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Regulation a Bigger Threat to Advisors’ Business Than Market Crash: FSI Survey

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Regulatory interference is viewed as the most significant business risk among independent financial advisors, according to a recent Financial Services Institute survey.

According to the FSI’s 2015 Financial Performance Benchmarking Survey, there is overwhelming agreement that potential regulatory actions rank among the top concerns by nearly a 2-to-1 margin.

The survey found that 50% of participants view “regulatory interference” as the most significant business risk compared to the 28% who view “significant market decline” as a risk.

A lesser concern is the RIA pure-play business model (14% think it’s a significant business risk). Some are worried about clients or advisors not being fully aware of interest rate risk or the potential for a bond bubble pop (8% said this was a significant business risk).

The survey, conducted in partnership with independent consulting firm Strategy & Resources LLC, asked CEOs of participating FSI member firms about their financial performance and their views on a variety of industry trends.

FSI comprises more than 100 independent financial services firm members and their more than 160,000 affiliated financial advisors.

Among the survey’s results are several findings of “particular interest,” says FSI President and CEO Dale Brown.

“Member firms are supporting hybrid business models as the default choice in terms of advisor affiliation models,” Brown said in a statement. “We also see considerable support for advisor-owned RIAs and the creation of product or platforms delivered through the member firm. Additionally, member firms report a material decline in client complaints. Finally, we see an expansion of practice management in support of advisor succession needs.”

Here are some more highlights from the survey:

  • Member firms continue to stay profitable despite headwinds, such as emerging competitive threats, regulatory activism, margin compression, and changing consumer and advisor preferences. 
  • Advisors have an optimistic outlook on the value of financial services firms. According to the survey, 57% of respondents believe the upward trend in firm valuations and M&A activity will continue. 
  • Goals-based investing and downside protection strategies rank among the top two most important investing trends, according to the survey.

According to Matt Lynch, managing partner of Strategy & Resources LLC, the survey found there was significant interest in downside protection strategies among advisors who serve the emerging affluent client segment.

“More broadly, we observe increased interest in liquid alternatives coming down market where advisors working with mass affluent and middle-market clients are seeking solutions for this asset class,” Lynch said in a statement.

Other top investing trends included tactical asset allocation and managed ETFs, according to the survey.

The survey also found that a number of firms have developed client-facing tools for advisors to use. These tools are focused on communicating the clients’ progress toward their personal financial objectives in place of, or in addition to, the traditional performance benchmarks. 

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