- US financial professionals expect AUM to grow by 7.2% in the next year driven mainly by new assets from new and current clients.
- Advisors increasingly see themselves as financial planners (72%) or financial coaches (59%) rather than primarily a portfolio architect (35%).
- Two-thirds of financial advisors use model portfolios to build scale of their business.
- Most financial professionals (81%) believe the current market is favorable for active portfolios; high level of active exposure in client portfolios expected in the future.
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%).
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%)
“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 differenting 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.
Natixis Investment Managers 2020 Global Financial Professionals Survey was conducted by CoreData Research between March and April 2020. Survey included 2,700 financial professionals, including wirehouse advisors, registered investment advisors and independent brokers and dealers, with $134.6 billion in client assets, in 16 countries and territories in Asia, Continental Europe, Latin America, the United Kingdom and the Americas. In the US, CoreData surveyed 300 financial professionals with a total of $28.9 billion in assets and an average of 22 years industry experience.
About the Natixis Investment Institute
The Natixis Investment Institute applies Active Thinking® to critical issues shaping the investment landscape. A global effort, the Institute combines expertise in the areas of investor sentiment, macroeconomics, and portfolio construction within Natixis Investment Managers, along with the unique perspectives of our affiliated investment managers and experts outside the greater Natixis organization. Our goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.
About Natixis Investment Managers
Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 specialized investment managers globally, we apply Active Thinking® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis Investment Managers ranks among the world’s largest asset management firms1 with $908.9 billion / €828.4 billion assets under management.2
Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers’ affiliated investment management firms include AEW; Alliance Entreprendre; AlphaSimplex Group; DNCA Investments;3 Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; H2O Asset Management; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; Vega Investment Managers;4 and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions, and Natixis Advisors offers other investment services through its AIA and MPA division. Not all offerings available in all jurisdictions. For additional information, please visit Natixis Investment Managers’ website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.
Natixis Investment Managers’ distribution and service groups include Natixis Distribution, L.P., a limited purpose broker-dealer and the distributor of various U.S. registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.
This material is provided for informational purposes only and should not be construed as investment advice. Diversification does not guarantee a profit or protect against a loss.
2 Assets under management (“AUM”) as of March 31, 2020. AUM, as reported, may include notional assets, assets serviced, gross assets, assets of minority-owned affiliated entities and other types of non-regulatory AUM managed or serviced by firms affiliated with Natixis Investment Managers.
3 A brand of DNCA Finance.
4 A wholly-owned subsidiary of Natixis Wealth Management.
All asset allocation scenarios are for hypothetical purposes only and are not intended to represent a specific asset allocation strategy or recommend a particular allocation. Each investor’s situation is unique and asset allocation decisions should be based on an investor’s risk tolerance, time horizon and financial situation.
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.
Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.