Big gap between what advisers do – and what clients think they do

Even during the recent market gyrations, financial advisers have maintained their perspective — and attempted to keep clients from losing theirs. A survey of nearly 400 advisers conducted by Russell Investments during the first few weeks of August found that 72% of the respondents reported being optimistic about the capital markets over the next three years. When asked what they think their clients feel about the capital markets over the next three years, however, only 13% of advisers estimated they are optimistic. In fact, 55% said helping clients in or near retirement maintain a realistic perspective is they most valuable service they provide. But advisers aren't so sure their clients see it that way. They believe clients see the adviser's biggest value as helping provide principal protection and sufficient retirement income. “Advisers think their value is providing that perspective, but investors are almost entirely focused on what's in the press right now,” said Phill Rogerson, a managing director at Russell. “Advisers are constantly trying to strike a balance with their clients and this isn't an easy feat, especially in the current volatile environment,” he added. “On the one hand, they are addressing short-term concerns about the markets and clients' resulting uneasiness, while on the other hand they are trying to guide clients towards long-term goals.” In many cases, that means taking on some portfolio risk. Even though the majority of advisers say they are much more optimistic about the financial markets than their clients, 68% of the advisers surveyed said they think their clients have realistic expectations about retirement. Another point that stood out in the survey was that advisers think there is a dearth of tools to help them facilitate conversations with clients who have unrealistic retirement expectations. Nearly 40% of respondents said they use a detailed plan, followed by 16% who give a presentation about how to think about retirement and 14% said they use a blank piece of paper. “It took the industry 50 years of research for modern portfolio theory to evolve, but the decumulation phase is mentally different and the focus on this is relatively new. It is not surprising that the approach to generating income in retirement is still developing,” Mr. Rogerson said. “Investors are increasingly looking for personalized and flexible investment plans that allow them to maintain their standard of living in retirement and mitigate the risk of running out of money.” He added: “Advisers must recognize that traditional investment approaches have to evolve to meet these in-retirement needs.”