With market conditions remaining volatile and clients cautious about staying invested or even investing at all, advisors are finding it more important than ever to define the services they offer and how they provide those services. This “know thyself” approach may help them better compete for clients and assets. It may also, through the selection and marketing of these services, help them to operate more efficiently. And that is a great way for advisors to set themselves apart in the financial advice market and get closer to their clients.
In the same way that advisors regularly assess their business offerings, Rydex AdvisorBenchmaking evaluates business practices of RIAs over time. Last December, we supplemented our annual advisor survey that was conducted earlier in 2011 with a short questionnaire on current topics, including advisor ratings of their skills, use of ETFs, reliance on wholesalers and thoughts on the current market environment.
Advisors reported in our mini-survey that they still are not fully confident in the economic recovery. More than half said that the U.S. is still in some kind of recessionary phase: either in a cyclical or temporary recession phase (26%), or a systemic and permanent recession phase (24%); 44% of advisors agreed that the U.S. finds itself in a slow economic recovery phase.
Moreover, a majority of advisors (59%) said that their clients’ financial situations have changed little since the recovery started. While this may reflect the fact that many investors have been sitting on the sidelines during the market rally of the past six months or more, it underscores the impact of a range of pocketbook issues, including higher oil prices, Congressional disagreement over taxing and spending, as well as the caution created by the Supreme Court’s review of the 2010 health care law and the upcoming presidential election. As for the 41% of respondents who said clients’ financial situations had changed, half said their clients’ situations are worse while half characterized their situations as ‘better.’
Critical to the long-term success of RIA firms is their service offering, which according to our survey from earlier in 2011, has not changed significantly in the last two years. The four cornerstones of advisory firms appear to be relatively stable and include: basic investment advice, retirement planning, investment management and financial planning. The second tier of services includes insurance, estate and charitable giving planning. The table below shows the percentage of advisors surveyed offering key services over the past few years.
Managing the impact of taxes is a growing concern for investors as tax laws are likely to be a source of contention later this year, so we asked advisors about this issue in our December survey.
While most advisors said managing the impact of taxes for clients is important, very few offered tax services or dedicated a significant part of their business to tax-deferred strategies (see chart at left). In our survey, only a third of respondents said they offer tax services or tax advice, and 67% said they do not handle tax work at all. It appears that clients may have to reach out to other service professionals if and when the tax laws change.
We also wanted to see what advisors believed were their strengths in this volatile market period.
The December 2011 survey (see below) revealed, for example, that advisors surveyed generally rate themselves strong on both client relationship management and investment management. In fact the largest share of advisors, 41%, said they feel proficient in both, while about a third (36%) cited client relationships as a core strength and about a fifth (20%) said investment management was their forte.
Advisors gifted in both these aspects of the business do exist, but many find that skills associated with one aspect of the business cannot easily translate to the other, and prefer to team up with or delegate to a colleague.