Financial Advisers Weigh In On Trump Victory

A new survey found that most independent financial advisers expect a strong economy for 2017 under President-elect Donald Trump, and a majority want him to repeal the DOL fiduciary rule.

Independent financial advisers servicing the retirement planning industry were keeping a close eye on the recent presidential election, especially in light of sweeping industry changes such as the Department of Labor (DOL)’s Conflict of Interest rule. 

According to a survey by the Financial Services Institute, 86% of financial-services firms and independent advisers want President-elect Donald Trump to repeal the fiduciary rule.

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The survey also found that 71% of respondents said they cast their vote for Trump, while 19% said they voted for Clinton. Under a Trump presidency, 58% of advisers said they expect a strong economy in 2017, and 56% said they expect 2017 to be a strong year for equity performance.

“Main Street financial advisers serving retirement savers have their finger on the pulse of the lives of their hard-working clients and it’s important that we tap into their perspective,” says FSI President and CEO Dale Brown. “Our members have a unique vantage point on these issues, as they work closely with investors of all sizes and means, to help them save for retirement, fund their children’s education and care for aging parents. Our members, who are Main Street not Wall Street, contributed $48 billion to the U.S. GDP in 2015. Their call to repeal the DOL fiduciary rule as soon as possible is driven by their clients’ need to access their help in securing a dignified retirement. Last year, the clients of our members sent over 100,000 letters to the Department of Labor, pleading for relief from the rule. It’s time we allow these professionals to serve their clients in a way that they want and deserve to be served.”

Only 3% believe tax increases should be a part of any tax reform deal next year, the survey found. And more than half of advisers now have a succession plan in place – up 10% from FSI’s last poll two years ago.

The potential and still uncertain impact of the DOL fiduciary rule caused many to speculate whether independent financial advisers would exit the business. However, about two-thirds of advisers said they don’t plan to buy or acquire another practice or book of business within the next one to five years. For those who responded “yes,” the main motivation for that decision was a need for scale to remain profitable (28%). When asked whether they planned to do this within the next five to ten years, 73% of advisers said “No.”

When asked whether they plan to retire or sell practice within the next five to ten years, 74% said “no.” Of the group that said “yes,” retirement was the main reason (67%), followed by opportunity to monetize the practice (9%), compliance burdens (7%), and the DOL Fiduciary rule (6%).

FSI is a trade association for independent financial-services firms and independent financial advisers. The survey polled more than 1,300 professionals in these fields a week after the election.

More information about the results can be found at FinancialServices.org

Investors Seek Cost Cuts Amid Return Challenges

In particular, “alternative” investment classes are playing an increasingly important role in the effort to meet necessary portfolio returns, Cerulli finds.

According to new research from Cerulli Associates, institutions that were once able to meet their target returns by investing in mostly long-only equity or fixed income are being forced more into “risk assets.”

In particular, “alternative” investment classes are playing an increasingly important role in the effort to meet necessary portfolio returns, Cerulli finds.

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“Across the U.S. institutional landscape, investors are feeling the impact of weak investment returns and the prolonged low-interest-rate environment,” Cerulli reports. “As the pressure to meet assumed return targets continues for all types of institutional asset owners, many investors have been forced to look at different options in an attempt to reach their desired objectives.”

According to Cerulli, institutions have at the same time “begun exploring a variety of ways to make their portfolios more efficient.” Chris Mason, senior analyst at Cerulli, suggests much of the focus has been on ways to reduce administrative costs as well as investment management costs, including the fees paid to third-party managers.

“Insourcing is one of the ways in which some institutions have attempted to reduce their investment management costs,” Cerulli researchers explain. “Institutions choose to bring investment management responsibilities in-house for a portion of the investment portfolio to save on costs of external management, particularly in traditional equity, fixed income, and derivatives instruments.”

Of course, there are additional expenses to consider with this model, such as technology upgrades, as well as systems to handle portfolio management and administrative capabilities.

“Insourcing is considered most common for larger institutional investors, but there is no minimum size necessary,” says Mason.

NEXT: Cost cutting can be complicated 

The Cerulli report goes on to argue that insourcing and outsourcing both have important applications for different types of institutional investors.

“One of the major advantages of outsourcing investment responsibilities is a faster decision-making process and the transfer of monitoring responsibility that can free up time for professionals to focus on their organizations," adds Mason. “Despite the many benefits of outsourcing, providers and investors still have a variety of concerns, such as potential conflicts of interest for firms that offer proprietary products or strategies.”

Another popular way that institutions have tried to mitigate investment management fees is through passive investing, the Cerulli report shows. Although many institutional asset managers indicate that competition with passive management is “very challenging” to growing institutional assets, Cerulli believes the use of passive investments compared to active investments is “not the either/or proposition it has become among individual investors and retirement plans.”

In fact, after several years of strong inflows, recent data suggests institutional demand for passive strategies may be easing, Cerulli concludes.

These findings are from Cerulli's latest report, “U.S. Institutional Markets 2016: Reassessing Opportunities for Growth Across Multiple Institutional Asset Pools.” More information is available here

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