5

4 Cerulli Report--U.S. Broker/Dealer Marketplace November 2019:  Advisor retirements expected to set more than one-third of industry assets in motion, https://www.cerulli.com/about-us/press/2019-october-us-brokerdealer-marketplace-2019/

5 2019 ICI Factbook.

6 Dalbar Quantitate Analysis of Investor Behavior:  The Most common Mistakes Investors Make: https://blog.folioinvesting.com/2012/05/11/the-most-common-mistake-investors-make