Although financial advisors are paid to provide advice to others, they also have professional worries of their own. In today’s rapidly changing world, there are many things to keep up with and financial advisors have to stay on top of a lot. Even as they assist their clients with matters such as investments, tax planning and retirement planning, some issues keep advisors up at night. So what are the matters that weigh the most on advisors in the current environment?
The Onset of the Digital Advisor Business Model
In the last few years, a number of online financial advisors, such as WealthFront and FutureAdvisor, have opened for business. Human advisors are concerned about the potential for these digital advisors, or so-called robo-advisors, to take away their market share, particularly among the more digitally savvy younger clients. Clients can enjoy an entirely online experience with some of these digital financial advisors, beginning with the opening of their accounts to the integration of all of their financial accounts. These online advisors also offer competitive fees.
A lot of advisors are still not up-to-date with the changing technology landscape. Some of them were unprepared as they faced rising demands during the Great Recession that their systems couldn’t keep up with. Many have made the necessary investments since then so as not to be caught on the wrong foot in future. Integration with outside software is another area where some advisors are lacking. Advisors fear that there is more to be done in this area, particularly as the digital advisors are adept in technology adoption and integration. (For more see Trends Challenging Financial Advisors.)
Loss of Confidence in the System
Advisors also continue to worry about the shortcomings that have been exposed by the 2007 to 2008 financial crisis. They tend to wonder if the safeguards that have been put in place since then are adequate. Advisors have also seen a fallout in client confidence as a result of the financial crisis, and the Bernie Madoff scam, which is causing them to trust investments less. Clients also tend to trust their advisors less as a result.
Federal Reserve Moves
Even as the Federal Reserve is preparing the markets for an eventual return to normal monetary policy, this is also creating worry for financial advisors. For one, they are concerned that their older clients, whose portfolios are more tilted towards bonds, are likely to see an erosion in their portfolio values as interest rates start going up. And advisors are also concerned about the potential for inflation down the road. And they also worry about how the sorts of excesses that have been committed during the last few years of easy monetary policy and whether these could ultimately bring down any major financial firm and negatively impact any advisors who might be their counterparties.
The government is trying to move towards a fiduciary standard for advisors such as broker-dealers so that they have to keep their clients’ best interests in mind when proposing investments for their retirement accounts. This is different from a basic suitability standard that doesn’t hold an advisor responsible for providing fiduciary advice. With a fiduciary standard, advisors can’t propose investments that generate the most commissions for themselves but are not in the best interests of a client. This move, and potential for further government regulation, is also a source of worry for some advisors.
Geopolitical events that upset the financial markets are also a cause of worry for financial advisors. The Eurozone crisis, for example, or a war in the Middle East, could potentially impact the United States markets. Even positive surprises that catch advisors by surprise, such as the development of new forms of energy, could change the world and have a negative impact on their client portfolios.
The Bottom Line
Even as financial advisors help clients with their money matters, they deal with their own worries as well. In recent years, matters such as the changing technology landscape and growth of digital advisors, the fallout from the financial crisis and the prospect of growing government regulation have been sources of concern for financial advisors.