New Russell Investments survey finds financial advisors are focused on market volatility over other business challenges
Latest Financial Professional Outlook suggests volatility may be impacting advisors’ ability to address aging client base, regulatory hurdles, succession planning, and other potential threats.
SEATTLE, April 5, 2016
A substantial majority of financial advisors (72%) pointed to market volatility as a key factor contributing to changes in how they manage their businesses, according to the latest iteration of the Financial Professional Outlook (FPO) survey by Russell Investments. Other issues, including an aging client base (40%), rising interest rates (28%) and the impending regulatory challenges related to the proposed Department of Labor's (DOL) fiduciary standard (34%), were identified at significant, but much lower rates.
"Advisors' focus on volatility makes sense, given the prolonged period of market instability and related negative sentiment among clients," said Sam Ushio, director of practice management for Russell Investments' U.S. advisor-sold business. "However, advisors may be missing a chance to confront some impending threats as the landscape for financial advice quickly evolves. Instead of taking a 'wait and see' approach, we suggest advisors look at the bigger picture and evaluate the sustainability of their business model—a practice top advisors implement to identify key success metrics and maximize resources."
Client pessimism rose significantly in the first quarter of 2016—hitting 29% of those surveyed, up from 22% in the fourth quarter of 2015—as investors reacted to volatile markets as well as trends such as falling commodity prices and divergent global markets. Advisors, however, were slightly more optimistic and remain engaged closely in the markets, viewing future volatility as an opportunity. Despite current industry and market pressures, less than one-third (32%) of advisors are planning to re-engineer their client service model in 2016 in order to maintain a competitive advantage and enhance business growth.
"Our latest FPO data shows that market volatility poses a challenge for advisors and their clients to stay focused on long-term goals,” Ushio continued. “At Russell Investments, we are committed to helping advisors build sustainable practices while they address their clients' biggest investment challenges through globally diversified multi-asset portfolios.”
Upcoming DOL fiduciary standard
Sixty-one percent of advisors expect slight or no impact from the DOL fiduciary standard proposal, with only 21% expecting a significant impact. Close to half (49%) of advisors are not making any changes until after the rule is finalized. DOL adoption of a fiduciary standard has the potential to significantly impact advisors’ businesses, in particular fee structures, service models, and the number and types of products advisors choose to use, which will likely be scrutinized by the proposed rule.
While fewer than one-third (32%) of advisors are preparing to maintain a competitive advantage and enhance business growth in 2016 by re-engineering their client service model, even fewer advisors are considering the DOL proposal as an opportunity to revisit how they are managing business risks—a mindset that would likely make adapting to the DOL proposed rule easier. The strategy manages the advisor’s enterprise risk as a way to help bolster the sustainability of their firm while catalyzing growth for future years, yet only 13% of advisors surveyed have considered redesigning their service model to prepare for the potential fiduciary standard.
"It was surprising to see how many advisors underestimate the potential business impact of the proposed DOL rule," Ushio said. "However, many of the changes necessitated by the proposal are rooted in best practices already used by top firms. Instead of planning on hypothetical projections, we've found that advisors who maintain a sustainable service model and develop client segmentation strategies—regardless of current market and industry pressures—tend to consistently deliver lasting, high-quality client service, ultimately improving their client engagement and overall quality of service."
Manageability and sustainability are key to long-term success
Approximately three-fourths (77%) of advisors are following fewer than 250 securities, with more than half (52%) following 100 or fewer. Looking at current client capacity, about one-third of advisors manage 75 clients or fewer (33%) and an almost equal percentage manage more than 200 clients (34%). When asked about the manageability of their client bases, about one-fourth of these advisors view their client base as manageable (25% of those managing 75 clients or less, and 24% of those managing more than 200).
Advisors looking to maintain their competitive advantage and enhance business growth identified relationship development with centers of influence (COI) as their top strategy (43%), followed by transitioning client accounts to advisory solutions (38%), re-engineering client-service models (32%) and investing in technology (28%). Naming a successor was selected by only 12% of respondents.
"We believe that advisors are able to build successful, sustainable businesses by maintaining a manageable client base and product offering, documenting and implementing key processes, and consistently finding ways to optimize client experiences,” explained Ushio. “Looking into the future, advisors will need to be vigilant to stay ahead of disruptive trends stemming from technology, regulatory change and market shifts. In a continually evolving environment, a big picture mentality will be critical to continue meeting client needs while maintaining a competitive advantage."
The current iteration of the FPO survey was fielded between Feb. 5 and Feb. 19, 2016 and includes responses from 258 financial advisors working for 228 investment firms nationwide.
View the complete survey findings and infographic.
Russell Investments also regularly publishes insights on practice management for advisors on its Helping Advisors Blog. Recent posts include:
- "How are advisors adapting to regulatory pressures in 2016?"
- "2016 value of a financial advisor update: More than 3.75%"
- "Defense is the best offense. 2016: The year of sustainability"
- "Beware the path to extinction"
About Russell Investments
Russell Investments, a global asset manager, is one of only a few firms that offers actively managed multi-asset portfolios and services which include advice, investments and implementation. Russell Investments stands with institutional investors, financial advisors and individuals working with their advisors—using the firm’s core capabilities that extend across capital market insights, manager research, asset allocation, portfolio implementation and factor exposures to help each achieve their desired investment outcomes.
Russell Investments has more than $241 billion in assets under management (as of 12/31/2015) and works with more than 2,500 institutional clients, independent distribution partners and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell Investments has $2.2 trillion in assets under advisement (as of 6/30/2015). The firm has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell Investments also traded more than $1.7 trillion in 2014 through its implementation services business.
Headquartered in Seattle, Washington, Russell Investments operates globally, including through its offices in Seattle, New York, London, Paris, Amsterdam, Milan, Dubai, Sydney, Melbourne, Auckland, Seoul, Tokyo, Shanghai, Beijing, Toronto, Chicago and Milwaukee. For more information about how Russell Investments helps to improve financial security for people, visit https://russellinvestments.com or follow @Russell_Invest.