When it comes to the issues faced by financial planners dealing with clients’ needs and running profitable practices, Australian advisers are not on their own.
A global (ex-Australia) survey of 2550 advisers in 15 countries, conducted by Natixis Global Asset Management, has found that the concerns and beliefs of advisers are shared around the world, with almost every survey respondent – 98 per cent – saying heightened regulatory attention is a challenge to the growth of their business.
The managing director of Natixis Global Asset Management in Australia, Kevin Haran, says as the delivery of advice shifts, often through regulatory impetus, from commission-based to fee-for-service, greater regulatory scrutiny is inevitable.
A white paper based on the results of the survey says that “in the wake of the global financial crisis, advisors have been swept up in a wave of reform as regulators across the globe work to ensure the financial service industry puts investors first”.
“Whether it’s the UK’s Retail Distribution Review (RDR), Canada’s CRM2, the European Union’s MiFID I and II, or similar acts in Australia, Germany, and Singapore, the goals are clear – to make adviser compensation more transparent and ensure the industry is acting in the best interest of investors. Most recently, advisors in the US are coming to grips with new regulatory pressures presented by the US Department of Labor’s Conflict of Interest Rule, which is slated to go into effect in 2017.”
Regulations ‘costly’
It adds that around the world, advisers believed greater regulatory scrutiny “holds dramatic implications for their practices”, and that “heightened regulation and disclosure requirements are challenging to the growth of their business”.
“Ensuring they are in compliance with new regulations will likely require that advisors redirect time and resources to this critical business function,” it says.
“More than three-quarters believe increased regulations could even lead to higher costs for clients.”
Haran says financial advisers around the world face the challenge of achieving returns for investors who often do not understand the market, or are making decisions based on fear – particularly given volatility in markets.
He says advisers and asset managers alike must “work to raise investors’ financial knowledge and literacy, particularly when it comes to building portfolios that achieve returns over the long-term”.
The Natixis survey has found that clients are asking for a broader range of services to achieve their goals. It says about half of all advisers have experienced clients asking for help to manage the volatility of their investments. About one in three say clients are asking for goals-based planning and for tax-efficient investment strategies and advice.
The survey has found that about 87 per cent of advisers believe a key to success is being able to broaden out the range of conversations they have with clients beyond investment performance and to demonstrate value on more than just asset allocation.
Avoiding ‘emotional’ decisions
A roughly similar proportion of advisers say that preventing investors from making emotional decisions is crucial to their success as advisers.
But there is skepticism surrounding rising demand from clients for passive investments, with about three-quarters of advisers saying passive investment gives clients a false sense of security and that they are generally not aware of the associated risks.
The survey has also found advisers concerned that “much of the shift from active to passive investments may be motivated not because of the value they can add, but simply because they are cheaper”. It has found that the main reason clients give for wanting to invest passively is because they have lower fees.
While heightened regulatory imposts might be a challenge to business growth, the inroads being made by robo-advice services are viewed with less trepidation.
The Natixis survey says 86 per cent of advisers are not concerned that robo-advice will “make the traditional, high-touch advisory model obsolete” – it says advisers believe robo-advice services cannot deliver the tactical asset allocation investors need, particularly in volatile markets.
And about half of all advisers think integrating a robo-enabled front-end to their own advice business could be a way to improve efficiency.
