Investor sentiment

2020 Global Survey of Financial Professionals

June 28, 2020 - 20 min read

Executive Director, Natixis Center for Investor Insight – Natixis Investment Managers – US Distribution

Times like these: Financial professionals chart a course from a pandemic market to profitable growth

Faced with the turmoil and uncertainty of the pandemic market, financial professionals across the globe are remarkably optimistic. Conducted in March and April, at the apex of coronavirus volatility, the 2020 Natixis Global Survey of Financial Professionals finds they project business growth of 2.5% in 2020 and 13.7% over the next three years. This despite anticipating that the S&P 500¹ will suffer a -7.0% loss and the MSCI World Index² will lose -7.3% when the year ends.

As the 2,700 professionals in 16 countries who participated in the 2020 Natixis survey contemplate the reality of the biggest market drawdown since the Global Financial Crisis, they know the road to profitable long-term growth won’t follow the status quo. Instead, the pandemic market will accelerate changes already shaping industry and demand that financial professionals up their game in three critical areas:

Client service: Professionals will need to evaluate and address the expectations of clients struggling with an uncertain world and risky investment landscape.
Business planning: Professionals will look for expanded services and enhanced efficiencies that allow them to capture more clients and a great share of assets.
Investment strategy: Professionals will need to reevaluate both where and how they invest to thrive in a new market environment.

While financial professionals are actually adapting to meet long-term industry trends, the most pressing step will be helping clients navigate the immediate emotional challenges of the pandemic market.

2020 Global Survey of Financial Professionals executive summary

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Client service: Demonstrating value and earning trust

After a 12-year run in which the S&P 500 delivered average annual returns of 13%, investment professionals won’t count on market action to drive asset growth in 2020. Fewer than half (47%) think markets will contribute to growth.

Two-thirds (67%) say growth comes down to gaining new assets from new clients. Another 63% say gaining new assets from their current clients is equally important. Professionals may be surprised to discover that enhanced productivity (22%) and additional fee-based services (18%) may contribute more to growth as their business strategy evolves.

Shoring up emotions and assets

As the first step to growth, advisors will need to shore up current AUM by helping clients overcome emotional reactions to the pandemic market. Professionals will have their work cut out for them on this front, as clients have had their first taste of the first real volatility in more than a decade. In fact, three-quarters of professionals say investors forget that 12-year bull market was unprecedented. Eight in ten say the bull market made investors complacent about risk. One-third of financial professionals say they need to get better at managing client return expectations.

The evidence in support of professionals’ concerns is clear: Our own survey data shows a 121% gap between the market returns of 11.7% above inflation clients expect³ and the 5.3% above inflation professionals say is realistic.

Investors expect higher returns than financial professionals say are realistic

Chart showing expected returns. Displays Global Average Expectations: 11.7% - Individual investors: long-term return expectations (above inflation); 121% - The expectation gap: The % difference between investor and professional expectation; 5.3% - Financial professionals: realistic long-term returns for clients (above inflation)

Compounding the problem: Two-thirds (67%) say investors were unprepared for a market downturn and almost six in ten (57%) say investors don’t understand the risks of the current market.

Professionals see the effects of this blind spot in volatile times, as three-quarters (76%) say investors don’t recognize risk until it’s already realized. Their ability to help clients navigate market turbulence will be a success factor for many professionals.

Professionals see the blind spots investors miss

Images that reads: "I understand the risks of the current markets." 80% of investors say, "Yes, I do." 57% of professionals say, "No, you don't." and "I am focused on short-term returns." 60% of investors say, "No, I'm not." 79% of professionals say, "Yes, you are."

Key skills needed for growth

When asked what would help them achieve growth goals, few financial professionals think they will win on investment selection and portfolio construction alone. Most think improved client service skills will have the biggest impact.

Most frequently, financial professionals say they need to get better at demonstrating their value beyond asset allocation (47%). They also think preventing clients from making emotional decisions (44%) in times like these will make a difference.

In a similar vein, 31% want to get better at managing client return expectations. And another 28% say focusing on communicating with clients will make a difference.

In the longer term, many professionals (43%) will concentrate on getting to know clients’ next generation heirs. More than a quarter (27%) will reexamine and expand their services beyond investing.

Communication critical to success and client retention

When asked what it takes to successfully grow client relationships, financial professionals put communications at the top of the list. More than half (54%) say frequent client communication is a critical success factor. Faced with current market uncertainties, financial professionals will have ample opportunity to shore up relationships. Four in ten say proactive communication with clients in turbulent times is an important success factor.

Where to focus communications matters greatly, as 41% say a regular review of the financial plan is a must. Ultimately, professionals also say the quality of their relationship makes a significant difference in their success, as 50% stress the importance of getting to know clients personally.

