Financial advisers, be careful what you ask for. You just might get it.
Since the explosion of Internet discount brokers, financial advisers have bemoaned retail investors managing their investment portfolios by themselves. But after two market bubbles, baby boomers have determined investing isn’t as easy as it looks, so they’ve started hiring advisers. Meanwhile, millennial investors, having witnessed what their parents went through, have decided they need help too.
Advisers should be happy. But not so fast. With more clients come more demands — and that means more stress. One could say the advisory business is entering a period of “Future Shock,” as described in futurist Alvin Toffler’s 1970 book of the same name. Toffler defined the term as the distress that arises from too much change in too short a time, or put simply, the human response to over-stimulation.
The first stress advisers are feeling is their own doing. After years of seeking more fiduciary control in managing portfolios, clients and former do-it-yourself types have given advisers more, or total, discretion over their accounts.
Of course, with greater freedom comes greater responsibility. Many clients have ceased to be generators of investment ideas. In handing over the keys to the advisers, clients have said they don’t want to co-manage their portfolios. They now expect advisers to drive them to the finish line.
“It’s a blessing and curse. With a higher level of autonomy comes higher levels of accountability,” said Brad Wheelock, senior vice president of RBC Wealth Management, a Minneapolis firm with $1 billion in managed assets. “As an adviser you prefer the autonomy, but if it doesn’t work there’s no one to blame but yourself.”
With a heightened focus on stewardship, advisers find they need to provide a higher level of transparency and nix conflicts of interest. Compared with six years ago, one way they’ve done this is by using few, if any, hedge funds, in favor of more transparent investments.
Advisers are also discovering that it’s easier to manage money when clients are accumulating assets rather than spending them. In an environment where about 10,000 baby boomers turn 65 every day, clients don’t want growth as much as income and capital preservation.
“Their tolerance for risk is not what it was when they were working, so that limits what I can do,” said Wheelock. “Nobody wants to take on risk these days. But when you have interest rate investments that pay nothing and the only way to make money is to take prudent risk, then you have a tough job.”
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