Advisers Say Clients Falling Short of Goals

Advisers responding to a recent survey say clients are at risk of falling short of their financial goals if corrective action is not taken.

In fact, 44% of advisers considered up to a quarter of their client base to be at “significant risk,” and an additional 36% considered a quarter to half of their client base to be at “significant risk,” according to the most recent Financial Professional Outlook (FPO) quarterly survey of financial advisers by Russell Investments.

Asked about the reasons why clients were at risk, approximately a quarter of the advisers said clients are not willing to save enough (24%), or that they simply do not have enough money (22%). Other respondents cited “overall market risk” (20%) or “clients holding portfolios that are too conservative” (17%) for their retirement.

The three most common reasons advisers fear they may not reach revenue goals in 2010 are a lack of qualified leads and referrals (23%), the fact that clients remain on the sidelines (in cash) due to market concerns (22%); and increased regulatory oversight and compliance requirements (19%).

On the practice management front, most advisers indicated they will respond to regulatory changes by “seeking advice from compliance officers/hierarchy” (62%), “reassessing their clients’ situations, risk tolerances and goals” (48%), and “explaining changes to clients” (40%).

Investment Selection

Advisers responding to the survey appear to have a greater level of certainty about the equity markets over the next 12 months.

Regarding each of 13 asset classes, noticeably fewer advisers marked “not sure” about their plans to shift allocations compared to three months ago. For each asset class, 21% to 40% fewer advisers are unsure, compared to the first quarter survey results in which, on average across the asset classes, 31% of advisers planned to increase allocations (now up to 33%) and 23% planned to decrease allocations (now up to 27%).

Advisers’ planned allocations to value-oriented U.S. equity asset classes and real estate increased (up 7 percentage points and 8 points, respectively). On the flip side, 39% and 43% of advisers plan to decrease their allocation to corporate and high-yield bonds respectively, an increase of 9 points since March 2010 in both instances.

From a product perspective, in light of regulatory changes or potential action, half of all advisers surveyed plan to be more cautious about recommending leveraged exchange-traded funds (ETFs), and close to a third (31%) indicated the same approach in relation to equity-indexed annuities.

More information about the FPO, including a video and a full report of findings can be found here.