The financial markets have rebounded since the debacle of 2008, but the longer-term impact of the crisis is still being played out in both the retail and institutional ends of the investment/wealth advisory business.
Wealth managers embrace goals-based investing
On the retail side, there has been a significant uptick in providers moving to a goals-based investing approach. Rather than focusing on selecting a single asset allocation strategy for an investor’s entire portfolio, goals-based investing encourages individuals to define and prioritize the various short- and long-term goals they may have for their wealth. Based on these priorities, asset classes and investments are selected that align with each goal. This approach redirects the attention of investors from benchmark targeted returns as measures of success to personal goal attainment. In doing so, it helps advisors better manage client expectations and insulate clients from over-sensitivity to short-term market fluctuations.
Institutions turn to OCIO
In the institutional market, the crisis created an environment of heightened sensitivity to volatility and loss that resulted in substantial fallout. Regulatory requirements have become more onerous and investing more complex with the addition of broader ranges of asset classes and other risk-management initiatives. At the same time, institutions’ asset bases have dropped, leading to increasingly tight budgets and limited internal resources for addressing the demands of the “new normal.”
Facing these challenges has been a trend driver, particularly in the institutional middle market, in the increased use of OCIO services. For a growing number of institutions, OCIO is proving to be a cost-effective way to acquire quality investment management, including broad diversification and sophisticated risk-management tools, while at the same time addressing increasing fiduciary and compliance burdens. Traditionally popular with endowments and foundations, OCIO is now building a market among small and mid-size pensions as well.
These adaptations reflect the dynamism of the investment advisory business as it continually recreates itself to meet the challenges of new market realities.