Following the semiannual Tiburon CEO Summit in New York City on April 23, five attendees sat down for a panel discussion about the state of the advisory business and their takeaways from the meeting. The discussion immediately followed Tiburon's last session, which is always a consumer panel. The executives included Steve Atkinson, executive vice president and head of advisor relations, Loring Ward; James Carney, chief executive officer, ByAllAccounts; Stephen Langlois, chief administrative officer, National Financial; Matt Lynch, principal, Tiburon Strategic Advisors; and Janine Wertheim, president, Securities America Advisors. Financial Advisor Editor-in-Chief Evan Simonoff moderated the panel.
FA: Most executives of financial services companies feel a sense of cautious optimism today, but there continues to be unease beneath the surface, and that's reflected in consumers. Even if their portfolios have come back, they often feel burned. Janine, is there a disconnect between the financial services businesses and their clients?
Wertheim: Reflecting on what we heard at the Tiburon CEO Summit and listening to feedback and insights from consumers as well as our executives at Securities America, we think we're doing a pretty good job of understanding the dynamics of the consumer. Many have been scarred and scared and have some skepticism about the financial services industry in general. However, most of our advisors stay very connected to their clients and take a holistic view to helping them navigate and focus on what they can control. I think our capital is being deployed in the right ways, such as newer technologies that make it easier for advisors to do business and identify the needs of their clients as well as comprehensive tools that help advisors better manage their clients' income distribution needs during retirement, taking their risk tolerance into consideration.
Lynch: The consumer and the client (where the case is that the advisor is your firm's client) have both permanently changed expectations. As an industry, I agree we are making an effort to better meet client expectations, but we're way behind the curve. Most clients may be content to stay where they are, but they are not satisfied. If we look at the data, I don't think there is any greater degree of client turnover or asset loss among successful advisors than there was a decade ago. But it's not due to an overwhelming satisfaction level among their clients; rather, it's a fear of the unknown. They don't know where to go.
Carney: There's a huge sea change that's going to happen and it's not due to technology-that's the easy part. It's a change that's needed in the advisor's behavior and type of relationship that they have with their client. We can throw all the technology at investors, whiz-bang reports etc., but real change that is needed is with the fundamental approach with how advisors communicate, as well as the role they play with clients.
Langlois: What we heard on the panel is that consumers want to be more engaged in the activities of the advisor. It's not, "Do it for me," anymore but it's "Do it with me." Clients will require significant dialogue and interaction with the advisor he works with. We also saw somewhat of a generational change or difference on the panel. The older participants seemed to share a more traditional view of how to work with an advisor, right? Theirs was a perspective that the advisor is going to give me answers. But the younger generation is very comfortable with seeking and gathering information and leveraging technology to get that information, whether it's about a restaurant or about their investments. This younger investor is going to be more involved with the advisor.
Atkinson: As an industry, we're moving away from focusing on products. Something we learned a few years ago through our work with behavioral finance professors is that people make decisions with their emotional "right side brain," yet this is an analytical, "left brain" dominated industry. We want to throw out facts, figures, returns and standard deviations all the time, and that's what clients are used to hearing even though most of them don't really understand those things. Clients make decisions primarily based on emotions.
When consumers panicked in 2008, or last August when the market fell, the real question the advisors needed to ask their clients was, "So let me get this straight; you're concerned that the plan we put together is no longer on track?" This takes the focus off of the Dow Jones dropping 19% and on to "Am I on track?"
Wertheim: I would agree with the panelist who said, "Advice is dependent upon where I am in my life stage." That's why you got different answers from the women who were more accomplished, further along in their careers with larger asset levels, with affluent husbands, compared to the younger men. The way consumers view advice and advisors has a lot to do with their experience. I believe you can still have young consumers from the Gen X and Gen Y that want to totally delegate to an advisor at some particular time in their life. It's the experiences that they have along the way that determine whether or not they are willing to trust that advisor or not.
Atkinson: There's so much noise out there, and people don't know what's good information and what's bad information. When people talk about the lost decade, they're talking about the S&P 500 or the U.S. large-cap stock market. The U.S. is just one of 45 countries tracked by MSCI. We were one of the worst performing of the last ten years. Most international markets actually had positive, if not double-digit, rates of return. So a well-diversified, well-advised portfolio during the lost decade probably had a return of maybe 5% or 6%.
Langlois: Near-retirees are anxious. We've done some work with consumers and they're anxious because they've seen how fast the world can change. Many of these folks, maybe half of them if you look at the data, have some form of defined benefits plan. I recently heard a consumer say, "You know I don't know whether my advisor is going to do much better than I, because given what I just went through, we didn't seem to be doing so well." What we saw with the younger two people on the panel was a sense that they have a longer runway, right? They had an attitude of, "I'm not really going to worry about this now. I'm going to get my business going."
Lynch: Generally what we see is the fear. The behavioral change we are observing is that people are putting off retirement, as they're not sure that the nest egg they built up is adequate. There's a flight toward more conservative investments. There's a desire for yield income that the industry is trying to keep up with through new products. But there's less of a willingness to take risk with the retirement assets and a recognition that the nest egg needs to be a whole lot larger if it's going to last 20 years into retirement.
Carney: What I was referring to [is] a behavioral change. It's not just about the numbers, it's about advising them. It's not just about the financial piece, and it doesn't mean you are going to be a psychologist, but it's the basic things that anybody will go through when they're going to think about retirement.
Wertheim: Our feedback from advisors is that when they tell their clients about their process for generating income during retirement and lay out a plan for the client, it alleviates a lot of fears. We have been educating our advisors about using a time-segmented income distribution strategy, and we've been really focused on this since 2009. We have a comprehensive platform that includes education and coaching, marketing, an integrated platform for managing retirement income streams with an internal retirement income desk for support. Clients want to know how they are going to get there and what do they need to do to generate a lifetime income check during retirement.
FA: One thing you may have seen as a result of the financial crisis is a growing interest in alternative investments-they're going mainstream now. Traditionalists question this. Do you see it as a long-term viable trend?