In the recently released Financial Professional Outlook,
we asked advisors to share the key factors contributing to changes
in how they manage their businesses.
A substantial majority of respondents (72%) pointed to market volatility. Other issues, including an aging client base (40%), rising interest rates (28%) and the impending regulatory challenges related to the Department of Labor’s (DOL) fiduciary rule (34%), were identified at significant
, but much lower, rates.
Advisors’ focus on market volatility makes sense – particularly given that the survey was fielded in early February, in the depths of the market volatility early this year. Investor pessimism hit new highs
during that period – advisors reported that nearly 30% of their client base was pessimistic about the market over the next three years.
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The Sentiment Index provides a point-in-time measurement of advisor and investor sentiment about capital markets over the next three years. The Sentiment Index takes into account both those who are optimistic and those who are pessimistic, and is calculated in this way: Sentiment Index = (% of group that is optimistic) – (% of group that is pessimistic).
However, according to our recent Global Market Outlook, volatility may be a persistent theme in 2016. Advisors who focus too much on market ‘noise’ may lose their ability to see the forest for all the trees. In this case, the forest is the systemic shifts in the advisory landscape
: an aging client base, the rise of millennials, competition from robo advisors, and changing regulations, to name just a few of the changes that have the potential to affect all aspects of advisors’ business operations. Missing the opportunity to address these threats may put the long-term growth and sustainability of advisors’ businesses at risk.
In this challenging environment, what should advisors focus on?
Certainly, the recent DOL rule has the potential
to affect all aspects of how advisors manage their businesses
. But other key advisory challenges, such as succession planning
, managing the transfer of wealth
, and competition from robo-advisors should receive more of an advisor’s attention. We suggest that advisors look at the bigger picture and evaluate the sustainability of their business model
—a habit top advisors develop to identify key success metrics and maximize resources.
We encourage advisors to focus their client relationships on goals-based planning and solutions. The benefit of this emphasis
is that it allows the advisor to anchor both the client perspective as well as the advisor’s value proposition on the client’s progress toward goals. Over time, the client can become conditioned to focus on the appropriate benchmark, goal-achievement, rather than the short-term volatility in the markets that don’t always register a material impact on their goal progress.
The bottom line
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. 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.