A recent survey reveals that advisors are concerned about new regulations and clients who expect to both pay lower fees and earn ridiculous rates of return. About a third of them are planning to either merge with another firm or get out of the business entirely.
Natixis Global Asset Management surveyed 150 Canadian financial advisors and found that 73% believe strict regulatory and disclosure requirements pose the biggest challenge to the growth of their businesses, and 32% say new rules will force them to turn away smaller clients. Over the next three years, 30% of the respondents plan to sell their books of business, merge with another firm, retire, or just leave the financial industry.
Low-cost passive investments
The study also found that many advisors have yielded to demands for low-cost passive investments, even though 69% are concerned that investors don’t know about or appreciate the downside market risks associated with index funds. "A significant majority says market complexity and volatility lends itself to active management and professional guidance," reads the report.
What's more, Natixis's poll found that Canadian individual investors expect an average annual return of 9.3% (and this above the rate of inflation), which is 94% higher than what advisors say is realistic in the current market.
“The challenges are tougher than ever”
“The challenges facing financial advisors are tougher than ever, as they are asked to do more with less in an environment that seems to put low fees ahead of all other considerations, including risk management,” says John Hailer, CEO of Natixis Global Asset Management for the Americas and Asia. “Low cost does not always equate to good value, and what’s lost in the big picture is the importance of professional guidance and risk management, especially in today’s complex and volatile markets.”
One thing advisors are not worried about is being replaced by robots; 82% of respondents do not think a computerized model will make traditional advice obsolete. However, 53% do believe a front-end, automated advice platform could improve the efficiency of their own businesses.