A decade removed from the 2008 financial crisis advisors have shifted toward “safer” products as they approach planning through a more balanced and holistic lens, a new survey found.
Other factors pressuring the shift include baby boomers aging, doubts about the long-term survival of Social Security, evaporating defined-benefit pensions and the need for guaranteed income, said Craig Hawley, head of Nationwide Advisory Solutions.
“The data reflects the fingerprints of the recession that are all over advisor-investor behavior today,” Hawley said.
“People are listening to their advisor and are willing to follow holistic planning advice and looking for an advisor who is a fiduciary and asking, Are you on my side of the table? Are you going to protect me?”
Results, compiled from a survey of 372 advisors, found that since the 2008 crisis:
- 63 percent of advisors said overall use of fee-based/no-load products had increased.
- 73 percent said they had “significantly” or “somewhat” increased providing clients a more comprehensive approach to financial planning.
- 43 percent increased their use of index annuities, 2 percent decreased their use, 24 percent reported no change and 31 percent did not use the product.
- 37 percent increased said their use of variable annuities with guaranteed living benefits, 13 percent trimmed their use, 31 percent reported no change and 19 percent said they didn’t use the product.
- 31 percent said their use of a fixed annuity had increased, 7 percent cut back, 42 percent reported no change and 20 percent said they stayed away from the category.
The movement to products that offer safety, “floors” and protected income is a sign that advisors want to position client portfolios to absorb the next downturn more effectively than in 2008. Retirement investors saw asset values collapse by double-digit percentages after that downturn.
Sixty-one percent of advisors said most investors today are better prepared to withstand a future downturn compared to most investors before the crisis, the survey found.
Planning Over Performance
A decade ago, when annuity sales volume was 20 percent higher than it is today, advisors were more interested with “alpha,” or beating market indexes by a fraction of a percent, and talking about their performance, Hawley said.
A commission-based approach to advice rewarded advisors for an individual product sale as well.
The chest-thumping has receded, and the discussion has instead turned to floors so that clients have enough guaranteed income to cover their needs should markets turn south.
Performance is no longer the crucial goal it used to be, Hawley said.
Fee-based advisory models have helped steer advisors into financial tour guides rewarded for preparing clients to face life events like buying a home, funding college tuition, guaranteeing income in retirement and protecting assets against market dips, he explained.
Looking ahead, advisors said they want to serve as stewards of their clients' financial and mental well-being, the survey found.
When advisors were asked to list priorities to prepare clients for the next downturn, the survey found that:
- 63 percent said educating clients about market cycles.
- 57 percent said focusing on holistic financial planning.
- 28 percent said adding annuities to provide guaranteed income.
- 28 percent said adding annuities to provide guaranteed downside protection.
- 25 percent said investing more conservatively.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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