Your job was much easier over the last decade. Now it will be more difficult. The last ten years have been great for most of your clients as domestic stock markets boomed.
However, the next ten likely won’t be nearly as good.
That’s what the majority of advisers conceded in an informal survey through a show of several hundred hands at a conference in New York on Monday. During a session of the Investments and Wealth Institute’ Investment Advisor Forum, the pessimistic expectation was confirmed by a major money manager.
The advisors’ lower expectations, with its implications for their relationships with clients who have been feasting the last decade, was matched by a recent BlackRock Capital Market assumption study. The study projected that the fat times of the past decade are unlikely to go on.
If true, what happens to the typical advisor’s relationships with clients when they start earning a lot less?
This was one of the questions raised at the conference session entitled “Can We Get There—Current Advisor Trends and the Road Ahead.”
Using a standard 60 percent equity 40 percent bonds formula, the BlackRock study, which is matched by other indicators, projected a return of 5.5 percent over the next decade versus 9.3 percent in the previous ten years, according to Patrick Nolan, a CFA and a portfolio strategist with BlackRock. That’s a dramatic drop off that could have clients thinking about dumping an advisor, he warned.
Nolan asked whether client “can afford to accept nearly four hundred basis points less?” He added that “this represents a challenge. Think about that client who needs six percent,” Nolan urged.
Nevertheless, he said advisors could take various steps to help clients survive an expected lower return environment. He urged advisors to remember that professionals have lived through lower returns and that they “must be part-time psychologists to clients” to ensure that stay with plans during rocky investment periods.
Nolan argued that advisors should remind clients that there’s been many “lost” investing periods before the first decade of this century such as the recession and the protracted bear market of 1973-1974.