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Five Investor Trends That Will Re-Shape the Advisor Industry

Originally published by Wealth Management [link] on April 07, 2016

The firms that get these five facts about the current state of retail investment will be the ones that succeed, according to Terri Kallsen, executive vice president of investor services at Charles Schwab. She was speaking SIFMA’s annual Private Client Conference in New York on Thursday. 

1. Investors Value Planning Over Performance

Despite the media focus on markets, earnings and economics, investors don't care as much about the performance of their portfolio. They value more the confidence in their advisor to develop a relevant financial plan for the clients' individualized needs. Portfolio performance is not the "be-all, end all."

2. Investors Want Low Costs and Personal Service; People and Tech

Investors won't tolerate lower service for lower prices. They want better, tech-driven service at lower prices, and there are a growing number of firms providing that. "This is not just millennials," she said. Even Baby Boomers are demanding more tech-savvy advisors and digital communications.

3. New Forms of Indexing Will Supplant Active Management

Investors understand simplicity, and are driving the trend toward passive investments and low-cost indexing. 

Even in volatile markets, active managers have a hard time beating their benchmarks - seven out of 10 can't do, after fees, she said. That puts pressure on an investment advisor whose "value" is asset management. This trend will only continue, she said.

4. Brand Loyalty Is More Transient Than Ever

Today’s consumers are better informed and more willing to try alternatives that are more transparent, easier to use and accomplish their missions, Kallsen said. Big brands have a reason and a purpose, but they don’t stay around forever. They can be disrupted.
This is why financial services firms, and advisors, need to innovate, she added. “We need to be the disrupters in our business.”

5. Fee Awareness and Fiduciary Expectations Are Increasing

Investors are beginning to recognize the value of a fiduciary, she said, irrespective of the recent Dept. of Labor rule. Investors will keep their money in investments that work for them, but they are going to be more fee-conscious.