Shifting Market Dynamics Drive Demand for Innovation from Financial Advisors, Finds New Survey

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BOSTON--(BUSINESS WIRE)--

Shifting market dynamics are driving increased demand from U.S. financial advisors for more innovative strategies to help investors balance risk and return, according to a new survey released today by Natixis Global Asset Management.

Financial advisors are seeking solutions to help manage volatility for an increasingly broad spectrum of clients ranging from younger clients to retirees – all with very different investment needs. Many advisors say it is becoming more difficult to generate sufficient income for investors and the demands on advisors are further amplified with a large number of clients nearing or already in retirement. At the same time, advisors are finding it challenging to balance clients’ asset growth objectives with the need to protect principal.

“U.S. advisors face a juggling act every day as they work to serve the rapidly changing needs of both their older and younger clients,” said John T. Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “Not only do they need new, more innovative strategies for managing retirement assets, they’re also looking for updated techniques to manage risk and return for younger investors.”

Call for innovation

The study, released by Natixis’ Durable Portfolio Construction Research Center, reveals the challenges advisors are facing. More than half (56%) say it’s difficult to build portfolios that can simultaneously reduce risk and enhance return, and a similar number (53%) say it’s challenging to balance drawdowns for retirees with the need to keep their portfolios growing. Underscoring the need for innovation, 69% say they need to replace traditional diversification and portfolio construction techniques with new approaches in order to achieve results. This is a significant increase from last year’s advisor survey, in which only 46% said the same.

“Investors obviously need to take some risk to get returns, but the amount of event risk we’ve seen in the past year certainly could be driving this increased demand for new solutions,” Hailer said. “A focus on Durable Portfolio Construction, which emphasizes risk first and also incorporates the use of alternatives, could help advisors find that elusive balance.”

The alternative conundrum

Advisors recognize that alternative strategies, including hedge funds, private equity and long-short investments, can play an important role in a client’s portfolio. Eighty-four percent say they have discussed the use of alternatives with their clients, and according to a separate investor survey released by Natixis earlier this year, 72% of investors would consider alternatives if their advisor recommended them.

But advisors often find it difficult to explain how these investments can effectively complement more traditional assets such as stocks and bonds. Nevertheless, the vast majority (89%) of advisors use alternatives with their clients, but only 25% use them frequently, and mostly with their high-net-worth clients.

When asked why they are not using alternatives more broadly, the top reasons cited were:

  • They only recommend strategies they can easily explain to clients.
  • A belief that clients think alternatives are too risky.
  • Difficulty justifying the expense.
  • Lack of knowledge about alternative strategies.

“These findings clearly show that it’s time to simplify the way we talk about alternatives and portfolio construction,” Hailer said. “We have an opportunity to do a better job of explaining the role alternative investments can play in a portfolio – whether they are designed to smooth volatility or increase returns by taking on more risk. It’s important to help investors understand the characteristics of the strategy – potential risks, volatility, and what to expect in various market environments.”

Retirement: Optimistic outlook for clients but challenges remain

Nearly half (47%) of advisors believe most of their clients understand how much they need to save to meet their lifestyle expectations in retirement, up considerably from 28% who felt this way last year. And advisors are generally optimistic about their clients’ ability to provide for themselves in retirement, with only 10% having a negative outlook.

Still, the challenges in helping those investors who are already retired are growing more acute. Fifty-six percent say it’s difficult to deliver strong investment performance for retirees when interest rates are low, as they are today, and 52% say they’re challenged to generate enough income for retired clients.

The financial advice business

Advisors are also challenged in terms of managing their time and resources. The survey reveals that they spend almost twice as much time on administrative tasks (11% on general administration and 6% on regulatory compliance) as they do seeking new clients (9%). Due to these pressures, 43% are not actively seeking new and younger clients despite the graying of their existing client base. Clients over the age of 67 make up 36% of the average advisor’s business; clients aged 46 to 67 represent 42%; and clients 45 and under make up 22%.

Although time may be a challenge, advisors continue to make time to learn about their industry. Advisors rate their ability to explain investments to clients as their top strength and report that they spend 5% of their time reading about the industry and 4% educating themselves on new portfolio construction techniques. Still, nearly two-thirds (64%) point to a need for more education.

“As demands from existing clients grow, advisors are finding it difficult to balance that work with marketing efforts to attract new business,” Hailer said.

For more information from the Durable Portfolio Construction Research Center, see durableportfolios.com.

Methodology

Natixis’ 2013 financial advisor research study is based on fieldwork conducted in nine countries throughout the Americas, Europe, Asia, the Middle East and the United Kingdom. Interviews were conducted online in August-September 2013 with 1,300 financial advisors, including 150 in the United States. See full report for additional details.

About Natixis Global Asset Management, S.A.

Natixis Global Asset Management, S.A. is one of the 15 largest asset managers in the world based on assets under management.1 Its affiliated asset management companies provide investment products that seek to enhance and protect the wealth and retirement assets of both institutional and individual investor clients. Its proprietary distribution network helps package and deliver its affiliates’ products around the world. Natixis Global Asset Management, S.A. brings together the expertise of multiple specialized investment managers based in Europe, the United States and Asia to offer a wide spectrum of equity, fixed-income and alternative investment strategies.

Headquartered in Paris and Boston, Natixis Global Asset Management, S.A.’s assets under management totaled $783.3 billion (€602.5 billion) as of June 30, 2013.2 Natixis Global Asset Management, S.A. is part of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Global Asset Management, S.A.’s affiliated investment management firms and distribution and service groups include Absolute Asia Asset Management; AEW Capital Management; AEW Europe; AlphaSimplex Group; Aurora Investment Management; Capital Growth Management; Caspian Private Equity; Darius Capital Partners; Gateway Investment Advisers; H2O Asset Management; Hansberger Global Investors; Harris Associates; IDFC Asset Management Company; Loomis, Sayles & Company; McDonnell Investment Management; Natixis Asset Management; Ossiam; Reich & Tang Asset Management; Snyder Capital Management; Vaughan Nelson Investment Management; and Vega Investment Managers. Visit ngam.natixis.com for more information.

The information contained herein is provided solely for information only and does not constitute a solicitation to buy or an offer to sell any financial products or services. This document may contain references to third party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with Natixis Global Asset Management or any of its related or affiliated companies (collectively “NGAM”) and does not sponsor, endorse or participate in the provision of any NGAM services, funds or other financial products.

NGAM Distribution L.P. is located at 399 Boylston Street, Boston, MA 02116.

Natixis Global Asset Management consists of Natixis Global Asset Management, S.A., NGAM Distribution, L.P., NGAM Advisors, L.P., NGAM S.A., and NGAM S.A.’s business development units across the globe, each of which is an affiliate of Natixis Global Asset Management, S.A. The affiliated investment managers and distribution companies are each an affiliate of Natixis Global Asset Management, S.A.

1 Natixis Global Asset Management (NGAM) is the world’s 15th-largest asset manager based on global assets under management as of December 31, 2012, according to Cerulli Associates.

2 Assets under management (AUM) may include assets for which non-regulatory AUM services are provided. Non-regulatory AUM includes assets which do not fall within the SEC’s definition of ‘regulatory AUM’ in Form ADV, Part I

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Alternative investments involve specific risks that may be greater than those associated with traditional investments, and there is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Contact:
Natixis Global Asset Management
David Snowden, 1-617-449-2507
David.Snowden@ngam.natixis.com

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