The coronavirus pandemic is first and foremost a human tragedy whose scale is yet to be fully comprehended.
The resulting economic shock of recent weeks has also created unprecedented disruptions which have left many people confronted with pressing questions about job security, threats to household income, tax liabilities, and the survival of their businesses. Financial advisers now face the task of dealing with many clients who, beyond all this, will probably have suffered sharp falls in the value of their assets.
Louise Gunderson, an FT 400 adviser with UBS Financial Services in New York, has vivid memories of the last financial crisis. When the US stock market began dropping in February, the first thing she did was check that her clients had enough cash. “After 2008, I make sure people have at least a year of cash flow available,” Ms Gunderson says.
Like many other advisers, Ms Gunderson and her team of seven have spent most of their time in recent weeks reassuring investors about their long-term plans and talking through clients’ personal worries.
Against the distressing backdrop of crisis, the eighth annual edition of the Financial Times 400 Top Financial Advisers provides a snapshot of the best professionals at traditional US broker-dealers.
The scale of assets under management is important in selecting the FT 400, as is a positive record in growing this figure, which is a measure of client retention and investment performance. But the list also recognises that advisers’ jobs extend to acting as consultants, life coaches and even amateur psychologists.
More advisers have advanced industry designations such as those for financial planners, retirement specialists or financial analysts. Some 72 per cent of the FT 400 advisers have at least one such credential, up from 69 per cent last year.
Managing client relationships will be more important than ever this year, in the wake of a crisis many commentators say is without modern precedent. Advisers had already been emphasising services besides investing such as longer-term financial planning and tax management.
In recent years, a growing number of advisers have also given up assembling their own mix of investments for clients in favour of selecting from an array of model portfolios. These are computer-aided blends of stocks, bonds and funds that are actively managed to the investor’s risk tolerance and financial goals. Some 20 per cent of advisers say they have increased their use of model portfolios over the past year, while only 10 per cent have decreased such use.
Selecting investments is not financial advisers’ biggest worry, according to our survey conducted in November and December of 2019. Instead, the top challenge cited by 70 per cent of FT 400 advisers is managing their day-to-day operational requirements. That is a change from the prior year when the FT 400 picked meeting client demands as their biggest burden.
Operational challenges are only intensifying in response to coronavirus, as nearly all meetings with clients have shifted to phone calls or video-chat services such as Zoom and Skype. Advisers may long for an eventual return to consultations in person, but some say they might continue to use video or screen-sharing technology more often when things return to normal.
Any return to normal cannot be predicted. Brokers who offer investment advice are also planning for the new Securities and Exchange Commission “Regulation Best Interest,” that could be the biggest rule change to their business in many years. The new regulation will limit brokers to recommendations that serve their clients’ best interests, and includes new standards for disclosing brokers’ potential conflicts of interest. The rule is scheduled to take effect on June 30. The SEC has indicated it intends to stick to this deadline despite the pandemic and its consequences.
As usual, the larger states with higher concentrations of wealth have more FT 400 advisers. New York has the largest number of advisers on the list with 77, followed by California with 67. Florida is in third place with 21, followed by Illinois with 20.
Many first-rate advisers missed the list. Competition is tight, so the gap between those who made and missed the cut can be narrow. The advisers in this year’s listing benefited from strong financial markets last year; the average adviser managed $2bn in assets as of June 30, up from the $1.8bn average in the previous year’s list. This year’s markets in June are highly unlikely to provide such a boost.
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Listed advisers come from 23 broker-dealers, and the best-represented companies are Merrill Lynch (with 18 per cent of advisers) and Morgan Stanley (16 per cent). Wall Street’s dominance is not guaranteed to last for ever, though. Such national brokerages with the broadest array of services, known as the wirehouses, have focused on retaining successful brokers over the recruitment of a high volume of additional advisers.
And many successful brokers have been leaving wirehouses to run their own businesses. The four wirehouses, which also include UBS and Wells Fargo, have the smallest concentration of advisers on the list in its eight-year history: 48 per cent of the FT 400, down from 53 per cent the previous year.
It is still unclear how the pandemic and its attendant disruptions will affect the long-term changes under way in the financial advice industry. Fortunately for their clients, the top advisers are used to turbulence.
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