Advisors look for double-digit growth in client assets, primarily from new and next-generation clients, but many overlook key client segments including women, LGBTQ and millennials
Majority of client assets are now in model portfolios as advisor value proposition transitions from portfolio management to more holistic financial planning.
One in four advisors moving to a mixed fee model, including subscription-based and transactional fee-for-services.
Financial advisors are looking to increase client assets under management (AUM) by 10% (median) this year, and with little of that likely to come from market performance, they are counting primarily on new assets from new clients to grow their business, according to findings from Natixis Investment Managers (IM) 2022 Survey of Financial Professionals, published today.
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Natixis IM surveyed 300 U.S. financial advisors, as part of a larger global survey of 2,700 financial professionals. The U.S. findings presented here provide insight about advisors’ growth strategies, the challenges they face, and how they are adapting their business to changes in the market.
Over the next three years, financial advisors are targeting a median AUM growth rate of 15% growth and 10 new clients per year, on average. While the long bull market helped turbo charge asset growth over the past ten years, advisors aren’t counting on the double-digit returns over the long term. In fact, they are optimistic in forecasting a 4.4% return by the S&P 5001 this year. Rather, the survey suggests that advisors are looking to catch a tailwind from the vast amount of money in motion, including rollover retirement assets and the transfer of significant generational wealth. Many may be hard-pressed to hit their targets unless they also adapt their business practices and assumptions.
The survey found:
- Client acquisition is the most difficult way for advisors to go about growing their business. When asked which business growth strategy is most challenging, 59% cite winning new assets from new clients, compared to 31% who cite gaining more assets from existing clients. One in four (24%) say retaining clients is most challenging.
- The two factors most advisors say are crucial to their success are demonstrating value to clients beyond investment management (63%) and establishing relationships with clients’ next-generation heirs (60%).
- 57% of advisors say that the time involved in adding value beyond investment management and establishing relationships with next generation heirs make both challenging.
“Advisors have to expand their capacity to grow their business while meeting the needs of new and existing clients,” said David Giunta, President and Chief Executive Officer for the U.S. at Natixis Investment Managers. “Advisory relationships are no longer defined by transactions in an investment portfolio, but rather by a deeper understanding of clients’ financial needs and the services they feel add the most value for the money. Technology and product innovation are helping advisors deliver the consistent investment experience clients expect while supporting the transition of their business to a broader focus on financial planning.”
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Modeling the business for new clients
One key way advisors are expanding their capacity on the planning side is by using model portfolios on the investing side. On average, 93% of client assets under management are in model portfolios, including 54% of assets in models that advisors build themselves, 26% in models built and managed by their firm, and 21% from third-party asset managers.
The survey found:
- 89% of financial advisors say that clients whose assets are in model portfolios view comprehensive financial planning as the greatest value of having a relationship with a professional advisor.
- A significant number of advisors also said clients value tax management (56%), financial education and engagement with family members (56%), and trust and estate planning services (48%).
- The very small percentage (7%) of financial advisors who don’t use model portfolios say that personally building and managing clients’ investment portfolios is essential to their value proposition.
“The actively-managed, risk-adjusted performance features inherent in model portfolios make them particularly compelling in the current market environment,” said Marina Gross, Co-Head of Natixis Investment Managers Solutions. “Our portfolio consulting practice shows that core moderate-risk model portfolios consistently deliver higher risk-adjusted returns with less volatility than the broad market, enabling advisors to focus more time on long-term goals, than short-term performance.”
The survey found the most effective ways financial advisors are incorporating model portfolios into their practice are by:
- Transitioning assets on a case-by-case basis, depending on each client’s willingness (58%)
- Focusing on retirement account rollovers (42%)
- Focusing on new assets from new clients (29%)
One in five advisors (20%) took the plunge and moved all their client assets into models at once, and 21% who intend to transition all their clients into model portfolios, have done so in phases. Few advisors have found it particularly effective to reserve their use of model portfolios for clients who represent less revenue potential, including clients with lower balances (18%), retirement drawdown clients (17%), and younger clients (10%).
Prospecting efforts come into focus
In their search for new clients, financial advisors are looking in all the usual places, with most (81%) considering the life stages of their prospects. Most (93%) place the highest priority on pre-retirees, or people between the ages of 50 and 60, followed by those between the ages of 60 and 65 who are at or just entering retirement (84%). Six in ten (60%) also focus on older accumulators between the ages of 35 and 50 who are in their peak earning years and likely in need of comprehensive financial services to address multiple financial goals such as saving for retirement, funding education, and managing debt.
Given the market environment and generational transfer of wealth underway, advisors may be missing opportunities to reach the oldest and youngest group of potential clients.
- Fewer than half (47%) of financial advisors are focused on post-retirees, many of who are drawing down versus accumulating assets but who still need robust financial planning and advice to protect, use and pass on their assets.
- Only 16% place a high priority on prospecting for clients between the ages of 18 and 35, members of Generations Y and Z, who represent the largest segment of the U.S. population.
Beyond age segmentation, advisors are tailoring their business offering and business development strategies to appeal to specific high-valued groups. When asked which segments they are prioritizing for client acquisition and retention, the survey found again, that advisors might be overlooking opportunities to meet the distinct needs of certain segments, namely women and the LGBTQ community.
When financial advisors were asked which groups they prioritize for client acquisition and retention, the survey found:
- 76% of advisors are focused on professionals, such as lawyers, doctors, and corporate executives and nearly as many (75%) are targeting business owners
- 69% are focused on HENRYs (High Earners, Not Rich Yet)
- 44% are looking to establish or strengthen relationships with next-generation heirs
- 29% are concentrating on the needs of women
- 7% target the LGBTQ+ community
Just 8% of financial advisors think that meeting investor demand for cryptocurrency2 investments is very important to the growth of their business. Most (86%) don’t offer clients access to cryptocurrency trading on their platform, even though 58% of advisors say they have clients who invest in cryptocurrency either directly or through other trading platforms.
As the wealth management business transitions to a more holistic financial planning business model, some advisors are reevaluating the way they charge for their services. The number of advisors whose fees are based on assets under management is expected to decline from 63% today to 58% over the next five years. A subscription-based fee model, that charges clients a one-time or annual upfront fee and then a recurring fee for any ongoing services throughout the year, is expected to rise incrementally from 2% to 9%. Twenty-seven percent of advisors expect to offer a mixed fee structure employing AUM-based, subscription-based, and transactional fees for services or time rendered, depending on the client.
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