As markets gather momentum, advisors gather clients

Financial Professional OutlookWe cover a lot of ground in our just-released second quarter Financial Professional Outlook survey of financial professionals, but for the moment we’ll focus on market sentiment and how it’s affecting the advisory business. The good news is that markets have posted strong year-to-date returns so far this year, with the Russell 1000® Index up 15.48% as of May 31, 2013. This comes on top of a strong 16.42% return for 2012.

Investors are starting to take note. Advisors told us that 32% of them believe their clients are optimistic about the markets looking out over the next three years (see chart 1). That may not seem like a huge amount, but last quarter that number stood at 21%. In that context, an 11-point jump in optimism takes on more significance.

Chart 1: Advisor / investor optimism, pessimism and uncertainty

Advisor / investor sentiment

This chart was created by asking advisors to indicate how optimistic or pessimistic they are about the capital markets looking out over the next three years, on a 5-point scale of “extremely pessimistic” to “extremely optimistic.” Then we asked them to gauge the sentiment of their clients on the same scale.

Adding even more fuel to the feel-good fire is something we call the optimism gap – that’s the difference between advisor and investor optimism – and it’s the narrowest it’s ever been (43%) since we began asking the question in November 2010. None of this comes as a complete surprise, though. With the steady strengthening in many housing markets across the nation and consumer confidence hitting 5-year highs, it’s only natural for investors to want to get involved.1

This leads us to another finding in the survey. Advisors are having good success in their efforts to acquire new clients with 86% of respondents adding more clients than they lost in 2012. Almost half (48%) said they added more than 10 clients. What’s more, advisors feel confident they can maintain that momentum throughout 2013.

Chart 2: How many new clients do you want to acquire in 2013?

How many clients do you want to acquire in 2013?

Responses from the 2nd quarter 2013 Financial Professional Outlook question “How many clients would you like to acquire in 2013?”

Clearly, advisors hope to hit some fairly aggressive client acquisition goals in 2013. For instance, 30% of respondents hope to gain 7 to 10 new clients, 21% are looking to add more than 20 new clients and 17% said 11 to 15 new clients.

The top three acquisition strategies that advisors pointed to for 2013 were receiving client referrals reactively (76 percent), referral prospecting through current clients (54 percent) and professional networking (43 percent). The least popular sources were the use of a business advisory board (2 percent), advertising (6 percent) and social media (7 percent).

If equity markets keep rising, there’s a good chance advisors can achieve the targets they’ve set for themselves. However, we believe advisors should proceed with caution. We don’t think the strong year-to-date equity returns stated earlier should be extrapolated through the rest of the year. In fact, our view is reinforced by the recent May 2013 reading of Russell’s Asset Class Dashboard, where nearly all equity asset classes were at, or had surpassed, the high-end of their historical typical ranges. And as we’ve discussed before on this blog, over time we expect returns for all asset classes to revert to their respective historical mean. The only exception was emerging markets equity.

So, while advisors may have an opportunity to attract new clients, they must also consider that they will continue to face more market complexity as well as more product options, more regulation and more service expectations from clients – all with increasing pressure on fees. Advisors can’t just rely on the same acquisition strategies they’ve used in the past – they need to be smart about how they allocate their time and build their service models so they can grow their businesses intelligently.

1 The New York Times: Home Prices Rise, Putting Country in Buying Mood. May, 20132 Helping Advisors:  Asset Class Dashboard. May, 2013The Russell 1000® Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership.Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

RFS 10909

  1. No comments yet.

Millennials are the future.
Engage them now.

Millennial InvestorSubscribe to the Helping Advisors Blog and receive a free copy of the Millennial Investor.

We will only use your email for Helping Advisors Blog updates.