Even Top Financial Advisers Have Been Hurt by COVID-19

However, many are implementing new practices and technologies to combat these effects.



Even the most successful financial advisory firms have felt the negative impacts of COVID-19.

That’s among the latest findings revealed in Nationwide’s “Advisor Authority” study, which found only 57% of top advisers and financial professionals believe their practice will grow in the next 12 months, a sharp decline from 81% who said the same in 2019. Additionally, these advisers cited the pandemic as a key concern when thinking about the success of their practice.

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Powered by the Nationwide Retirement Institute and conducted online by The Harris Poll, the study surveyed 2,500 advisers and financial professionals. It defines “successful advisers” or “top advisers” as those who earn a personal annual income of $500,000 or more from their advisory business or who individually manage assets under management (AUM) of $250 million or more.

The study finds that even though only 37% of high performers reported an optimistic financial outlook last year, many are looking ahead to enhance the profitability of their practice in the coming year. Fifty percent of top advisers said adding new clients will be their top priority to enhance profitability.

High-performing advisers also indicated health and safety for employees (31%) and themselves (31%), digital remote work strategies (28%), addressing decreased profitability (28%) and digital experience/self-service tools for clients (27%) are top practice management concerns related to the pandemic.

“The pandemic was an outsized challenge for advisers and financial professionals of every level, but the most successful advisers are adopting a CEO mindset to protect their clients and their practices,” says Craig Hawley, head of Nationwide’s annuity distribution, in an interview with PLANADVISER. “This is marked by several traits, including putting clients first, committing to an exceptional customer experience, leveraging technology and being bullish on M&A [mergers and acquisitions].”

As advisory firms became more reliant on technology as a result of the remote work environment, top advisory businesses evolved their practices to enhance profitability. Financial advisers turned to webinars, audio, short-form video content and even started advertising online.

Now, Nationwide says more firms are looking to adopt digital platforms in the coming year, as 22% of successful advisers said they are adding new technology while 17% are consolidating their digital experience.   

Thirty-seven percent of top advisers indicated that adding digital features helped them effectively serve clients remotely, while others said it freed up time to focus on one-on-one relationships with clients (31%) and provided more personalized, holistic planning (30%). When asked what technology would help better serve their clients over the next 12 months, 29% mentioned e-signature solutions, 26% indicated financial planning software tools for risk management and 19% voted for customer relationship management (CRM) processes.

The market volatility experienced last year made many worry about a potential economic downturn in 2021. The Nationwide study found 80% of successful advisers are concerned about an economic recession in the next 12 months.

As a result, protecting against losses outranked all other client concerns for all advisers and financial advisers, according to the study. Ninety-five percent of top advisers said they have strategies to protect their clients’ assets against market risk while 96% said they have strategies to protect clients against outliving their savings.

More than eight in 10 (82%) of all advisers said their clients would feel more secure if a portion of their portfolio was invested in an annuity and 77% said they would choose an annuity in the next 12 months to protect against market risk. Breaking it down to top advisers, 79% said their clients would feel more secure if they were invested in an annuity and 81% said they would choose an annuity option within the next year.

The Nationwide study finds that top advisers are focusing their attention on Generation X workers. When asked which generation of investors would be their primary target in the next 12 months, 37% indicated this generation, which is in the middle of the workforce, as they are more likely to feel squeezed by the effects of the pandemic. Other advisers said they would focus on Millennials (28%), Baby Boomers (19%), Generation Z (10%), Matures (those born in 1945 or earlier) (1%), and 7% said they were targeting all generations.

The most successful advisers are directing their attention toward wealth changes. These advisers are more likely to have a strategy in place to retain heirs of current clients, at 84% versus 68% of all other advisers, according to the study. For those with a strategy, working with clients’ heirs in the financial planning process (38%) was their top approach, along with creating multi-generational teams and partnering with estate attorneys.

“Targeting new clients and retaining the heirs of current clients are important components of both the CEO mindset and enhancing practice profitability,” Hawley says. “When targeting new clients, successful advisers and financial professionals are interested in younger generations, including Gen Xers and Millennials, and they are also more likely to change their marketing strategy to reach these individuals. To retain heirs, successful advisers are open to building a multi-generational team, offering innovative wealth transfer solutions and partnering with experts such as estate attorneys.”

 

SEC Chair Nominee Gensler Faces Senate Scrutiny Tuesday

In his prepared remarks, Gary Gensler calls the U.S. securities markets the ‘finest in the world,’ while emphasizing the need for ‘clear rules of the road and a cop on the beat to enforce them.’

On Tuesday, the Senate Committee on Banking, Housing and Urban Affairs will question Gary Gensler, the Biden administration’s nominee for the role of U.S. Securities and Exchange Commission (SEC) chair.

The nomination hearing comes at a critical time for both the markets and the SEC itself. The SEC is not only currently conducting significant internal policy changes related to the Regulation Best Interest (Reg BI) package and the modernization of adviser advertising rules (among other key projects), it is also facing pressing questions about access and equity in the financial markets, as expressed by the so-called “meme-stock” phenomenon.  

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Ahead of the hearing, Gensler published a copy of his prepared opening remarks, available in full here. In his opening statement, Gensler explains that he has spent his entire professional career in and around the financial markets, in roles across the private sector and in state and federal government. Gensler now works in academia as a professor at the Massachusetts Institute of Technology (MIT) Sloan School of Management.

