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Top challenge for advisors: reigning in emotional clients

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Financial service professionals across the globe see downward pressure on fees, more stringent regulations and increased competition from robo-advisors as chief threats to their practices, according to new research.

Natixis Global Asset Management discloses this finding its 4th annual Global Survey of Financial Advisors. Natixis commissioned CoreData Research to conduct the study of 2,400 advisors in 14 countries and territories (including 300 in the U.S.) to better understand their attitudes, concerns and practice needs.

More than 8 in 10 advisors polled in the survey (83 percent) say their top challenge is to keep clients from making irrational and emotionally driven decisions (e.g., buy high and sell low) when their investment portfolios drop significantly in value. Advisors view these rash decisions as potentially damaging to their businesses and the financial success of their clients.

The report flags the following as advisors’ other top concerns:

  • Market performance/volatility (cited by 67 percent of survey respondents)

  • Heightened regulation and disclosure requirements (54 percent)

  • The impact of automated advice platforms or “robo-advisors” (nearly 4 in 10)

  • Downward fee pressure (34 percent)

Additionally, 7 in 10 advisors polled say that regulations have made delivering advice to clients more difficult. Prime example: New Retail Distribution Review rules imposed the by the U.K.’s Financial Conduct Authority in 2013. Among other changes, the RDR banned commissions on sales of life insurance products.

The advisors polled also identify these as the biggest challenges to building a retirement income portfolio:

  • Generating enough income for lifestyle goals beyond basic needs (53 percent)

  • Generating stable income (47 percent)

  • Generating returns with that will beat inflation (46 percent)

  • Growing assets and minimizing risk simultaneously (40 percent)

  • Effectively managing volatility risk (35 percent)

The survey adds that more than three-quarters of advisors believe that a traditional stock-and-bond portfolio can no longer effectively risk and pursue returns. Increasingly, they’re looking to alternative investments — hedge funds, managed futures, real estate, commodities and derivatives, among other asset classes — to better balance investment risk and returns.

Investments aside, most advisors worldwide believe that that their business will grow by an average of 12.3 percent over the next 12 months. Three-quarters of the respondents say the growth will be fueled through the acquisition of new clients. Almost as many (70 percent) expect to gain a larger share of assets from current clients.