February 10, 2011

National Financial’s Mirchandani on Fidelity’s Strategy, Advisor Challenges

Fidelity executive says advisors are neglecting Gen Y clients at their own peril

“We’re not trying to be the biggest, but the best,” says Sanjiv Mirchandani, referring to National Financial, the Fidelity division that is the second largest clearing firm for independent broker-dealers, with some 300 BDs as clients.

In an interview Wednesday with AdvisorOne in which National Financial announced enhancements to its StreetScape technology workstation, Mirchandani (left) referenced Commonwealth Financial Network as an example of a BD that, like National Financial, has eschewed reaching for size alone and instead focused on preserving its culture and attracting fewer but higher-producing reps. He contrasted Commonwealth to the largest independent BD LPL Financial, which he characterized as taking more of a “Wal-Mart” approach to the advisor space. (Commonwealth is a clearing client of National Financial.)

The focus of Mirchandani, who will celebrate his second anniversary as president of National Financial in March 2011, during the interview was on the new investing atmosphere and the opportunities and challenges faced by advisors and broker-dealers, and individual investors.

“The financial crisis completely changed the mindset of the individual investor,” argues Mirchandani, who he said had been slower to return to “long-term investments” than they did coming out of previous recessions. Those who got into cash in 2008-2009 and stayed there “missed out on the 60% return” from the equity markets from the crisis’s nadir in March 2009 until year-end 2010, he says. However, he believes that investors now “permanently understand the value of saving” and that the “American consumer has learned the game is over.”

Advisors “tried to do the right thing” in keeping their clients invested, but Mirchandani says “the degree of panic among investors was so strong that advisors couldn’t help.”

One metric that Fidelity watches which supports the permanent change in higher savings rates, Mirchandani reports, is the convergence of consumer sentiment (as found in the University of Michigan/Reuters consumer index) and the savings rate. Before the crisis, he said, high uncertainty among consumers led to higher savings, but now those higher savings rates are more constant regardless of consumer sentiment over all.

Taking Charge, Seeking Research

From the Bernie Madoff scandal and the crisis, consumers have decided to take more charge of their investing plans, he said, citing research showing that there is a shrinking percentage of investors who are completely dependent on advisors for financial guidance.

Advisors face their own challenges beyond encouraging clients to get back into those long-term investments, says Mirchandani, notably the aging of the advisor force, though concerns over who will replace the current generation is tempered by research showing that advisors plan to retire at more advanced ages, if then.

His biggest concern for the advisory space, however, is what he calls the neglect by advisors of the prospective clients who constitute Generation Y, who he says at about 77 million account for nearly the same percentage of the population as boomers. Gen Yers are “hyperconservative” investors he says, who could very much use professional advice, but delivered in a way that meets their need for plenty of research and third-party confirmation of a given investment’s value.

“Advisors need to be more collaborative with their clients and can use technology to do so,” suggesting that some advisors’ reluctance to provide more technology-based information to ends, fearing the “disintermediation” of technology, was misguided. The desire to meet that need is part of why Fidelity enhanced its myStreetScape platform to include more market data and access to research in its redesign. “The advice industry,” he warned, “is neglecting Gen Y at its own peril.”

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