Markets in a Minute
Visualizing the Top Investments Used by Advisors
The Top Investments Used by Advisors
Today, financial advisors are re-evaluating how they build client portfolios as the economic environment evolves.
Following a decade of historically low interest rates, the U.S. economy is now characterized by higher interest rates, driven by inflationary pressures. This has been met with stronger bond returns and a more cautious view on stocks as companies face steeper borrowing costs.
This graphic shows the top investments used by advisors, based on a 2023 Journal of Financial Planning survey.
Top Investments in 2023
Below, we show the most common types of investments advisors used or recommended to their clients this year:
| Investment Type | 2023 | 2019 |
|---|---|---|
| Exchange-Traded Funds (ETFs) | 90% | 88% |
| Cash and Equivalents | 76% | 80% |
| Mutual Funds* | 64% | 70% |
| Individual Stocks | 51% | 54% |
| Individual Bonds | 47% | 42% |
| ESG Funds | 35% | 26% |
| Separately Managed Accounts | 33% | 26% |
| Fixed Annuities | 31% | 23% |
| Variable Annuities | 30% | 26% |
| Mutual Fund Wrap Programs | 27% | 32% |
| Fixed Permanent Life Insurance Products | 26% | 24% |
| Private Equity Funds | 23% | 12% |
| Variable Permanent Life Insurance | 23% | 14% |
| Indexed Annuities | 22% | 15% |
| Structured Products | 21% | 11% |
| Other Alternative Investments | 17% | 13% |
| Individually Traded REITs | 17% | 20% |
| Non-Traded REITs | 17% | 13% |
| Options | 12% | 9% |
| Hedge Funds | 11% | 8% |
| Precious Metals | 8% | 5% |
| Other | 4% | 4% |
| Cryptocurrencies | 3% | 0% |
*Non-wrap. Numbers have been rounded.
As the above table shows, 90% of advisors use ETFs, and almost half reported they plan to increase their usage in the 12 months ahead.
Cash and equivalents, such as money market funds, were also widely used. Yet since 2019, use by advisors declined by four percentage points.
Money market funds saw a record $5.9 trillion in assets under management as of December, averaging returns of about 4.5%. Meanwhile, the S&P 500 has returned roughly 24% year-to-date and investment bonds have returned over 5%.
The use of private equity funds, which invest in privately-held companies, saw the highest increase across investment types, rising 11 percentage points as some advisors looked to alternative investments.
On the other hand, the sharpest decline was across mutual funds, falling six percentage points. Over a quarter of respondents say that they plan to decrease utilizing them in the next year.
Interestingly, 3% of advisors use cryptocurrencies with their clients. To date, Bitcoin has returned over 164%.
Advisor Views on the 60/40 Portfolio
Is the 60/40 portfolio dead?
After a rocky year in 2022, the time-honored 60% stock and 40% bond portfolio has returned 13% to date as of December. When surveyed, more advisors were confident than doubtful that it could offer similar returns compared to history.
| Confidence That a 60/40 Portfolio Can Provide Similar Returns as it Has Historically | Percent of Respondents |
|---|---|
| Very Confident | 16% |
| Confident | 28% |
| Somewhat Confident | 27% |
| Neutral | 7% |
| Somewhat Doubtful | 14% |
| Doubtful | 4% |
| Very Doubtful | 3% |
Percentages may not equal 100 due to rounding.
In fact, JP Morgan projects that a 60/40 portfolio will outperform cash by 4.1 percentage points on an annualized basis, and outpace inflation by 4.5 percentage points over the next decade.
According to their estimates, $100 in cash is forecast to grow to $133 over 10 years, while a 60/40 portfolio is projected to be worth $197.
Although the high interest rate climate has increased returns on cash, it misses out on the value of compounding offered by other types of investments over a longer horizon.
Markets in a Minute
The Top 5 Reasons Clients Fire a Financial Advisor
Firing an advisor is often driven by more than cost and performance factors. Here are the top reasons clients ‘break up’ with their advisors.
The Top 5 Reasons Clients Fire a Financial Advisor
What drives investors to fire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for firing a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients fire an advisor to provide insight on what’s driving investor behavior.
What Drives Firing Decisions?
Here are the top reasons clients terminated their advisor, based on a survey of 184 respondents:
| Reason for Firing | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Quality of financial advice and services | 32% | Emotion-based reason |
| Quality of relationship | 21% | Emotion-based reason |
| Cost of services | 17% | Financial-based reason |
| Return performance | 11% | Financial-based reason |
| Comfort handling financial issues on their own | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While firing an advisor is rare, many of the primary drivers behind firing decisions are also emotionally driven.
Often, advisors were fired due to the quality of the relationship. In many cases, this was due to an advisor not dedicating enough time to fully grasp their personal financial goals. Additionally, wealthier, and more financially literate clients are more likely to fire their advisors—highlighting the importance of understanding the client.
Key Takeaways
Given these driving factors, here are five ways that advisors can build a lasting relationship through recognizing their clients’ emotional needs:
- Understand your clients’ deeper goals
- Reach out proactively
- Act as a financial coach
- Keep clients updated
- Conduct goal-setting exercises on a regular basis
By communicating their value and setting expectations early, advisors can help prevent setbacks in their practice by adeptly recognizing the emotional motivators of their clients.
Markets in a Minute
The Top 5 Reasons Clients Hire a Financial Advisor
Here are the most common drivers for hiring a financial advisor, revealing that investor motivations go beyond just financial factors.
The Top 5 Reasons Clients Hire a Financial Advisor
What drives investors to hire a financial advisor?
From saving for a down payment to planning for retirement, clients turn to advisors to guide them through life’s complex financial decisions. However, many of the key reasons for hiring a financial advisor stem from emotional factors, and go beyond purely financial motivations.
We partnered with Morningstar to show the top reasons clients hire a financial advisor to provide insight on what’s driving investor behavior.
What Drives Hiring Decisions?
Here are the most common reasons for hiring an advisor, based on a survey of 312 respondents.
| Reason for Hiring | % of Respondents Citing This Reason | Type of Motivation |
|---|---|---|
| Specific goals or needs | 32% | Financial-based reason |
| Discomfort handling finances | 32% | