ADVISOR AUTHORITY 2017 The Future of Advice

Transcription

1 ADVISOR AUTHORITY 2017 The Future of Advice The Innovation and Issues that RIAs, Fee-Based Advisors and Investors Care About Most CHAPTER 4 MOVING THE NEEDLE: Targeting Generation X

2 CONTENTS: LETTER FROM CRAIG HAWLEY 3 INTRODUCING OUR SUBJECT MATTER EXPERTS MOVING THE NEEDLE: TARGETING GENERATION X Investors: A Vital Target Poised for Growth Targeting Investors: The Opportunity is Huge Attracting Investors: Saving for Retirement First and Foremost Serving Investors: Technology is No Replacement for Guided Advice The Experience: Quality Communication and Trust Come First Investing for : Lawmakers are in the Headlines and Top of Mind THE FUTURE OF TARGETING GENERATION X: SUBJECT MATTER EXPERT INTERVIEWS 12

3 ADVISOR AUTHORITY: The Innovation and Issues that RIAs, Fee-Based Advisors and Investors Care About Most Our commitment to RIAs and fee-based advisors inspired us to launch our annual Advisor study, now in its third year. We explore the issues and innovative solutions that matter most, to help all advisors at every level tap into the tremendous potential of the independent fee-based channel. In this latest Advisor Special Report, we focus on Generation X investors a vital target for RIAs and fee-based advisors success. These investors are in their prime earning years and poised to inherit upwards of $30 trillion in the Great Wealth Transfer. We will help you better understand the unique priorities, preferences, and concerns of investors so you can move the needle for your practice, enhance current profitability and build a foundation for the future growth of your firm. Looking back, 2017 has been a year of opportunities and challenges. Markets have hit all-time highs, performance has been strong and account values have been rising. Yet, lawmakers continue to dominate the headlines and gridlock in Washington has become the "new volatility. Consolidation is reshaping the financial services industry, fee compression is creating greater downward pressure and asset management is becoming increasingly commoditized. As Advisor has shown, the advisors poised to succeed in the face of these challenges are those who can differentiate themselves by focusing on holistic financial planning, leveraging smart technology and creating the competitive advantage of a unique customer experience. Overarching everything, it is clear that the client must come first a commitment RIAs and fee-based advisors have been making from day one. Jefferson National, operating as Nationwide s advisory solutions, was built from the ground up with a singular focus on serving RIAs and fee-based advisors. We believe in the tremendous potential of the fee-based channel to drive new innovation, disrupt the status quo and transform the future of our industry. We have never stopped in our efforts to develop a deeper understanding of the challenges you face and the solutions that you need to succeed. We will continue taking the pulse of RIAs, fee-based advisors and their clients, to establish benchmarks and provide you with the actionable insights that are important for your success. We trust you ll find our research insightful. As always, we welcome your feedback about our findings and your suggestions for next year s study. Craig Hawley Advisor Report 3

4 INTRODUCING OUR SUBJECT MATTER EXPERTS: We interviewed leading subject matter experts to provide you with a deeper understanding of the innovation and issues that matter most. In this Special Report, our experts explain what it takes to effectively target and serve Generation X. They discuss the unique needs of investors, explain what it means to put these clients first, and examine how you can drive the growth of your practice and enhance its profitability by helping these clients build more wealth. You ll find in-depth interviews with each expert in a dedicated section at the back of this report. Their innovative solutions and actionable insights can help you engineer a path to success, build a successful practice and establish a viable long-term franchise for the future. Jason W. Pinkham, Director of Relationship Management & Transition Services, Dynasty Financial Partners Mr. Pinkham is a Founder of Dynasty Financial Partners and since 2015, has been the Director of Relationship Management & Transition Services. He also served as Chief of Staff, and was responsible for oversight of corporate headquarters in New York City. Prior to joining Dynasty, Mr. Pinkham spent five years working for Major League Baseball and the Pittsburgh Pirates, where he had a variety of responsibilities including player development, baseball operations, and marketing. Mr. Pinkham began his career as a financial advisor with Morgan Stanley and graduated from Bates College. Eileen O Connor, MBA, CFP CEO and Co-Founder, Hemington Wealth Management Eileen O Connor is the CEO and Co-Founder of Hemington Wealth Management, one of the top 50 fastest growing RIAs in the industry for the past three years running. She is responsible for the strategic direction of the firm and all aspects of the client experience in addition to her primary role as a wealth manager for her clients. O Connor was recognized by Investment News as a Women to Watch in 2016, an honor only bestowed on 20 women nationwide. She is a sought after speaker and writer on many wealth management issues, especially on issues surrounding women of wealth. She has received numerous honors and awards in recognition of her excellent service to her clients and to her contributions to the wealth management profession. Advisor Report 4