Financial professionals know well what’s at stake. In their assessment of why clients leave professionals, investment performance is near the bottom of the list. Instead, they rank not listening to the needs of clients (60%) and the failure to meet client expectations on communications (58%) as the two top reasons for losing clients. A third (35%) said clients leave because their financial professional failed to meet their return expectations.

Effective communication begins with clarity

One way to enhance communication is to ensure financial professionals are on the same page as clients about the fundamentals. Risk is a primary example. Historically, financial professionals have said that they define risk for clients as failing to meet their goals (25% in 2018, 24% in 2020), but few clients see it that way.

In 2018, only 10% of investors globally looked at risk in those terms. Instead, they see risk in more absolute terms, with the largest number defining it as “losing my assets.” Even as they approach the uncertainty of 2020, financial professionals are equally split in their definition: between “exposure to volatility” (25%) and not meeting goals (24%). Only 22% see fear of losing wealth/assets.

Clients and professionals aren’t always on the same page about risk

7 sets of 2 bar charts comparing Individual Investors to Financial Professionals over where they see the biggest risks in investing.

Business planning: Expanding the opportunity set

While the pandemic market presents many challenges, it also provides an opportunity for financial professionals to step back and consider the business landscape and rethink business strategy. For example, traditional advice models were under pressure by technology before the pandemic, but it’s likely the pressure will increase in recovery.

Digital competition expected to accelerate

When asked who their competition is today, six in ten (62%) say it is traditional financial professionals. Few see DIY tools for investors (16%) as their primary competition or see automated advice platforms (10%) and industry disruptors (9%) as a threat.

But the pandemic has shined a spotlight on technology: Zooms and WebExes have taken over the days of millions working from home. Amazon trucks are a ubiquitous presence in neighborhoods around the world. And a smart TV streaming Netflix has become the hearth for tens of millions of households.

Financial professionals see the writing on the wall and see tech soon catching up to their industry. When asked to project their competition in five years, only one in five think they will face off with other professionals. Instead, disruptors (31%) are their concern, with enhanced DIY investor tools (25%) and automated advice (21%) running close behind.

Only 17% think financial professionals lose clients to disruptors today. But in thinking of the future, it appears they are most concerned with the question: “What happens if Amazon, or Apple, or Google decides to get into the financial advice business?”

Biggest competition now and in 5 years

Results comparison from 2018 and 2020 surveys

Sets of bar charts comparing 2018 and 2020, each year highlighted with biggest competition now vs in 5 years over various factors like automated advice platforms.

The tech opportunity for financial professionals

Financial professionals are not going to sit back and let technology take business away. Many see that it can also be a powerful business resource. When asked about best practices for efficient growth, financial professionals place technology, or strategies best implemented with technology, at four of the top five strategies.

This includes leveraging technology like customer relationship management systems (48%), streamlining their client base (44%), client segmentation (43%), and leveraging tools, like portfolio analytics, offered by asset managers (28%). In fact, niche marketing such as to medical professionals (31%) is the only traditional strategy that ranks in the top five.

Ultimately, enhancing efficiency will serve professionals well as they look to face up to the many challenges facing their business.

Services are critical opportunities to differentiate

Traditionally, many professionals have succeeded by positioning themselves as experts in selecting investments for client portfolios. But clients demand a wider array of services, and professionals are reframing their proposition.

When asked what clients have asked for more of in the past 12 months, financial professionals put retirement income planning at the top of the list. With more of the responsibility for retirement funding shifting from employers and government programs, it’s no wonder that six out of ten (59%) say clients ask for this kind of service.

In general, professionals say clients are asking for a more comprehensive range of non-investment services including financial planning (50%), estate planning (34%), and even educating their family about money and investing (26%).

On the investment side, financial professionals report client interests run in highly specific areas such as tax-efficient investment strategies (40%) and environment, social and governance (ESG) strategies (29%).

An expanding role for financial professionals

Financial professionals have responded to growing demand for these services by assuming a wider range of roles with clients. Most frequently, financial professionals describe their role as that of a financial planner (76%). In this, they are taking on a broader set of responsibilities, helping clients establish goals and integrating services such as tax planning, estate planning, philanthropic planning and college funding planning.

Many are also finding success helping to educate clients on markets and investments as a financial coach (50%). Others still are honing their offering around a specific set of needs and establishing themselves as experts on retirement income (39%). Others see themselves providing support for overly emotional clients as financial therapist (34%).

