A fast-evolving regulatory landscape, changing consumer expectations and shifting investment considerations are forcing advisors worldwide to overhaul their businesses, according to new research.
So reports Natixis Global Asset Management in a new 2016 “Global Survey of Financial Advisors.” This 5th annual report, conducted by CoreData Research on behalf of Natixis, surveyed 2,550 advisors in 15 countries to assess their attitudes on, among other issues, business growth, portfolio construction, client-servicing, advice and investment challenges.
On balance, the survey authors positively view regulatory changes underway worldwide, most especially in advanced markets like the U.S., Australia and New Zealand. These countries have in recent years imposed new compliance requirements that, like the U.S. Department of Labor’s fiduciary rule, require advisors to put their clients’ interests first.
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“This client-first approach will… serve as a foundation for a stronger business model,” the Natixis report states. “At a time when investors are hyper-focused on fees, advisors who demonstrate their value… may be better positioned for growth.”
Nonetheless, more than 8 in 10 (81 percent) of advisors polled globally said that heightened regulatory and disclosure requirements will prove challenging to the growth of their practices. One reason: increased compliance costs, as monies will be needed to invest in new technology platforms, people and business processes.
More than three-quarters of advisors believe they will have to pass these additional costs onto clients. And over 4 in 10 (43 percent) anticipate that new regulations will “limit their ability” to market to client prospects. A large majority (nearly 8 in 10) also expressed concerns that tightened regulations could constrain their ability to advise clients with low- to mid-tier portfolio balances.
Keep reading for more of the Natixis report’s key findings…
Among the report’s additional findings:
Seven in 10 advisors said new regulations will force them to “make at least some changes” to their practices. And nearly half (48 percent) said they will need to change their business model to sustain growth.
Almost 4 in 10 (38 percent) said they anticipate jettisoning smaller clients whom they will no longer be able to profitably serve. A smaller proportion (29 percent) intend to increase use of passive investment strategies for these low-balance clients.
More than 1 in 10 (12 percent) advisors intend to outsource a portion of their investment management services. Nearly as many (9 percent) plan to migrate their business from investment management to other services.
More than a quarter (26 percent) said they plan to change their compensation model because of downward pressure on fees or (as in the U.K.) restrictions on commission-based compensation.
Despite the expected changes, most of the advisors polled said they expect their assets under management to grow by 9.4 percent in the next 12 months. A majority of them are pinning growth expectations on acquisition of new clients (78 percent) or increased “share of wallet” with current clients (77 percent).