5 MOVING THE NEEDLE: TARGETING GENERATION X Investors: A Vital Target Poised for Growth Year-over-year, RIAs and fee-based advisors say that the push for new clients remains the top driver for profitability. And year-over-year, an increasing number of the most successful advisors say that will be their primary target over the next 12 months. While often called the lost generation, because they are outnumbered by the larger cohorts of older and younger, investors are prepared to surpass both of these cohorts when it comes to wealth creation, economic impact and value to the industry. investors are earning more and building more wealth, at the same time that are spending down wealth in retirement and preparing to pass along their legacy. Recent research also shows that this generation is rising up the ranks of net worth, as the number of affluent investors now exceeds the number of affluent. Likewise, will continue to hold more wealth than for many decades. By 2030, investors financial assets will nearly quadruple to $22 trillion, while shares will be $11 trillion, according to a study by Deloitte. is shaping the workplace, the marketplace and the economy in the present and in the future. They are surpassing and as the majority of senior managers and decision makers at U.S. companies. They are also highly entrepreneurial, with strong rates of launching startups and attracting more venture capital, according to the Harvard Business Review. But investors also face their share of financial challenges. They suffered the most from the housing collapse of 2007, according to federal data and the Harvard Joint Center for Housing Studies. They were hardest hit during the 2008 financial crisis, according to another Deloitte report. And strapped with student loans, college grads have six times more debt than their parents did at the same age, according to the Pew Charitable Trust. Despite their growing wealth and their complex financial challenges, investors are the least likely to have an advisor. Studies show they are cautious, skeptical and even mistrustful of advisors and the financial services industry overall. This Special Report will help you better understand the characteristics that make investors unique, including their priorities, preferences and top concerns, so you can build the trust that it takes to effectively target investors. Tap the tremendous potential of this influential market to enhance profitability now and position your firm for the future. Advisor Report 5

6 Targeting Investors: The Opportunity is Huge Despite their growing wealth and their complex financial challenges, investors are the least likely to seek professional advice. Over half (5) say they do not have an advisor. As this generation continues to earn more and inherit more wealth, there is a huge opportunity for advisors to tap into this market. While the majority of total investors without an advisor (5) say they prefer to manage their own assets, it seems investors could benefit from an advisor s services. Holistic planning and guided advice goes well beyond the basics of portfolio management including risk management, tax optimization and estate planning and is essential for helping investors build more wealth and manage the complexities that come with it. Age: years old Base size = 164 Starting their careers and starting to build wealth Financial Assets 2015: $1.4 trillion Financial Assets 2030: $11.3 trillion Do you have a financial advisor? 41 % 59 % No Yes Generation X In their prime earning years poised to build and inherit more wealth Do you have a financial advisor? Financial Assets 2015: $5 trillion 52 % No 48 % Yes Age: years old Base size = 204 Financial Assets 2030: $22 trillion Age: years old Base size = 348 Shifting into retirement at a rate of nearly 10,000 per day Financial Assets 2015: $17 trillion Financial Assets 2030: $26 trillion Do you have a financial advisor? 37 % 63 % No Yes Age: 72+ years old Base size = 101 Generating retirement income and spending down wealth Financial Assets 2015: $11 trillion Financial Assets 2030: $4.6 trillion Do you have a financial advisor? 37 % 63 % No Yes Net Wealth Source: The Deloitte Center for Financial Services Advisor Report 6

7 Attracting Investors: Saving for Retirement First and Foremost To attract investors, it is vital to understand that saving for retirement is their primary driver. It is the number one reason by a wide margin that investors have an advisor. In comparison, all other generations, including younger, say that confidence in their financial future is the top reason for having a financial advisor. Likewise, compared to all other generations, investors are most likely to say that saving enough for retirement is their number one financial concern. Advisors should take note: When compared to older and, investors are far more concerned about financing children s education, and far less concerned with protecting assets and taxes. MAIN REASON FOR HAVING AN ADVISOR I am concerned about saving enough for retirement I feel more confident in my financial future Financial planning is a focus of mine at this time My family member, friend, or colleague referred me to an advisor 1 1 I don't have time to manage my own finances I do not feel confident that I can manage my own finances 1 1 I am focused on leaving a financial legacy I need help managing my taxes 1 Other 1 *Caution: have a small base size (n<100); results are directional in nature TOP FINANCIAL CONCERNS All Advisors Saving enough for retirement Cost of healthcare Financing children's education Protecting assets Generating reliable income during retirement Inflation Taxes Outliving retirement savings Financing another large expense, such as wedding/vehicle, etc. Managing volatility Financing a home Caring for aging parents Rising interest rates Transferring wealth to heirs Charitable giving Falling interest rates 1 *Responses less than based on omitted Advisor Report 7

8 Serving Investors: Technology is No Replacement for Guided Advice While technology can create efficiencies, and instant online communication is a way of life, investors still say that technology is no replacement for guided advice. When choosing an advisor, investors say experience matters most (4 in 2017, 4 in 2016), while personalized advice for a holistic financial picture (2 in 2017, 3 in 2016) and a fee-based fiduciary standard ( in 2017, 2 in 2016) are also among the top three year-over-year. Likewise, investors say face-to-face meetings far outrank all other forms of communication, and in-person meetings are by far the most effective way for advisors to learn more about investors needs. TOP REASONS FOR CHOOSING AN ADVISOR Advisor experience/years of experience Personalized advice for a holistic financial picture Serve clients using a fee-based fiduciary standard, instead of commission-based sales model Working more with a client's family and children Highlighting historical performance Reducing fees for younger clients Socially responsible investing Increased use of mobile technology Enhancements to current website and/or client portal Robust cyber security procedures Hiring advisors of all age groups, including younger advisors Increased use of social media Additional strategies for charitable giving Leveraging Robo Advisors or other digital portfolio allocation tools <. 6 None 1 *Responses less than based on omitted "Your new technology should scale your current infrastructure, allowing you to bring on more client relationships to your existing structure, without significantly increasing your head count. That's difficult to do, but it comes down to developing an efficient, scalable practice. We call it professionalizing your firm." Jason Pinkham, Director of Relationship Management & Transition Services, Dynasty Financial Partners Advisor Report 8

9 PREFERRED FORM OF COMMUNICATION All Advisors Face-to-face meetings Phone call Quarterly report Social media Text messages <. Video chat (e.g. Skype, Google Hangouts, etc.) In-app messages <. *Caution: have a small base size (n<100); results are directional in nature MOST EFFECTIVE FOR LEARNING ABOUT CLIENTS All Advisors Initiating regular, in-person meetings Regularly requesting feedback around experience and expectations Analyzing data on client/my behaviour and preferences Client satisfaction surveys 1 *Responses less than based on omitted *Caution: have a small base size (n<100); results are directional in nature "The types of technology that provide the most value for our firm are what we call optimizers. They are the solutions and tools that make our current technologies integrate smoothly, run more efficiently, and make our staff and clients lives easier. This allows for more face-to-face time with our clients." Eileen O Connor, MBA, CFP CEO and Co-Founder, Hemington Wealth Management Advisor Report 9

10 The Experience: Quality Communication and Trust Come First Research shows that customer experience is a competitive advantage for attracting and retaining clients. And to create a successful customer experience for investors, quality communication is the number one factor, followed by a tie between low-cost products and services and one-on-one relationship between advisor and client. Advisors should also note that investors place a priority on high value, transparency and choice. And when it comes to building and maintaining a successful advisor/investor relationship, investors are most likely among the generations to say that trust comes first. FACTORS FOR A SUCCESSFUL CUSTOMER EXPERIENCE All Advisors Quality of communication Low-cost products and services Establishing a personal, one-on-one relationship between advisor and client High-value products and services Transparent products and investment strategies Broad choice of products and investment vehicles Improving a client's financial literacy Analyzing client data to better understand their expectations and behavior Serve clients using a fee-based fiduciary standard, instead of a commission-based sales model Creating a digital client experience 1 1 Customer appreciation events 1 1 Implementation of a cyber security program 1 Use of referral networks (i.e., peer recommendations) 1 <.0 1 Partner with other professional experts (CPAs, Trust Attorneys, Estate Planners, etc.) Integration of a Robo-advisor 1 Don't know/not sure 1 *Responses less than based on omitted GEN X VALUE TRUST MOST IN ADVISOR/INVESTOR RELATIONSHIP All Advisors Trustworthy Proven track-record Intelligent 1 1 Good communicator Easy to understand 1 Add value 1 Empathetic Good listener Willingness to take risks 1 *Caution: have a small base size (n<100); results are directional in nature Advisor Report 10

11 Investing for : Lawmakers are in the Headlines and Top of Mind Straight from the headlines, global instability, taxes and gridlock in Washington are cited by investors as the top three macro issues that will impact their portfolios over the next 12 months. Likewise, when it comes to the issues impacting their approach to investing, investors say Washington politics is tied with inflation, followed closely by US Fed Policy. Advisors can help reassure investors by addressing the impact of ongoing gridlock and Washington politics when discussing investment strategies. An increased focus on tax-efficient investing would also be beneficial for clients and an advisor s practice. ISSUES IMPACTING PORTFOLIOS All Advisors Global instability Taxes Gridlock in Washington Rising interest rates Ongoing volatility Falling dollar <. Rising oil prices Donald Trump (i.e., attitude, policies, presidency, etc. NA Falling interest rates <. Surging dollar Falling oil prices *Responses less than based on omitted ISSUES IMPACTING APPROACH TO INVESTING All Advisors Inflation Washington politics US Fed policy (e.g. interest rates, monetary policy) Domestic economic performance Energy prices (e.g., oil, gas, etc.) Social discord in the U.S. 1 1 Low returns on investments Changes to the tax code Geopolitical tension Ongoing volatility Threat of terrorism 1 International economic performance Regulatory changes (such as the DOL fiduciary standard) Instability in Chinese market Monetary policies abroad Instability in European markets None 1 *Responses less than based on omitted Advisor Report 11

12 Advisor TOP FINANCIAL CONCERNS OVER THE NEXT 12 MONTHS: INVESTOR/ADVISOR ALIGNMENT CHECK All Advisors All Investors High Net Worth Ultra High Net Worth Saving enough for retirement Cost of healthcare Protecting assets MOVING Taxes THE NEEDLE: Generating reliable income during retirement 2 2 Outliving retirement savings Managing volatility Targeting Rising interest rates 2 Financing children's education 1 1 Inflation 1 1 Financing a home 1 Transferring wealth to heirs 1 Financing another large expense, such as wedding/vehicle, etc. Caring for aging parents SUBJECT MATTER Falling interest rates Charitable giving EXPERT INTERVIEWS Investors remain more concerned about protecting assets: Advisors rate protecting assets third (2), while investors rate it number one (3). These concerns increase for the HNW (4) and Ultra HNW (4). Take the time to understand why and proactively educate clients on effective solutions for protecting assets. We interviewed leading subject matter experts to provide you with a deeper understanding Advisors have opportunity of the innovation to educate and clients issues on retirement: that matter Investors most. are In somewhat this Special less concerned Report, about our saving enough experts for retirement explain and outliving what retirement it takes savings to effectively than advisors target believe. and Help serve educate Generation clients the X. importance They discuss of prioritizing plans to prepare for and live in retirement. But note that among the HNW and Ultra HNW, concerns about saving enough for retirement decline the unique needs of investors, explain what it means to put these clients first, dramatically. and examine how you can drive the growth of your practice and enhance its profitability by Advisors helping more these attuned clients to clients build concerns more wealth. about the Their cost of innovative healthcare: solutions Just as investors and cite actionable cost of healthcare second (3), insights this year advisors can help also cite you it second engineer (3), a up path from to fifth success, (2) last year. build a successful practice and establish a viable long-term franchise for the future. Advisors more attuned to clients concerns about taxes: Investors cite taxes fourth (2), and this year advisors now cite taxes fourth (2), up from sixth (2) last year. Note that concerns rise among affluent clients, with the HNW rating taxes third (3) and Ultra HNW rating taxes second (2). Investors more concerned about inflation than advisors may realize: Advisors rate inflation tenth (1) while investors rate it sixth (1). Take this opportunity to learn why and proactively educate clients on effective solutions to hedge against inflation. You have to get the experience to earn a client s trust. And where you don t have the experience, you need to leverage others PLACEHOLDER experience. You need to build the right partnerships, and engage the right experts. In fact, the importance of partnerships never stops even for the most seasoned and experienced advisors. Jason Pinkham, Managing Director, Relationship Management & Transition Services, Dynasty Financial Partners Advisor Report 12

13 MOVING THE NEEDLE: Targeting Jason W. Pinkham, Director of Relationship Management & Transition Services, Dynasty Financial Partners Advisor : What is the biggest challenge for RIAs and Fee-based advisors? How can advisors set themselves apart from their competition to attract and retain clients? PINKHAM: Fee compression is a big challenge in our industry, and will continue to force advisory firms to formalize their service offerings. Most large-scale RIAs are able to insulate their fees by leading with a planning focus. The most successful firms are taking an extra step by offering specialty services around planning, like insurance or bill pay services. To compete effectively in this environment, advisors need to identify and focus on their client niche. This will allow them to properly develop and offer a set of services that are most highly valued by that client segment and difficult to replicate by other advisors. The next step is to determine how to charge for those services and how to ensure that it's in-line with client expectations. We even see many advisors separating their services and charging different levels of fees, based on the level of sophistication needed or how often they interact with a particular client. AA: To enhance the profitability of their practice over the next 12 months, High Earning Advisors ranked Adding New Clients number one. When adding new clients, what is the benefit of targeting younger generations of investors? PINKHAM: Most advisors are targeting families who already have substantial wealth ranging from ten million to two hundred million dollars in investable assets and it is very competitive to target this Ultra HNW market. But there are other client segments, like younger generations, who are under-served and under the radar, that advisors should start targeting. While they may not present advisors with a sizable revenue opportunity right now, there is a huge opportunity to establish relationships and unlock the potential down the road. Younger investors are an investment in the future of your practice. Many potential buyers will be looking at the diversity in client demographics having a solid core of younger clients is extremely attractive to them and could substantially change the valuation of your firm. If you do not have a strategy to attract younger clients, start making it a priority. AA: What Emerging Market of younger clients should advisors be targeting? PINKHAM: There are many different emerging client markets. Growth in technology has created a lot of new wealth, especially among or younger clients across many industries. There is a big opportunity to target new entrepreneurs, who are building substantial wealth in many cases for the first time in their careers and who are in need of guided advice and comprehensive financial planning. Finding unique ways to cater to them will help position your firm as an attractive destination. One example is to create events discussing issues relevant to young entrepreneurs where they can share stories and experiences or be introduced to other experts who have successfully advised around critical areas. AA: To enhance the profitability of their practice over the next 12 months, High AUM Advisors ranked Adding New Technology number one. What type of new technology do you recommend for advisors to adopt and why? PINKHAM: One technology we see advisors using is robust trading technology. For advisors who are running a significant number of models across their base of clients, or running custom models for specific types of clients, new trading technologies, like many institutional trading platforms, allow them to run a more efficient practice with a consistent and disciplined investment strategy. Bottom line: your new technology should scale your current infrastructure, allowing you to bring on more client relationships to your existing structure, without significantly increasing your head count. That's difficult to do, but it comes down to developing an efficient, scalable practice. We call it professionalizing your firm. Advisor Report 13

