Today's Advisors

The Big Reset

Post-pandemic markets put financial professionals at a turning point

The 2022 Natixis Global survey of financial professionals looks ahead to the challenges for business growth. Excerpts are provided below. Access the full report here.

Despite a double-digit correction in stocks and bonds and near double-digit inflation in the first half of 2022, financial professionals anticipate a 5% median growth in AUM for the next year, and an annualized median growth rate of 10% over the next three years. Those looking to achieve these goals will have their work cut out for them.

To grow, financial professionals have to adapt. For the short term, they’ll need to reset investment strategy for turbulent markets and emotional clients. Over the long term, they’ll need to re-evaluate their market assumptions and determine how much the world has really changed. And then adapt their portfolio and business strategy for a new environment.

The 2022 Natixis Global Survey of Financial Professionals examines what these and other challenges hold for business growth.

Four key challenges facing financial professionals

  • You need more than markets to grow a business
Markets spurred AUM growth for professionals over recent years, but with a downturn, financial professionals need effective strategies for winning new clients and new assets if they’re going to grow.
  • Investment assumptions need to change with the fundamentals
Markets in 2022 are giving advisors reason to question long-held investment assumptions and determine what, if any, long-term strategy shifts are needed for long-term success.
  • The hardest thing to manage may be client expectations
Financial professionals see investor expectations for risk and return challenged by volatile markets. Their advice: Investors should control what they can. Their Emotions.
  • Business models will need to adapt to emerging client needs
With client demand for financial planning on the rise, advisors are making the transition to a more holistic business model by expanding services on the planning side and implementing model portfolios on the investment side.

Success Factors For Business Growth

What can help ensure their success? The largest number of advisors (49%) say it will come down to demonstrating for clients how they add value beyond asset allocation. This ties in directly to a major transition under way in the wealth management business. Many financial professionals have found that shifting the focus of their business from portfolio management to financial planning can strengthen long-term relationships.

This transition could be vital in the year ahead as clients see higher volatility, lower returns, and potential shor tterm losses. Rather than letting client relationships be defined by the transaction of selling into or out of an investment, a broader focus on financial planning could help them keep clients focused on the long-term goals. Not short-term market performance.

Inflation And Geopolitical Risks Come to A Head

While market projections look positive, financial professionals find a number of factors to worry about. Inflation and geopolitics (57%) earn the greatest mindshare for portfolio risks in the second half of the year. While they are two distinct challenges, these factors are directly linked. At the start of the year, few would have anticipated that an active ground war in central Europe would dominate headlines. But the Russian invasion of Ukraine has shaken up the geopolitical and economic order. NATO allies have enacted severe sanctions on Russia and a growing number of global companies have shuttered operations there. Notably, geopolitical risk strikes closest to home as concerns run highest among financial professionals in Europe (78%) and the UK (72%).

The war also has a significant impact on inflation. Most visibly, the war disrupted distribution of Russian oil and gas. A spike in demand from OPEC producers has resulted in record high energy prices. This at a time when the global economy was humming along in a post-pandemic recovery and energy demand was already growing.

Bonds: Finding Reasons To Believe

Rising rates have financial professionals concerned about bond performance: 54% say they find fixed income less appealing in this environment. Just 25% find the asset class appealing. But it’s likely professional opinion will soon be changing. Yields have been low, but now values are depressed and yields look much more attractive. In essence bond prices have fallen so low that they are now attractive, especially as markets may be forcing some investors to sell out of positions, opening up additional yield opportunities. But even if investment professionals believe interest rate hikes have already been priced into the market, convincing clients to get back into bonds may be a challenge.

Rates. Rates. Rates.

Despite the challenges and changes in the world, the markets, portfolios, and their business, financial professionals have set aggressive growth goals for the next three years...

Interest rates are a longstanding risk concern. But where the concern over the past decade had been on generating yield to offset low rates, the challenge in 2022 is a rising rate environment. Financial professionals will need to adapt their fixed income strategy to account for heightened duration risk.

Meeting A Full Spectrum Of Clients’ Demands

The value of this approach cannot be overstated, as financial planning is the number one service individuals in our 2021 investor survey said they wanted from their financial professionals.10 Similarly, 51% of model users say their clients value them for tax management services – another of the top five services investors say they want from a financial professional.

Along the same lines as financial planning, professionals who implement model portfolios say their clients value them for their estate planning and trust services (50%). The 45% of financial professionals who see connecting with next-generation heirs as a growth driver should take note of how models can enhance their efforts – especially considering the number who worry about the time it takes to do this well. About half (49%) of advisors say their clients value the family wealth education they provide.

Growth Prospects

Despite the challenges and changes in the world, the markets, portfolios, and their business, financial professionals have set aggressive growth goals for the next three years. As seen in years past, new assets from new clients always rise to the top of their priorities for business growth. But identifying prospects and winning their business is a time-consuming process.

Over the past two years, pandemic protocols have challenged the world to adapt to remote business practices. But over the past two years, financial professionals have found that tried and true strategies have generated their business growth. Seven in ten (72%) say client referrals have helped move the needle, including 92% in Canada, 90% in Australia and 86% in the US.

Referrals from accountants, lawyers and other professionals (48%) have also helped drive growth. In-person
events and experiences such as client seminars and dinners proved to be effective for one-third of professionals (34%). About one in five also say that social media has been effective in their prospecting efforts, although that is an average.

When it comes down to it, no matter where they are or where they look for new business, financial professionals
will have their work cut out for them. They’ll have to evaluate how world events could impact their clients. They’ll have to navigate a more volatile market environment. They’ll have to moderate client expectations and anticipate their reaction. They’ll also need to think about how to adapt their business to changing client needs. There are many challenges and much to consider, but financial professionals are optimistic despite their new circumstances. From what they tell us, they are ready to take it on.

 

 

 

About the survey
Natixis Investment Managers, Global Survey of Financial Professionals conducted by CoreData Research in March and April 2022. Survey included 2,700 respondents in 16 countries.
The data shown represents the opinion of those surveyed, and may change based on market and other conditions. It should not be construed as investment advice.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of June 2022 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.
All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.
Natixis Distribution, LLC is a limited purpose broker-dealer and the distributor of various registered investment companies for which advisory services are provided by affiliates of Natixis Investment Managers.

 

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