Nearly half of financial advisors say they need a new business model to survive
A survey by global asset management company Natixis reveals the emergence of marked change in the environment surrounding financial advisors and in demand from investors. The survey of 2,550 financial advisers in 15 nations in Asia, Europe and the Americas, reveals that whilst the majority anticipate 10% business growth in the coming year, 48% believe they need a new business model to ensure continued stable growth going forward.
A rapidly changing financial market
The financial market environment is changing at a dizzying pace. Financial advisors are exposed to unprecedented pressure, from regulatory reform and from automation, including the introduction of robot advisors. Many financial advisors are sensitive to the change in demand, with 47% saying they can expect no growth if they do not make some sort of change, and 33% believing that acquiring new clients is the key to growth.
Eighty-six percent of advisors recognise their success is linked to their ability to manage client return expectations, but there is a clear difference in the returns that clients and advisors regard as achievable: whilst investors expect a return of 9.5% above inflation, financial advisors say expectations for 5.3% above inflation are more realistic.
A need to educate clients on the risk of passive investments
It appears that this disparity is largely due to a delusions about asset management. Sixty-six percent of financial advisors express the opinion that investors do not recognise the risk in passive investments (index funds). This assessment seems to be supported by the fact that 62% of 7,100 investors across 22 countries regard index funds and ETF (exchange-traded funds) as low risk, with 55% believing they are the optimum investment vehicle.
One of the most urgent questions for financial advisors is whether they can promote greater awareness of investment risk among clients and provide advice tailored to clients’ different requirements.
Under pressure from the diversification of investment methods over the last few years, 25% of advisors are considering selling or merging their businesses, or exiting the industry altogether. The survey was carried out in June 2016 as a means of forecasting the year to come.