“I believe our markets are the finest in the world,” Gensler says. “But they didn’t become that way through happenstance. In the shadow of the Great Depression, Congress created the SEC to protect investors; to maintain fair, orderly and efficient markets; and to facilitate capital formation. In the decades since, we have seen that when the SEC does its job—when there are clear rules of the road and a cop on the beat to enforce them—our economy grows and our nation prospers. But when we take our eyes off the ball—when we fail to root out wrongdoing, or to adapt to new technologies, or to really understand novel financial instruments—things can go very wrong.”

Gensler will speak about his time as the chair of the Commodity Futures Trading Commission (CFTC), a role he occupied when the U.S. and global economies were still reeling from the financial crisis.

“My fellow commissioners and I took decisive action to increase transparency and reduce risk in the $400 trillion swaps market,” he says. “I’m proud that 85% of our actions passed the commission with bipartisan support. If confirmed as SEC chair, I will work with my fellow commissioners, the SEC’s exceptional staff, and the members of Congress to ensure our markets remain the world’s best.”

Gensler says he will focus on “strengthening transparency and accountability in our markets, so people can invest with confidence, and be protected from fraud and manipulation.”

Taking a page from the book of Boston Mayor Marty Walsh, whom President Joe Biden nominated as secretary of labor, Gensler also takes time in his opening remarks to cite his working-class roots.

“I’m a product of a working family,” he says. “Neither of my parents went to college, but my father was able to take his mustering-out pay from World War II and start a small business that would eventually send my four siblings and me to college. That is the kind of economic opportunity that should be available to each and every American—no matter who they are. I believe our markets are essential to providing that opportunity.”

Gensler goes on to suggest his academic experience has also helped prepare him for the role of SEC chair.

“In my current role as a professor at MIT, I research and teach on the intersection of technology and finance,” he says. “I believe financial technology can be a powerful force for good—but only if we continue to harness the core values of the SEC in service of investors, issuers and the public.”

As PLANADVISER has reported, Gensler is perhaps best known for being a senior adviser to U.S. Senator Paul Sarbanes during the drafting of the influential Sarbanes-Oxley Act, which, among many other provisions, established that top management of publicly owned companies must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity were made much more severe by the Sarbanes-Oxley Act.

Other relevant details in Gensler’s background include his service as undersecretary of the Treasury for domestic finance from 1999 to 2001 and assistant secretary of the Treasury for financial markets from 1997 to 1999. Furthermore, Gensler was chairman of the Maryland Financial Consumer Protection Commission from 2017 to 2019, and he served on the CFTC from 2009 to 2014, leading the Obama-Biden administration’s reform of the swaps market.

At this stage, the evidence suggests Gensler’s nomination is likely to succeed. Case in point, the American Securities Association (ASA) this week sent an open letter to the Senate committee strongly endorsing Gensler.

“It is our hope and expectation that Mr. Gensler will be a strong, independent voice for America’s working families, retirees and savers who invest in our markets for a better future,” writes ASA CEO Chris Iacovella. “I have personally known Mr. Gensler for over 10 years, and I worked very closely with him on the implementation of the Dodd-Frank Act while we both served the American public at the U.S. Commodity Futures Trading Commission. While he is a person of immense intellectual acumen, he is also pragmatic, reasonable and open to listening to all points of view as he develops policy. I have always found him to be honest and forthright in our discussions and very eager to engage in a constructive way on the specifics of highly detailed policies that impact our capital markets. For these reasons, the ASA supports his nomination.”

In the letter, the ASA outlined its desire to work with Gensler on several issues critical to maintaining confidence in capital markets, including:  

  • Protecting the personal information of retail investors by eliminating the collection of their personally identifiable information (PII) by the Consolidated Audit Trail (CAT);
  • Maintaining Reg BI as the national standard of care for broker/dealers (B/Ds) when providing investment advice;
  • Holding Wall Street accountable by examining whether “naked” short selling is happening, reviewing stock lending practices and proposing reforms to Reg SHO;
  • Developing and implementing a capital formation agenda that increases participation and access for all Americans while helping small and middle market businesses raise capital they need to grow and create jobs;
  • Implementation of the Holding Foreign Companies Accountable Act to prohibit U.S. listings of fraudulent companies controlled by the Chinese Communist Party (CCP); and
  • Working together on disclosure, investor choice and bond classification related to environmental, social and governance (ESG) matters for public companies.

The Insured Retirement Institute (IRI) similarly published an open letter this week that includes suggested questions for the Senate committee, as follows:

  • How would the nominee propose to preserve and promote access for retirement savers to professional financial guidance, education and information?
  • Would the nominee support the continued modernization of the regulatory framework to facilitate the use of new, modern and innovative technologies by issuers and B/Ds to streamline processes and improve the investor experience through, for example, expanded use of electronic signatures and notarizations, and the designation of electronic means as the default method of delivery for required disclosures and other documentation?
  • Would the nominee prioritize the development of a more effective registered index-lined annuity (RILA)-specific registration form to facilitate greater competition in this space and to address the misalignment between the current registration forms used for RILAs and the information needed by investors who might benefit from purchasing these products without having to wade through irrelevant, excessive and confusing disclosure documents?

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