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Problems Many Advisors Will Need to Solve Soon

By Crucial Clips     December 5, 2018
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ @ Schwab Impact Conf., Oct. 30, 2018 

GARRETT KEYES, REPORTER, FINANCIAL ADVISOR IQ: As time changes, so does the advice industry. We’re here at the Charles Schwab conference in Washington D.C., speaking with experts about problems advisors may encounter in the near future and what they can do to solve them.

JIM MCDONALD, EVP & CHIEF INVESTMENT STRATEGIST, NORTHERN TRUST: Well, I’ve already seen this challenge start to arise as clients have questioned their exposure to the stock market in the wake of the big uptick in volatility. And I think the best approach to that is to re-examine with clients what the objectives of their portfolio are and to make sure that they’ve got the right assets to help meet those goals.

Clients should not be questioning why they own stocks after just a 10% correction, so spending some time focusing on the goals of their portfolio and the investments they have to help reach those goals should help make those discussions during periods of heightened volatility a little bit easier.

CANDICE TSE, HEAD OF U.S. MARKET STRATEGY, STRATEGIC ADVISORY SOLUTIONS, GOLDMAN SACHS ASSET MANAGEMENT: We believe that there is more volatility in store, but it’s not sustained elevated levels of volatility. It’s actually episodic volatility, like we’ve seen. So to prepare for this episodic volatility, we believe that advisors should actually focus on strategic, long-term asset allocation with a risk management framework in mind, so perhaps thinking about things like diversification. But not only that, they should think about things like utilizing big data to perhaps give them an informational advantage when it comes to investing.

KIM LAUGHTON, PRESIDENT, SCHWAB CHARITABLE: So every challenge is an opportunity, and advisors are definitely facing the challenge and opportunity of having to offer many, many more services than they ever have before. So starting from the core of investment management, more and more clients are expecting them to help with taxes, estate planning, college planning, and more recently, charitable planning.

So in a recent survey, 80% of advisors are now offering charitable planning as a value added service, but oftentimes, the challenge is they don’t have the expertise to know what to say all the time. I think the solution to that is to make sure that they know that there are resources out there.

OMAR AGUILAR, SVP & CIO, EQUITIES AND MULTI ASSET STRATEGIES, CHARLES SCHWAB INVESTMENT MANAGEMENT: So the biggest challenge is understanding what the client needs and what the client wants and find that happy medium. Behavioral anomalies and behavioral finance and biases usually affect what the client wants, and then you have to find what they need. So what they can do is have a clear investment objective, number one, create a plan, and execute very disciplined on that plan. If you do those three things, they will actually do very well and have a long-lasting relationship with the clients.

MICHAEL KITCES, DIRECTOR OF WEALTH MANAGEMENT, FINANCIAL ADVISORY GROUP: I think the biggest challenge that we all face as advisors is answering the fundamental question, "What value do you add on top of what the technology provides?" We look at this environment of robo advisors as though it’s robo versus humans, and maybe the robots will replace us, but what’s happened in every technology transition or industry’s history is the technology doesn’t replace advisors. It replaces the lowest-level functions that advisors fulfill and force us all to move up and add value on top.

And so to me, the biggest question in today’s transition, which is the arrival of robo advisors and the automation of asset allocation is what value will you add on top of the robo advisor technology we will all use in five years?

The biggest way to survive and thrive in the future as an individual advisor is figure out who are your 50 great clients that you want to serve. Most of us are wildly successful with no more than 50 great clients. There might be hundreds, but the 80-20 rule applies, and most of the business drives from just a small number of clients. And so as we get more specific and focus on those, it becomes easier and easier to figure out: What is my infrastructure? What is my technology? What is my business model? What is the rest that I need? Not for all these different clients I’m serving, but my 50 great clients.