14 MOVING THE NEEDLE: Targeting Eileen O Connor, MBA, CFP CEO and Co-Founder, Hemington Wealth Management Advisor : According to our study, RIAs and fee-based advisors say that Generation X investors are their primary target for new clients over the next 12 months. What is essential for targeting Generation X? O'CONNOR: Many Gen-Xers hold strong family values along with their desire for safety and security. We ve found that they are very busy and appreciate a very structured process one that honors their time. This especially true for many of the breadwinner women we work with, who typically fall within Generation X. Transparency means a lot to ers, too. They want their advisor to be genuine and authentic. When all's said and done, what clients truly want from their advisor is quality, transparency, and sound investment philosophy. Show them you can be trusted and you can provide them a reliable service to build a strong relationship and build their wealth. AA: What Emerging Market of younger clients should advisors be targeting? O'CONNOR: There is a huge opportunity for advisors in targeting Generation X. They are in their prime earning years and looking to inherit more than $30 trillion in the Great Wealth Transfer. Start by doing your market research. Once you learn their priorities, preferences and top fears, you ll be better positioned to meet their unique needs. AA: To enhance the profitability of their practice over the next 12 months, High AUM Advisors ranked Adding New Technology number one. Where do you see technology adding the most value for firms? O'CONNOR: The types of technology that provide the most value for our firm are what we call optimizers. They are the solutions and tools that make our current technologies integrate smoothly, run more efficiently, and make our staff and clients lives easier. This allows for more face-to-face time with our clients. The most profitable firms define their niche, then build their process, people, and technology stack according to their value proposition. Add the technology that makes the most sense within your model. It s never one size fits all. AA: What do you think is essential for building a successful practice in this competitive market? O'CONNOR: The very top advisors know what they do well and they focus on those one or two areas that will separate them from others in the industry. Then, and only then, are they able to distinguish themselves, build their practice and set themselves up for success. Advisor Report 14

15 Methodology The third annual Advisory Survey was conducted online within the United States by Harris Poll on behalf of Jefferson National from March 13 April 7, 2017 among 779 financial advisors and 817 investors, ages 18+. Among the 779 financial advisors, there were 521 Registered Investment Advisors and 258 Broker/Dealers. Among the 817 investors, there were 208 Mass Affluent, 204 Emerging High Net Worth, 204 High Net Worth and 201 Ultra High Net Worth. Investors are weighted where necessary by age, gender, race/ethnicity, region, education, income, marital status, household size, investable assets and propensity to be online to bring them in line with their actual proportions in the population. Results of this new research are compared to results from a similar March 2016 study conducted online by Harris Poll on behalf of Jefferson National among 683 employed Financial Advisors, including 440 Independent Registered Investment Advisors and 243 Broker/Dealers and among 733 Investors, there were 167 Mass Affluent, 184 Emerging High Net Worth, 199 High Net Worth and 183 Ultra High Net Worth. And, among the investors, 458 had an advisor, while 275 did not. Respondents for this survey were selected from among those who have agreed to participate in Harris Poll surveys. Because the sample is based on those who were invited to participate in the Harris Poll online research panel, no estimates of theoretical sampling error can be calculated. A complete survey method is available upon request. Reading this Report Responses may not add up to 10 due to weighting, computer rounding, or the acceptance of multiple responses. About Harris Poll The Harris Poll is one of the longest running surveys in the U.S. tracking public opinion, motivations and social sentiment since 1963 that is now part of Harris Insights & Analytics, a global consulting and market research firm that delivers social intelligence for transformational times. We work with clients in three primary areas; building twenty-first-century corporate reputation, crafting brand strategy and performance tracking, and earning organic media through public relations research. Our mission is to provide insights and advisory to help leaders make the best decisions possible. To learn more, please visit or Contact us for more information. About Jefferson National Jefferson National, operating as Nationwide s advisory solutions, is a recognized innovator of a leading tax-advantaged investing platform for RIAs, fee-based advisors and the clients they serve. Trusted partner to a network of nearly 5,000 advisors, Jefferson National provides greater efficiency, transparency and choice through an adaptable technology platform, award-winning distribution strategy and cost-effective servicing capabilities. Named the industry Gold Standard as of 2012 and winner of more than 50 industry awards, including the DMA 2010 Financial Services Company of the Year. The company serves advisors and clients nationwide, through its subsidiaries Jefferson National Life Insurance Company and Jefferson National Life Insurance Company of New York. To reach our advisor support desk, please call WHY-FLAT ( ). To learn more, please visit About Nationwide Nationwide, a Fortune 100 company based in Columbus, Ohio, is one of the largest and strongest diversified insurance and financial services organizations in the U.S. and is rated A+ by both A.M. Best and Standard & Poor s. The company provides a full range of insurance and financial services, including auto, commercial, homeowners, farm and life insurance; public and private sector retirement plans, annuities and mutual funds; banking and mortgages; excess & surplus, specialty and surety; pet, motorcycle and boat insurance. For more information, visit Nationwide, Nationwide is on your side, the Nationwide N and Eagle are service marks of Nationwide Mutual Insurance Company JNL A119 Advisor