Roles financial professionals play to clients

Series of alternating blue boxes showing the following... Financial Planner: I help clients navigate all of their financial needs - 76%; Financial Coach: I educate clients on markets and investments - 50%; Retirement Expert: I advise clients on navigating retirement - 39%; Portfolio Architect: I build portfolios and select investments - 35%; Therapist: I help clients rationalize their emotions about investing and the markets - 34%; Consultant: I help clients with their business planning and needs - 22%; Mediator: I help clients with family-related affairs (such as mediating conflicts, trust and estate planning, etc.) - 8%

The prospecting challenge

With two-thirds of financial professionals reporting that growth depends on winning new clients, the stakes have been raised on prospecting efforts. Despite wanting to leverage technology and digital strategies to support their client management efforts, these professionals are still reliant on traditional strategies for getting new clients.

The vast majority of financial professionals (85%) rely on referrals from their current clients. They see this word of mouth endorsement as a critical asset and an important dimension. The next two most popular prospecting techniques – getting referrals from other professionals such as lawyers and accountants (46%) and establishing relationships with the next generation of client families (39%) – both rely on a high level of personal trust and reputation.

Financial professionals are less enthusiastic about other marketing strategies. Although they have long been a staple in many prospecting plans, events and experiences are only effective for one-quarter of professionals (24%). Only 11% say email marketing has been effective in winning new clients. That number could change as more of these professionals leverage technology solutions like their customer relationship management systems.

Personal trust and reputation important when prospecting

Side by side text comparing most and least effective efforts for prospecting. Most Effective: 85% - Referrals from my current clients and contacts; 46% - Referrals from other professionals (e.g. lawyers, accountants); 39% - Establishing relationships across family generations; 24% - Events and experiences (e.g. client seminars, dinners). Least Effective: 11% - Email marketing; 10% - Affinity groups (e.g. private social clubs, hobby clubs); 7% - Social media engagement (e.g. LinkedIn, Facebook); 6% - Advertisements and sponsorships.

Finding the time to find new clients

Even as they say new clients are a key to growth, financial professionals have little time to dedicate to prospecting. The combined responsibilities of managing clients, managing investments, and managing a business leave them about as much time for prospecting as is spent filling out compliance paperwork.

On average, more than 60% of the week is spent managing current clients. This includes 26% of the week spent meeting with clients and another 22% managing client communications. On average, financial professionals spend only 13% of the week managing client investments.

When it comes down to it, financial professionals spend only 8% of their work week, or about half an hour per day, on prospecting activities. Even less time is spent on marketing (3%).

If financial professionals are to live up to high expectations for growth by bringing new clients and new assets to their practice, they will need to find new efficiencies in other areas of their practice.

The average week for a financial professional

Donut chart demoing how financial professionals spend their time. They mostly meet with current clients 26% and manage current client 22%

Investment strategy: Finding greater efficiency

As financial professionals work to balance the competing challenges of servicing current clients with the necessity of prospecting for new clients, many are rethinking investment strategy. Not only are they conscious of how they allocate assets between active and passive and traditional and alternative asset classes, but many are also considering how they make those investments.

The model of efficiency

As financial professionals look for greater efficiency in their practice, they are looking for ways to make their investment process more efficient. In many cases they are finding that shifting client assets to model portfolios provides an advantage they want on both fronts.

Whether they build them themselves, or implement models developed by their firm, or models from third party managers, investment professionals are finding a way to scale their business and ensure a consistent client experience.

On the investment side, professionals most frequently say they implement models for efficient access to a wider range of asset classes (45%). They also like that models make it easier to access investment expertise (38%). More than a quarter also believe it helps them achieve more consistent returns for clients.

Models also offer greater efficiency on the business side of the equation. Investment professionals find the benefits of models include a lower administrative burden (42%), more efficient client reviews (38%), and an easier way to scale their business (35%).

Surprisingly, a smaller number of professionals make the leap from greater efficiency to having more time to prospect (18%), suggesting models may be an untapped strategy for gaining velocity in three-year growth plans of 13.7% and half an hour a day available for prospecting efforts.

Motivations for implementing model portfolios vary by region

Mini bar charts demonstrating how model portfolios vary by region. Global, Asia, Latin America, Europe, North America, and the UK are compared.

Active management: The coaches’ call

While long missing from the investment equation over the 12-year bull market, volatility has returned in earnest with the pandemic market. With volatility also comes greater dispersion of returns, leading eight in ten financial professionals to say the market will favor actively managed investments.

But active management has long factored into their investment strategies: Financial professionals report that 69% of portfolios are allocated to active strategies and they intend to main a high level of active exposure over the next three years. But based on investor perceptions about passive investments like index funds, they will need to make sure clients have all the facts.

Active/Passive allocations: Now and in 3 years

Two sets of mini donut charts comparing currently vs 3 years from now with active and passive investments. showing the following data... Currently: 69% Active Investments; 31% Passive Investments. 3 years from now: 65% Active Investments; 35% Passive Investments

Professionals believe this sudden and steep downturn has taught investors hard-learned lessons about the limitations of passive: Two-thirds think investors have a false sense of security about passive, while seven in ten (72%) say investors are not even aware of the risks of passive.

