Over the holidays I had a conversation with a friend who coached football about how several legendary college and professional coaches have maintained a high level of consistent success for decades. Was it their work ethic, ability to surround themselves with talent, competitiveness or passion? Clearly all of the above. But a key secret to their success is a healthy intellectual curiosity that drives them to continually learn and adapt to the ever-changing world and game.
Managing money for clients is no different. Sticking to the traditional 60/40 asset allocation in today’s low growth, low income environment is like running the wishbone offense in football. It may have worked in the ’70s and ’80s, but in today’s game it likely won’t get the job done. Likewise, we have to advance the way we think about investing to stay relevant. This concept was reinforced in surveys FS Investments conducted with advisors and investors.1
In a time when alternative investing strategies are gaining traction, the data showed a large gap between investor and advisor knowledge. When we compared the responses of advisors and investors, it revealed a pervasive loop that could be holding investors back.
We call it a blind spot. In our most recent survey, 6 in 10 investors felt their advisor should share more information,2 and the majority of those who were not invested in alternatives indicated that their advisor had never approached them on the asset class. Two findings may explain why:
- Advisors believe there are not enough effective alternative products available.
- Advisors think the investor-level educational resources available are not good enough.
The good news is that a vast majority of investors surveyed rate their advisor as being effective at communicating complex financial concepts.3 This ability is tied to positive outcomes, such as satisfaction. Since nearly half of investors tend to accept their advisors’ recommendations, advisors should feel confident when explaining how alternatives fit into their long-term financial pictures.4
The industry needs to evolve. We need better solutions and we need to do a better job educating investors about alternative sources of income and growth. At FS Investments, we will continue to provide tools to help our clients and investors understand how alternatives can help them design better portfolios.
Advisors, like successful coaches, need to be curious. Armed with the proper tools, they can continually adapt to the changing environment affecting their investors’ long-term goals. Only then can we eliminate the blind spot.
1 Results shown are derived from FS Investments’ 2016 advisor study and FS Investments’ 2016 investor sentiment survey and the report by Absolute Engagement.
2 61% of investors under age 50 who had not been approached regarding alternatives felt their advisor should share more information.
3 86% of investors rate their advisor’s ability to communicate complex financial concepts as clear and effective.
4 47% of investors consider themselves trusting and open and generally accept their advisor’s recommendations.
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