In the last 15 years, advisors have experienced drastic shifts in both market experience and client expectations.

In the early 2000s, as the stock market steadily rose following the “tech wreck,” advisors found themselves in the “performance era.” From 2000 to 2008, total hedge fund assets increased more than 380%.[1] Investors sought funds that would outperform the market, without paying much attention to costs.

The second stock market crash in a decade and the subsequent market rebound saw the beginnings of a shift into what could be called the “cost era.” Since 2008, inflows into passive funds have soared while flows into active funds have stagnated. Investors have favored the recent success of passive indexing and “smart” beta strategies, with an added emphasis on low cost.[2]

Today, higher market volatility, increasing regulatory scrutiny, a continued desire for cost transparency, and other factors have client relationships shifting once again. Advisors find themselves in a “New Value Era.” Client expectations demand a more holistic advisor, one who prioritizes risk and return in equal measure, who is deeply experienced and readily accessible, and who is as committed to clients’ long-term goals as clients themselves. Advisors who are able to leverage the key relationship drivers of the New Value Era — control, transparency, consistency, flexibility, and scalability — will be better equipped for growth.

1. Control

The New Value Era demands that advisors be well-positioned to exert more control both in terms of managing relationships and executing the investment process. But more control doesn’t mean forcing clients into one decision or another. Control is the ability of an advisor to provide the necessary foundation of trust and knowledge to guide clients toward the appropriate goals and, ultimately, the right investment decisions over time.

To do this, advisors need to have a true understanding of their clients, including their goals, risk tolerance and overall expectations, and to educate clients on investment approaches accordingly. With the appropriate investment support and engine behind them, advisors can focus on translating insight and market knowledge into expert advice and guidance.

2. Transparency

There remains a huge misperception among clients about the real value of low-cost investment vehicles. According to a 2016 Natixis individual advisor survey, “Six in 10 investors believe that passive investments are less risky, are better for minimizing losses, and offer better diversification.”[3] A myopic focus on fees and expenses has obfuscated relevant comparisons of risk, returns and diversity. Advisors must provide greater transparency not just about fees, but also about risk, strategy and process and how these influence portfolio building and management.

3. Consistency

The start of 2016 saw the S&P 500 drop 9%, and investors responded by pulling back more than $3 billion in U.S. equity fund investments in the month of January.[4] Yet today the S&P is up more than 25% from its February low, which means significant returns left on the table for those who retreated. With volatility expected to be the new normal, clients need advisors who will guide them with a steady hand.

To demonstrate this, advisors must employ a sound investment process, which helps deliver long-term returns that acknowledge, but are insulated from, short-term volatility. What’s more, they must demonstrate consistency in insight and leadership, which requires access to deep investment knowledge and experience.

4. Flexibility

The client is king in the New Value Era. Clients who perceive the greatest value in their advisor relationship are those who feel the most investment and engagement on the part of their advisor. Advisors must demonstrate flexibility when it comes to relationship management, including the timing and means of responding to and anticipating clients’ wants and needs. Flexibility in the form of customized strategies is also essential. Clients are open to new approaches and vehicles, like alternatives, as long as advisors make it clear how all parts fit together in a portfolio tailored to them and that will evolve as their needs and appetite for risk do. 5. Scalability

Greater investment in client relationships is a key value driver for advisors. High perceived value is associated with increased share of wallet, referral activity, and the likelihood a client will choose to access a wider range of services. [5] To focus more time on client development and practice management, advisors can put in place a different investment management structure designed to meet the spectrum of client objectives and delivering reliable performance at scale.

The challenges facing advisors will only continue to grow, but that doesn’t have to come at the expense of the growth of their business. With as many as 100 million Americans[6] invested in the stock market, there’s a huge audience and a huge potential client base for advisors who able are to demonstrate control, transparency, consistency, flexibility and scalability and, ultimately, leverage the new value equation.


[1] http://content.rwbaird.com/RWB/Content/PDF/Insights/Whitepapers/hedge-funds-a-look-back-a-look-ahead.pdf

[2] http://www.visualcapitalist.com/rise-etf-passive-investing/

[3] http://www.fa-mag.com/userfiles/stories/whitepapers/2016/June/Individual-Investor-Survey-2016_white_paper-052516c.pdf

[4] http://www.fa-mag.com/userfiles/stories/whitepapers/2016/June/Individual-Investor-Survey-2016_white_paper-052516c.pdf

[5] https://www.vanguard.co.uk/documents/adv/literature/measuring-client-perceptions-adviser-value-tlor.pdf

[6] http://www.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx; http://www.census.gov/prod/cen2010/briefs/c2010br-03.pdf

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