The financial crisis, with its steep market drops, repressive 0% interest rates and wall-of-worry ascent that has caught so many investors off guard, may have claimed one more unnoticed victim along its path of destruction: advisor confidence in traditional investing approaches.
A new study of U.S. advisors by Natixis Global Asset Management, released Wednesday, suggests that advisors are questioning long-held investing values, perhaps like populations gung-ho to fight in World War I adopted more pacifistic views after all the carnage.
A key finding of the report is a loss of faith in buy and hold. While advisors understand that “no financial advisor can accurately and consistently time the market,” a significant majority (63%) question the value of data underpinning the strategy; this perhaps echoes the restlessness of their clients, 77% of whom question the approach.
Similarly, just 38% of advisors maintain the traditional view that time smooths out the investment volatility and risk of holding stocks, compared with 40% of advisors who are unsure and 23% who reject this view.
The rejection of buy and hold is more pronounced (59%) among advisors catering to affluent investors compared with those (40%) serving mass-market clients.
The classic 60%/40% stock-bond allocation is another investment nostrum that has fallen by the wayside, with 49% of advisors unsure of its relevance and 23% rejecting it outright. Nearly twice as many advisors with 15 or more years of experience reject 60/40 (38%), and advisors favor new approaches to traditional investment approaches like 60/40 by a greater than two-to-one margin.
The rejection of tradition matches a high level of openness to alternative strategies, particularly among less experienced (and therefore probably younger) advisors. A large proportion of the old guard—advisors with more than 15 years of experience—is willing to employ alternative strategies, but fully 76% of less experienced advisors are seeking alternatives.
Motivating the turn to alternatives is the quest for diversification (79%), risk reduction (68%), enhanced returns (50%) and reduced volatility (42%). Of advisors willing to use alternative strategies (about half the surveyed population), 86% would employ them with their high-net-worth clients, 72% with their mass-affluent clients and 64% with mass-market clients. The survey found that independent advisors (90%) were three times as likely as registered reps (28%) to employ alternative strategies for mass-market clients.
While the period of high volatility may have influenced advisor attitudes toward investing strategies, it has apparently provided advisors opportunity for business expansion at the expense of competitors. A majority of advisors (54%) claimed the high volatility has helped them capture the assets of other advisors while nearly half (46%) said that market conditions have facilitated the growth of their business over the past three years.
The Natixis survey, conducted by CoreData Research in March, is based on the responses of 163 U.S. advisors at 150 advisory firms. Natixis, based in Paris and Boston, manages $748 billion in investment assets through such subsidiaries as Loomis Sayles & Co., Hansberger Global Investors and Reich & Tang Asset Management.