Flanagan kicked off the conference with a perspective on the major trends shaping the investment management industry.
A few of his key points illustrate just how much technology has changed the economy —the most highly demanded jobs didn’t exist in 2005 and 5 years ago, you couldn’t buy the products responsible for 72% of Apple Inc.’s total return. Looking at population growth, Flanagan said that during his hour long presentation alone, 4,416 babies would be born in the U.S., China and India combined, (all of them potential investors he noted).
As much as these factors have and will continue to alter the economy, Flanagan said that post-crisis investor uncertainty and broad structural reforms are driving instability in the market. Investors are fearful and have been for a few years now. “Investors are staying away in droves,” Flanagan said.
Advisors are also concerned and are looking to asset managers for what to do, but that doesn’t mean they need teachers he said. “Advisors don’t want to be educated, they want to be informed,” said Flanagan.
In this environment, risk mitigation is top of mind for advisors. According to an Invesco survey cited by Flanagan, 40% of advisors ranked risk mitigation the top priority in designing client portfolios. The Invesco survey also showed a major shift in the way advisors are managing client portfolios, with 40% of advisors, more than ever before, creating portfolios using a blend of active investments and exchange-traded funds Flanagan said.
This focus on risk mitigation is driving the evolution of asset allocation, Flanagan said. And with 10,000 Baby Boomers to be filing for social security benefits every day for the next 20 years, he said the changing U.S. population is driving the need for income solutions. At the same time, 41% of pre-retirees are not working with advisors simply because they haven’t gotten around to it yet.
All of these factors combined, Flanagan argued, means that an increasingly complex market is accelerating the need for financial advice. For advisors and money managers to thrive in this new world order, they must focus on distinct client needs and be able to deliver tailored solutions to their clients. Ultimately, they must become indispensable to clients, Flanagan said.