In the last 15 years, advisors have experienced drastic shifts in both market experience and client expectations.
In the early 2000s, as the stock market steadily rose following the "tech wreck," advisors found themselves in the "performance era." From 2000 to 2008, total hedge fund assets increased more than 380%.[1] Investors sought funds that would outperform the market, without paying much attention to costs.
The second stock market crash in a decade and the subsequent market rebound saw the beginnings of a shift into what could be called the "cost era." Since 2008, inflows into passive funds have soared while flows into active funds have stagnated. Investors have favored the recent success of passive indexing and "smart" beta strategies, with an added emphasis on low cost.[2]
Today, higher market volatility, increasing regulatory scrutiny, a continued desire for cost transparency, and other factors have client relationships shifting once again. Advisors find themselves in a "New Value Era." Client expectations demand a more holistic advisor, one who prioritizes risk and return in equal measure, who is deeply experienced and readily accessible, and who is as committed to clients' long-term goals as clients themselves. Advisors who are able to leverage the key relationship drivers of the New Value Era — control, transparency, consistency, flexibility, and scalability — will be better equipped for growth.
1. Control
The New Value Era demands that advisors be well-positioned to exert more control both in terms of managing relationships and executing the investment process. But more control doesn't mean forcing clients into one decision or another. Control is the ability of an advisor to provide the necessary foundation of trust and knowledge to guide clients toward the appropriate goals and, ultimately, the right investment decisions over time.
To do this, advisors need to have a true understanding of their clients, including their goals, risk tolerance and overall expectations, and to educate clients on investment approaches accordingly. With the appropriate investment support and engine behind them, advisors can focus on translating insight and market knowledge into expert advice and guidance.
2. Transparency
There remains a huge misperception among clients about the real value of low-cost investment vehicles. According to a 2016 Natixis individual advisor survey, "Six in 10 investors believe that passive investments are less risky, are better for minimizing losses, and offer better diversification."[3] A myopic focus on fees and expenses has obfuscated relevant comparisons of risk, returns and diversity. Advisors must provide greater transparency not just about fees, but also about risk, strategy and process and how these influence portfolio building and management.
