At the same time the overall amount of investable assets grows, there is an oncoming shortage of advisors to help Americans invest those dollars. That was the message of the first speaker at the Insured Retirement Institute’s Marketing Forum held Thursday in New York City.
Lisa Dolly, CEO of Pershing LLC, a BNY Mellon company, said that due to population growth and other factors, the amount of new investable assets grows by $850 billion every year. The good news for the industry is that the holders of those assets will seek advice and demand for financial planning services is set to rise, Dolly said.
However, the advisor population is aging (the average age is 51), there are fewer broker-dealers, and the major wirehouses have curtailed recruitment efforts, which means there may be a shortfall before the industry meets the projected goal of 237,000 new advisors over the next decade, Dolly said.
Those entering the advisory field will meet new challenges as well, such as having the tech solutions that meet the desires of Gen X and Gen Y, she added. The financial services industry must also make doing business easier, like the banking industry has done. She demonstrated this by depositing a check using her smart phone during her speech.
Another trend she highlighted was the movement toward fee-based advisory services, which will have a significant impact on how products are designed and distributed. “You cannot ignore this trend,” Dolly said. “How well does your product integrate into advisory accounts?”
Though she noted a fee-based platform could eliminate commissions, Dolly said she wasn’t sure “it would go that far.”
As the baby boomers move into retirement, they will shift from accumulation to decumulation, Dolly said. Again, this represents a huge opportunity for the financial services industry since these shell-shocked investors will likely seek financial advice and products that are safe and secure, since many are concerned about outliving their assets and worried about the future of Social Security.
Despite the low interest rate environment that has forced insurers to pare down benefits, “an annuity delivers what an investor wants today,” Dolly said.
Other challenges the industry faces are increased regulatory scrutiny (and the resultant costs associated with compliance) and establishing trust with the investing public. Dolly cited a survey that showed only 22 percent of Americans trust financial institutions. That percentage has risen a bit, she said, but indicated the industry still has to re-establish trust with the public.
While Dolly gave a micro view of the industry, the next speaker, Leo Abruzzese, global forecasting director and principal analyst for the United States for the Economist, talked in broader strokes about the U.S. and world economy.
For many, the recovery from the 2008-09 recession feels flat, Abruzzese said. “No one is happy with the recovery. It shows improvement and then takes a step back,” he said. Yet corporate profits are at record highs and the employment market is improving somewhat. So his overall assessment was that the recovery is gaining some traction.
Risks to the fragile recovery are present, nevertheless, including a dysfunctional political environment in Washington and instability in the Middle East and North Korea, he added.
Of particular interest to insurers and retirees living off interest income, Abruzzese said interest rates will remain low for this year and probably not rise significantly until 2015 as the Fed gradually stops printing money in its effort to stimulate the economy.
Although the U.S. debt has been the subject of much debate, he said that short term, the deficit is not a problem as automatic spending cuts and revenue increases take place. However, by 2020, when the baby boomers are well into retirement “the wheels come off,” Abruzzese said. But he tempered that by noting there is time for politicians to fix the problem.