The 3 most important topics advisers will discuss with clients in 2014

Are interest rates and these other items on your agenda?

Jan 16, 2014 @ 10:16 am

By Liz Skinner

Most investors are fairly optimistic that 2014 will be a decent year for performance, but financial advisers intend to inject a little more caution into client conversations.

About 30% of advisers said the most important thing they'll discuss with clients this year is the potential for rising interest rates and the impact on portfolio performance, according to a survey of 302 advisers sponsored by Janus Capital Group and completed by Market Strategies International.

Nearly all advisers surveyed, 93%, named the impact of rising rates as one of the top five most important topics to discuss in 2014, and many advisers said they don't think their clients are as worried about rate increases as they should be, according to the survey, which was conducted from mid-December through early January.

Jeffrey Roof, president of Roof Advisory Group, intends to bring up interest rates with clients, and in fact, has done so for years.

“While we talk about the possibility of rising rates in an academic sense, it's been a long period of time since clients have seen the impact of it on their portfolios directly,” he said. “We'll help them understand what we're doing from a management standpoint, and that the impact on their portfolio is real.”

Tony Ogorek of Ogorek Wealth Management said he also will address interest rates with clients, but his message is a little different.

“I wouldn't be surprised if rates don't rise as much as expected, or that any increase is relatively minimal,” he said. “Investors should always be concerned about any consensus concerning the market, because more times than not, the consensus has been proven wrong.”

Edwin Landis, president of Landis Financial Services, has a broader message for clients: “If the government stops pumping money into the economy and interest rates start to rise, it's going to crush the value of existing bonds, and stocks are not going to be doing nearly as well.”

This leads to another issue uncovered in the Janus survey: portfolio re-balancing as a result of equity market highs. About a quarter of advisers said this topic is first on their list to discuss with clients, and 84% ranked it in the top five.

Mr. Roof will remind clients that even though the equity markets have been doing well at the macro level, he needs to continue making portfolio management decisions and considering new investment choices.

“Despite attractive market returns, we do not want a sense of complacency,” he said.

According to the survey, advisers will seek more diversification and expect to steer more assets toward multiasset-class mutual funds in 2014, and fewer into fixed-income investments.

“We will be explaining that buy and hold is not going to cut it because most clients don't really understand the markets,” Mr. Landis said.

Another issue that a quarter of advisers said will be the most important conversation topic with clients this year is income generation methods. About 84% of advisers included this topic among their top five for 2014.

Though clients proactively bring up the subject of income generation, only 8% of advisers believe their clients understand the methods of procuring income. Advisers participating in the survey said their clients specifically ask about maximizing retirement income, ensuring regular payments and generating income to beat inflation, among others.

These three conversation topics will be among those debated in Denver next week when InvestmentNews editor Frederick P. Gabriel Jr. moderates a panel of industry leaders discussing the Janus survey results.

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