The findings from the Fidelity Investments Executive Forum survey released last week shed light on some apparent contradictions in the way clients respond to RIAs in current economic conditions.
Advisors who know how to look past some of the raw numbers will to find ways to adjust their practices to benefit from new market realities.
For one thing, 64% of executives surveyed said that investors are more risk averse than they used to be. Yet only 12% of advisors surveyed said investors are more engaged in the investment process. That seems odd, to be honest. Why would those more cautious investors not be more significantly involved in the investment process, especially now when so many options for balancing and diversifying portfolios without adding risk are opening up to clients?
Mike Durbin, president of Fidelity Institutional Wealth Services, says clients are merely turning to and trusting in their RIAs more than ever, especially if the client and advisor have an established fiduciary relationship.
“They do not feel the need to be as deep in the weeds of the investment process as the advisor,” Durbin says. “That is where you, the advisor, should take a leading role in the relationship to shore up loyalty with your client.”
Fidelity also found specific ways for advisors to manage those intensifying relationships, lest any advisor should feel like he or she is shouldering the heaviest part of the client-advisor relationship. About 7% of advisors believe that investors want more transparency and increased communication through email, text and social media.
When you combine that percentage with the 12% of advisors who believe investors are more engaged in the investment process, and you have almost 20% of respondents who say clients are leaning toward more contact with advisors.
All right, so some of you might be thinking: “Clients want more contact? No kidding. I already know this.”
Well, we think it’s worth repeating because another portion of advisors’ practices, risk and compliance management, is eating up more time, according to Fidelity. Respondents said they were spending 73% more time and resources on risk and compliance. It is causing them to spend 19% less time on marketing and business development, and 10% less on client service.
These are jolting findings, to be sure. Advisors clearly need to bring in compliance and risk management experts or farm out more work to them, in order to meet the challenge of running clean, client-focused businesses, according to Durbin.
“What we are increasingly engaged in is, ‘How do their staffing models need to change to solve for the fact that RIAs are trying to solve for two things incrementally?’”
Although RIAs and other advisors will need to consider addressing that important staffing and administrative issue, they shouldn’t feel overwhelmed by it.
“The reality is that the absolute percentage of time spent on marketing is still larger than the percentage of time spending on risk and compliance,” Durbin says. “But the change since 10 years ago is dramatically different.”