Financial professionals’ assumptions are spot-on. Our research shows that investors have big misconceptions about passive investments: On average, they think that passive is less risky and that these investments will protect them on the downside.

From their view financial professionals think active management adds value on a number of fronts. This is especially true for less-covered asset classes like small-cap stocks (69%) and emerging markets (69%). They also think active adds value to more efficient asset classes like alternatives (48%) and large-cap stocks (41%).

Taking the alternative route

Given an environment marked by increased risks and declining yields, financial professionals will look more closely at how alternative investments fit into their strategy for the post-pandemic world. It is also likely they will need to learn more about alternatives to implement them effectively.

Currently, three-quarters (76%) of investment professionals report that they implement some form of alternative investments in client portfolios, but on average they rely most on real estate (38%), real assets (35%) and infrastructure strategies (34%). They also implement commodities (25%), private equity (24%), and hedge funds (21%).

Perhaps the biggest constraint on these allocations is the perceived complexity of alternatives. While about half of financial professionals (48%) say alternatives are too complicated to explain to clients, eight in ten also say professionals need more education on alternatives.

Alternatives have a wide range of portfolio applications, and financial professionals demonstrate the need for deeper consideration. For example, of all who implement real estate strategies, almost half use them for diversification, which is clearly a good rationale. But real estate has the highest historical return, and no one thinks of it as a return enhancer.

Global tactical asset allocation is another example. These funds are composed of stocks and bonds. When added to a diversified portfolio (e.g. 60/40) the correlation is typically 0.9 or higher, so they barely provide any diversification benefit. Yet diversification was the top response.

Given all that financial professionals have on their plate, it’s no wonder seven in ten (68%) say they would implement alternatives more if there were an easier way to do it.

Rising to the times

From emotional clients, to new competition, to the drive to win more clients, to managing portfolios, the challenges facing financial professionals will extend well beyond the pandemic market. But given the opportunity presented by crisis, many will see the market shift as an inflection point that allows them to recalibrate strategy and rethink their business model. In the end, it is likely that those who adapt will emerge well positioned to achieve their optimistic growth goals.

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2020 Global Survey of Financial Professionals executive summary

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About the 2020 Global Survey of Financial Professionals

Natixis Investment Managers, 2020 Global Survey of Financial Professionals, conducted by CoreData Research March-April 2020. Survey included 2,700 financial professionals in 16 countries.

¹ S&P 500^® Index is a widely recognized measure of US stock market performance. It is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation, among other factors. It also measures the performance of the large-cap segment of the US equities market.

² MSCI World Index (Net) is an unmanaged index that is designed to measure the equity market performance of developed markets. It is composed of common stocks of companies representative of the market structure of developed market countries in North America, Europe, and the Asia/Pacific Region. The index is calculated without dividends, with net or with gross dividends reinvested, in both US dollars and local currencies.

³ Natixis Investment Managers Global Survey of Individual Investors, conducted by CoreData Research in February and March 2019. Survey included 9,100 investors in 25 countries.

⁴ Natixis Investment Managers, Global Survey of Individual Investors conducted by CoreDataResearch, August 2018. Survey included 9,100 investors from 25 countries.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of June 2020 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided.

Commodity-related investments, including derivatives, may be affected by a number of factors including commodity prices, world events, import controls, and economic conditions and therefore may involve substantial risk of loss.

Diversification does not guarantee a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Asset allocation does not ensure a profit or protect against loss.

Asset allocation strategies do not guarantee a profit or protect against a loss.

The data shown represents the opinion of those surveyed, and may change based on market and other conditions. It should not be construed as investment advice.

Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager.

Alternative investments involve unique risks that may be different from those associated with traditional investments, including illiquidity and the potential for amplified losses or gains. Investors should fully understand the risks associated with any investment prior to investing.

Real estate investing may be subject to risks including but not limited to declines in the value of real estate, risks related to general economic conditions, changes in the value of the underlying property owned by the trust, and defaults by borrowers.

Sustainable investing focuses on investments in companies that relate to certain sustainable development themes and demonstrate adherence to environmental, social and governance (ESG) practices; therefore the universe of investments may be limited and investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. This could have a negative impact on an investor's overall performance depending on whether such investments are in or out of favor.

You cannot invest directly in an index. Indexes are not investments, do not incur fees and expenses and are not professionally managed.

Volatility management techniques may result in periods of loss and underperformance, may limit the Fund’s ability to participate in rising markets and may increase transaction costs.

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The index information contained herein is derived from third parties and is provided on an “as is” basis. The user of this information assumes the entire risk of use of this information. Each of the third party entities involved in compiling, computing or creating index information disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to such information.

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