Many expect AUM to grow by 7.2% in the next year driven mainly by new assetsA new Natixis study reveals that advisors increasingly see themselves as financial planners rather than primarily portfolio architects
June 29, 2020 — BOSTON–(BUSINESS WIRE)–As investors try to make sense of markets dominated by an unprecedented global pandemic, financial professionals expect to see healthy growth in assets under management from clients seeking more planning and investing advice, according to the findings of a survey published today by Natixis Investment Managers. Yet emerging competition for assets, shifting client expectations and ongoing uncertainty calls for advisors to advance their client-service, investing and business-development capabilities.
Natixis surveyed 300 US financial professionals who manage $28.9 billion of client assets, including wealth managers, registered investment advisors, financial planners and wirehouse and independent broker-dealers as part of a larger global study of 2,700 professionals in 16 countries with $134.6 billion of assets. The findings show remarkable optimism about the future of the financial advice business and its potential for organic growth.
US respondents expect their assets under management to increase by 7.2% over the next 12 months, with annualized growth of 17.2% over the next three years. The vast majority think this growth will be driven by new assets from new clients (89%) and new assets from current clients (80%). Fewer (55%) are counting on market returns as a primary growth driver.
Despite optimism for their book of business, most (84%) financial advisors admit that business development is a challenge. In a typical work week, they dedicate just 9% of their time to prospecting for new clients. While about half their time (51%) is spent meeting or communicating with current clients, advisors divide the rest between investing or reallocating client investments (15%) and general administration, marketing, compliance and education/reading/social media (23%).
Practice Management And Practice Growth
To grow their practices, the top three areas advisors say they most need to improve on include:
- Establishing relationships with family members and next-generation heirs of their current clients (53%)
- Helping clients avoid making emotional investment decisions (46%)
- Demonstrating the value of advice beyond building and allocating investment portfolios (41%)
When asked why investors would leave their financial advisors, seven in 10 (69%) advisors said that failing to communicate with clients in a way they expect is at the top of the list, followed closely by 64% who said it came down to not listening to clients. Just 27% say clients leave due to a failure to meet their return expectations.
“Advisors are adapting their business to align with anticipated growth opportunities, and the path to profitable growth isn’t likely to follow the status quo,” said Dave Goodsell, Executive Director of Natixis’ Center for Investor Insight. “To win assets, advisors need a keen understanding of how clients’ needs and expectations are evolving. At the same time, one of the most important roles for advisors is setting realistic expectations for their clients, and more actively planning to reach the goals of both the client and their next generation heirs.”
Evolving Client Needs And Expectations Expand Role Of Advisor
Whereas financial professionals have traditionally succeeded by positioning themselves as experts at selecting investments and managing client portfolios, the survey’s findings suggest that these professionals are reframing their value propositions as clients seek a wider array of investment and non-investment-related services.
When asked what clients have been asking for more of over the past year, 61% of advisors say an increased demand for planning, especially for retirement income and planning (76%). Other services clients want more of include estate planning (42%), tax-efficient investment and wealth structuring strategies (39%), lending and credit solutions (20%) and help with financial education for other family members and heirs (32%).
Nearly three-quarters (72%) of financial professionals now view themselves as planners, whose primary role is to help clients navigate all their financial needs, not just their investment portfolios. Nearly six in 10 (59%) describe themselves as a financial coach, and just less than half (44%) consider themselves more of a therapist by helping clients understand their relationship with money and the emotional drivers of investment decision-making. Just 35% identify primarily as a portfolio architect.
Client Service: Financial Professionals Up Their Game
Six in 10 financial professionals (60%) say the biggest competition to their business today is other traditional financial professionals and, to a lesser extent, the availability of improved tools for self-directed investing (18%) and automated advice platforms (9%). However, they recognize that the industry is changing.
Fast forward five years, and an equal percentage of advisors expect incoming competition from traditional financial professionals (25%). They also foresee a range of new entrants such as big technology companies, other innovators within and outside the financial industry (25%), self-directed investing tools (24%) and automated advice platforms (23%).
In an effort to best position themselves, financial professionals are focused on differentiating their practice through amplified client service techniques and strengthening the longevity of their existing client relationships. Fifty-seven percent (57%) say a hallmark of the most successful advisor-client relationships are those in which the advisor knows his or her clients on a personal level, communicates regularly (58%) and builds relationships with clients’ families (42%).
As they continue working to improve client service, advisors are seeking greater efficiency in their practice. Half (51%) say the most efficient route to profitable growth is by leveraging technology resources, such as customer relationship management tools. Many also are narrowing their focus by streamlining their client base (46%), segmenting clients, by age or wealth level, for example (40%) and specializing in niche client groups, such as business executives, doctors and divorcees (36%).
Investing Strategy: A Model Of Efficiency
Rather than building all their clients’ investment portfolios by scratch, most of financial professionals (96%) say they invest at least a portion of their clients’ assets in model portfolios designed to achieve an expected return with corresponding risk. Two-thirds (67%) of those who use model portfolios say they do so because it makes scaling their own business easier. They cite numerous other benefits of using model portfolios, including making client reviews more efficient (43%), lowering administrative burdens (42%), increasing time available to serve current and prospective clients (40% and 27%), and accessing investment expertise (37%).
“Financial professionals are reevaluating investment assumptions and strategizing for more potentially uncertain markets and business scenarios,” said Marina Gross, Executive Vice President at Natixis Investment Managers Solutions. “Investing involves a balance of efficiency, creativity and consistency, and that’s what we are seeing as more advisors incorporate a mix of model portfolios and customized or alternative strategies into client portfolios.”
In terms of asset allocation, seventy-nine percent (79%) of financial professionals allocate a portion of client assets to alternative investments, with most relying on real estate strategies (68%). The survey found that the average financial advisor that uses models has 24% of their book of business in their firm’s proprietary model portfolios, 21% in external or third-party asset manager models and more than half (55%) in their own models.
Given uncertainty in the market and ongoing volatility, 81% of financial professionals believe the current market is favorable for active portfolios. On average, 68% of client assets are in actively managed investments, and they intend to maintain a high level of active exposure over the next three years (66%). Financial professionals believe active management adds the greatest value to less covered asset classes like small-cap equity funds (71%) and emerging market funds (71%). Roughly half say active adds value to bond funds (54%), alternatives (50%) and large-cap stocks (50%).
The full report, “Times Like These,” and data charts are available at im.natixis.com/us/research/2020-financial-professionals-survey.