[MUSIC PLAYING]
Mayank: I am Mayank Goradia, head of Integrated Portfolio Construction at Fidelity Investments. And I'm on a quest, a quest to help advisors profitably grow their book through the art and science of portfolio construction. With expert insights and groundbreaking research, we'll embark on a journey where wisdom meets innovation and every choice counts. So join me on the search for the next great portfolio. In the fast-paced world of financial advising, staying ahead of the curve is essential. Today, advisors are facing challenges such as wealth transfer, regulatory changes and increased competition. In this episode, we will continue our search for the next great portfolio to help advisors navigate these challenges, differentiate themselves, and succeed in a competitive market. Stay tuned to learn how mastering portfolio construction principles can set you up for success in today's dynamic landscape.
Mayank: The financial advisor is also facing pressure to meet increasing client needs, client expectations, and scale their business. How do you think the advisor should actually approach to knock down these challenges?
Jordan Burgess: Understanding today's market conditions, geopolitical events, and how to build portfolios has probably never been more challenging. The number of products that are available in terms of structures, whether it's mutual funds, ETFs, share classes of mutual funds, SMAs has proliferated significantly over the course of the last 5 to 10 years. The need for advisors to scale their business while delivering for greater levels of personalization and customization has never been higher. So how do you do that? I think you need to think through it in a few ways. But it starts by having the right partners. And the right partners are probably some of the asset managers. And the reason I say that is, you need people that will help you understand what is happening in the markets, not only one point of view, but somebody you can interact with. Number two is you need a provider that has that range of vehicle structures as well as products across all asset classes, and then somebody that can provide insights to that end investor that may be helpful to have an advisor understand what they're looking for in terms of personalization. Even when you have all that, you have to help an advisor put it together though. And what does put it together mean? It means understanding that end client's needs and building a portfolio for them.
[MUSIC PLAYING]
[TEXT ON SCREEN]: Do new products require new thinking around portfolio construction?
Amanda Robinson: There is more investment optionality. And with that, comes investment research that financial advisors need to know about. If a client comes in their office, and they read a headline on crypto, an advisor needs a point of view on that. If they heard about an alternative investment, if they heard about direct indexing, all these emerging investments that are making headlines, advisors need an answer, and they need a point of view on. So all of this is increasingly taking financial advisors away from what a traditional advisor has been doing in the past.
Bobby Barnes: Some of the challenges I see, and this is a bit of a double-edged sword, if you look at the investing landscape today, it is a case that there are more individual mutual funds, and there are more individual ETFs than there are stocks and all of the U.S. stock market. And so you have this proliferation of available investment vehicles that they must choose from. And so having tools at their disposal to help them weed through all of these offerings and make these selections while doing so, keeping in mind the investment objective of their clients and the risk appetite or tolerance of their clients, I think is one of the challenges and opportunities for advisors.
[MUSIC PLAYING]
[TEXT ON SCREEN]: How are client demands shifting?
Amanda: Some other things that you've got to think about when it comes to financial advisors is the range of clients that they have and the range of needs that they are looking for. So let's say a individual that is in Gen Z, Gen Z in 2040, it's going to make up half the workforce. The way they work with a financial advisor is going to look and feel a lot differently than the way a financial advisor may work with someone who's a millennial or who's a Baby Boomer or who's in Gen X. So advisors have to increasingly shift their service model for four different generations of clients that they're working with today.
Phil Orlando: I think the biggest challenges for the advisor to understand the sea change that's about to happen, that looking out over the next 20 years, we've got something in the order of about an $85 trillion wealth transfer. Advisors have to recognize that that's going to happen. They may be very comfortable with their current practice, managing it in a very patriarchal manner. But the reality is that two-thirds of these advisors have never met the adult children of their clients. One of the greatest criticisms that I hear from spouses of clients is that when they go in for the meetings, the financial advisor only talks to the husband, doesn't talk to the wife. So statistically, as this generational wealth transfer happens, the financial advisor runs the risk within the first year or two of losing that relationship because their client, the husband, has passed away, and they've never bothered to really develop the relationship from the spouse's perspective or the adult children's' perspective. So I think understanding this tsunami is coming and taking some proactive steps to better prepare I think is critically important.
Mayank: So you work a lot with advisors. What are the challenges typically these advisors face?
Anand Sekhar: The number one challenge that we're seeing right now is growth. And quite candidly, we see that there's perhaps historically been a reliance, I think, especially as you think about a bull market, on market growth to sustain profitability and the economics of the business. We believe that organic growth is critical for the long term and from a sustainability perspective. And I'll just give you a few things that I think are critical for that growth to happen. The first is avoiding the headwinds of growth. And what are some of those headwinds? Right now, one of the biggest headwinds you can see is the age of your client base. Are they in distribution mode? Or are they in accumulation mode? The second is a commitment and I would say to really an understanding an evolution of your offering. Are you being relevant for the next generation client and the evolving investor needs that are rapidly evolving because of access to information and a host of other things? And then the third thing is, I think more than anything else, discipline and focus on organic growth. And I think that has not been something that many advisors have really been focused on is actually having a disciplined process and approach and methodology for that growth.
Mayank: As we come to the end of today's episode, we have uncovered key steps for financial advisors to overcome the challenges they face and build the best portfolios for their clients. From collaborating with experts to navigate the complex world of investment products to exploring emerging asset classes like cryptocurrency and preparing for the upcoming wealth transfer wave, advisors are equipped to evolve their offering and cater to the needs of the future generation. Thank you for tuning in and joining us on this insightful journey. Until next time, keep evolving and stay ahead.
VO: Next time, on The Search for the Next Great Portfolio.
Amanda: I really think it's this trend around personalization at scale that feels like the hot topic. You're seeing it in the headlines. You're seeing it at every conference. But I think a massive driver that is using technology in the right way.
Matt Horne: Not every blockchain is built the same. Not every digital asset is built the same. Each one, just like stocks and bonds, we do fundamental research on.
Darby Nielson: We've done a lot of work on including alternative asset classes in a portfolio. We are doing it right now in some of our own model portfolios.
Chris Pariseault: We know that across the capital structure that there can be different nuances in market efficiency that could be easily exploited if you do your homework.
[MUSIC PLAYING]
