Advisers Remain Focused on Market Volatility for Q2

Market volatility poses a real challenge for advisers working to keep clients focused on longer-term goals.
A majority of advisers (72%) say market volatility is contributing to changes in the way they manage their businesses, according to the Financial Professional Outlook survey from Russell Investments.

An aging client base (40%), rising interest rates (28%) and the impending regulatory challenges related to the proposed Department of Labor’s (DOL) fiduciary standard (34%) were also considered significant factors, although much lower than volatility.

“Advisers’ focus on volatility makes sense, given the prolonged period of market instability and related negative sentiment among clients,” says Sam Ushio, director of practice management for Russell Investments’ U.S. adviser-sold business. “However, advisers may be missing a chance to confront some impending threats as the landscape for financial advice quickly evolves.”

Rather than taking a “wait and see” approach, Russell suggests advisers look at the bigger picture and evaluate the sustainability of their business model, Ushio says.

Client pessimism rose significantly in the first quarter of 2016 to 29% of those surveyed, up from 22% in the fourth quarter of 2015. Advisers, however, were a bit more optimistic and viewed future volatility as an opportunity. Market volatility presents a challenge for advisers and their clients to stay focused on long-term goals, Ushio says.

NEXT: Impact of fiduciary standard proposal

The survey also found that 61% of advisers expect slight or no impact from the DOL fiduciary standard proposal, with only 21% expecting a significant impact. Close to half (49%) of advisers are not making any changes until after the rule is finalized.

While fewer than one-third (32%) of advisers are preparing to maintain a competitive advantage and enhance business growth in 2016 by re-engineering their client service model, even fewer advisers are considering the DOL proposal as an opportunity to revisit how they are managing business risks—a mindset that would likely make adapting to the DOL proposed rule easier, Russell says. Only 13% of advisers surveyed have considered redesigning their service model to prepare for the potential fiduciary standard.

“It was surprising to see how many advisers underestimate the potential business impact of the proposed DOL rule," Ushio says. “However, many of the changes necessitated by the proposal are rooted in best practices already used by top firms. Instead of planning on hypothetical projections, we’ve found that advisers who maintain a sustainable service model and develop client segmentation strategies—regardless of current market and industry pressures—tend to consistently deliver lasting, high-quality client service, ultimately improving their client engagement and overall quality of service.”

According to Ushio, advisers are able to build sustainable businesses by maintaining a manageable client base and product offering, documenting and implementing key processes, and consistently finding ways to optimize client experiences. Going forward, advisers will need to stay ahead of disruptive trends stemming from technology, regulatory change and market shifts. “In a continually evolving environment, a big-picture mentality will be critical to continue meeting client needs while maintaining a competitive advantage,” Ushio says. 

The full survey findings are available here.