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BD Execs: Clients Too Conservative, Putting Themselves at Risk

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Cetera Financial CEO Larry Roth queried broker-dealer execs Thursday on ways the industry needs to modify its behavior — or not — to come up to speed with changing client demographics, compete against the proliferation of robo-advisors and deal with the pending release of new fiduciary rules.

Roth, former AIG Advisor Group head, who moderated a panel discussion at the Insured Retirement Institute’s Marketing conference in National Harbor, Maryland, just outside Washington, noted that clients’ needs have changed “dramatically.” One area where panel members agreed: clients are far too conservative in their investment choices these days.

Since the market crash of 2007-2008, clients want to focus on whether their money is “safe,” said John DeSalva, president of Georgetown Financial Group. “Now it’s ‘don’t lose my money,’” he said. But clients are “coming in too conservative,” he said, noting that conversations with clients have now shifted to educating them on “taking risk” in their portfolios.

Robert DeChellis, president of Allianz Life Financial Services, noted the market crash has resulted in $11 trillion now sitting in cash, and that investors have lost out in the bull market that has taken place since the market tanked. DeChellis said his firm is helping clients “stay invested,” and addressing their “fears” of the markets. “We’ve lost a whole generation of investors that just won’t come back.”

Bob Steinke, senior vice president at Janney Montgomery Scott, agreed, stating that “investor sentiment” is different today than what he’s experienced in his 20 years in the business. “People are hiding out on the sidelines [of the market] when they shouldn’t be,” he said. “We’re trying to tell clients that it’s still risky to behave really conservatively.”

Clients’ needs have also changed in the retirement planning space, DeSalva noted, with clients seeking more types of advice. “The retirement space has gotten more complex for advisors,” he said. “Now clients want a lot more information” on such issues as Social Security, non-qualified money, estate planning and long-term care insurance. “The retirement space touches on a lot more than just retirement, and we have to be more educated and capable than in years past.”

Roth then posed another question: with all the shifts in client needs, are there, for instance, any “new segments” of clients emerging, for instance in the younger generation looking for such advice now?

From a product perspective, said DeChellis, people are taught that annuities are “for rich, older people, but the reality is it’s a great savings tool.”

DeSalva agreed that there’s a “subliminal message that annuities are bad.”

DeChellis added that “annuities continue to be a standalone transaction as opposed to integrated into wealth management,” adding that “commissions still drive the way these products are sold … I’m amazed at how people still think annuities are expensive and complicated. They are missing out.”

As to millennials, Steinke conceded that broker-dealers aren’t “geared to serve” millennials, stating that this younger generation of investors are “like Depression-era investors” who say they want to get started on retirement savings but “don’t want to lose a dollar.” One area where BDs “need to move faster and cater to,” Steinke said, are investors that are five to seven years from retirement.

DeSalva added that millennials are “where the robo-advisor will gain some traction.” He noted that every eight to 10 years the industry hears about threats like robo-advisors that will “change everything.” However, “the personal advice we give is still necessary.”

But the industry is ready for a “Napster moment,” DeSalva said. “You wouldn’t  have iTunes if it wasn’t for Napster. In our industry, it’s not as simple as there are barriers to entry, but I do think our industry is poised for that Napster moment. Those who can figure out what that looks like will do well. I don’t think it’s necessarily a complete break from where we are today, but there will be developments, new uses for technology to get that emerging investor.”

As to the Department of Labor’s planned release of its redraft to amend the definition of fiduciary under the Employee Retirement Income Security Act, Steinke said that the brokerage industry needs “to make sure the fight [against the redraft] is about our clients. We need to establish a very clear tether on what we do and how clients benefit from that.”

— Check out Cetera Rolls Out Marketing Platform, Leaves Schorsch Drama in Dust on ThinkAdvisor.

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