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Be the Medicine or Perish Trying

By Grace Williams December 16, 2016

When it comes to top-of-mind issues for advisors, the usual suspects -- Millennials, robos and communication -- continue to dominate the conversation.

FT Advantage, the Financial Times’ market research service, surveyed financial advisors over December 2015-January 2016 to learn more about topics that currently impact their practice.

With the largest wealth transfer on record poised to change the landscape as Baby Boomers retire and Millennials enter the workforce, advisors are scrambling to grapple with the generation gap that comes with multi-generational clients.

Client interaction, expectations and competing with lower-cost offerings such as robos were top-of-mind issues advisors weighed in on.

“Advisors are in for a period of uncertainty,” says Daniel Rothman, director of Insight for the Financial Times. “The advisor of the future will have to reconfigure the business and see their jobs not just being about picking stocks and asset allocation.”

Managing expectations: A meditation on fear versus greed ... versus robos

We’ve all heard the sage pointer to ‘be fearful when others are greedy and greedy when others are fearful.’ But applying this advice in real time can prove far more complicated. For starters, moments to practice one’s fear and greed can vary. So when is it ideal to strike? Moreover, the very volatile nature of the market can make anyone panic one second and rejoice the next, putting advisors in the position of therapist in addition to money manager.

To test this dilemma, look no further than election night, when advisors and clients faced an enormous test of their mettle when it came to their own fear and greed. According to Masood Vojdani, president and CEO of MV Financial, a Bethesda, Md.-based wealth management firm that caters to high net worth individuals and endowments and has $650 million in assets under management, shortly after midnight on November 9, panic ensued and markets tanked. They dipped down by 1200 points, yet by sunrise that same day the market had recovered, albeit still down 200 points. By 10:00, markets had not only recovered, but risen 250 points.

“Clients had fear the week before and greed the week after,” he says in an interview with FA-IQ.

Vojdani adds that his work often takes him into the psychology of helping clients manage their fear and greed and that no matter what, a little uncertainty from time to time is inevitable, even among investors who are looking to go long. However, because robos tend to rely heavily on algorithms and numbers, they cannot account for fear and greed.

“I wish it were a straight line from Point A to Point B and the rate of return was good,” he says. “But that’s not reality. Some years are positive and some are negative. 'Can you stand the up and down?' is the question.”

As information becomes more widely available, the younger DIY investor turning to a robo to cut costs and fees has its merits. Vojdani and Rothman agree that investors looking to ‘set it and forget it’ can reap the great benefits robo services offer.

“In this new world, younger people have less attention [for advice] and are more accepting of computers,” says Rothman, adding that a challenge advisors face with their younger clients is their perception that looking something up equals expertise. “Older people don’t think that’s the case,” he says.

However, nothing is permanent. Once a client’s life and finances become more complicated, or if their needs change, interaction with a real live human could prove to be a wise move.

“The importance of the two-way advisor-investor relationship and the breadth of client-specific issues that an advisor takes into account cannot be underestimated,” wrote FT Advantage in its report. “And, importantly, and however sophisticated the algorithm, [it] cannot be replaced by robots or computers.”

Masood Vojdani

Lose the old-school job description and ditch the Ozzie and Harriet model

The concept of what constitutes a family has evolved exponentially over the past half-century, and to keep up, advisors are best served if they ditch a one-size-fits-all approach. Instead, Robert Steen, an advisor with San Antonio, Texas-based USAA Financial Services, suggests that advisors seek a fuller picture of their clients’ family and life from the start.

“It’s important to ask a lot of questions,” says Steen, whose firm manages $73.27 billion. “Understand how many people are touched by their financial decisions.”

For example, the definition of family has changed, he says. Now, it is common for a family to have grandparents and adult children living under the same roof as the middle generation.

“This can create a lot of stress both emotionally and financially on the clients,” he said. “From an advisor’s point of view, it’s really important to lose the Ozzie and Harriet model you might think exists as the standard.”

In addition to rethinking the realities their clients face, advisors would be best served to consider rethinking what services they offer clients as well, according to Rothman.

Advisors, Rothman says, will need to take a more holistic approach and offer financial management that encompasses wearing more hats than ever before.

In addition to assistance with tax planning and philanthropic strategies, “Advisors will have to rethink what an advisor is, what they do. Is it insurance? Mortgages, maybe,” he says.