This September marks the 10-year anniversary of the biggest financial crisis to hit markets since the Great Depression. Its effects were profound and widespread. Wall Street stalwart Lehman Bros. filed for bankruptcy; nearly one in three homes went into foreclosure; unemployment reached 9 percent; trillions of dollars in U.S. equity value were wiped out. As personal finance columnist Michelle Singletary points out, the market’s downward spiral and dramatic swings wreaked havoc on investors’ retirement savings, causing panic and eroding confidence in financial institutions and industry professionals.
The University of Chicago Booth/Kellogg School launched its Financial Trust Index in 2009 to help understand the impact of the financial crisis on investors across the United States. Its January 2018 wave shows that, a decade later, Americans’ average faith in the United States’ main financial institutions is steadily improving.
Nationwide Advisory Solutions’ recent snap poll of more than 370 RIAs and fee-based advisors tells a related story. Nearly three-quarters of RIAs and fee-based advisors (74 percent) say investors today are more likely to work with a financial advisor than they were prior to the crisis. And nearly two-thirds of advisors (61 percent) believe that investors today are better prepared to withstand a future market downturn. Among the many other findings revealed in our latest survey, it is clear that the rebound from the 2008 crash has helped redefine the future of financial planning in a number of noteworthy—and positive—ways:
• The Advisor/Investor Relationship Is Growing Stronger: Just as investors today are more likely to work with a financial advisor than they were prior to the crisis, our snap poll shows that the relationship with their advisor has increased in importance and grown stronger in the decade since. The vast majority of RIAs and fee-based advisors in this survey say that investors are more likely to follow their advisor’s advice and recommendations (90 percent ), increase engagement regarding their financial situation (89 percent) and be more willing to create and stick to a financial plan (84 percent). Likewise, as consistently shown in our annual Advisor Authority study of more than 1,700 RIAs, fee-based advisors and individual investors, to continue bridging barriers and building greater trust, both advisors and investors consistently say that face-to-face communication and one-on-one relationships are key.
• Investors Are More Aware—and Advisors Must Be More Transparent: Nearly two-thirds of RIAs and fee-based advisors (60 percent) say that since the 2008 crisis, clients are more likely to ask about advice that is in their best interests and whether the advisor operates under a fiduciary standard. More than half of advisors also say that clients are more likely to ask about product costs (56 percent) and more likely to ask about advisor compensation (51 percent). In turn, more than two-thirds of RIAs and fee-based advisors (69 percent) have increased their focus on minimizing product costs, nearly two-thirds (60 percent) have increased proactive communication with clients about their compensation model and more than half (57 percent) have increased their focus on an independent fee-based or fee-only approach. Not surprisingly, when investors in our Advisor Authority study are asked the top factors for choosing an advisor, year over year they say founded on a fee-based fiduciary standard is consistently among the top three.
• Holistic Planning Is Increasing In Importance: Nearly three-fourths of RIAs and fee-based advisors (74 percent) say that they have increased their focus on holistic planning since the 2008 crisis. The most successful advisors understand that holistic planning must be personalized, comprehensive and balanced between competing priorities. This includes managing the client’s portfolio and their taxes, managing their expenses and debt, as well as considering the needs of their entire family, from long term care for aging parents to funding children’s education, to leaving a financial legacy. Likewise, Advisor Authority has also shown that among investors’ top factors for choosing an advisor, year over year personalized advice for holistic financial planning is also among the top three.
• Advisors Must Seek New Products For Holistic Planning To Meet Investors’ Needs: Citing investor’s heightened concerns about volatility and future market downturns, RIAs and fee-based advisors say that since the financial crisis, investors are now more likely to seek guaranteed retirement income (64 percent) and guaranteed downside protection (62 percent). Among the most popular solutions to generate retirement income today, RIAs and fee-based advisors say they are increasing their use of dividend yielding stocks (56 percent), yield generating ETFs (41 percent) and variable annuities with guaranteed living benefits (37 percent). Among the most popular solutions to manage risk today, they are increasing their use of liquid alternatives (45 percent), fixed index annuities (43 percent) and fixed annuities (31 percent). To effectively satisfy clients’ growing demand for guaranteed income, and to mitigate or even eliminate certain risks that concern them, it’s clear that the industry will need to continue to develop new categories of fee-based insurance products built to meet the unique needs of RIAs, fee-based advisors and the clients they serve.
Ten years ago, the U.S. financial system began a downward spiral that would bring it to the brink of collapse, shaking the foundation of the global economic system and eroding investor confidence to an all-time low. As we pass the 10-year anniversary of the 2008 financial crisis, our industry has done much of the hard work to correct the mistakes and re-build investor confidence. In the decade since the 2008 financial crisis, advisors have seen a noticeable shift in investors’ desire to work with—and build a relationship with—a financial advisor, to prepare for the next market downturn, to plan for major life events, and to navigate every stage of the financial life cycle from accumulation to retirement to legacy planning.
Craig Hawley is head of Nationwide Advisory Solutions.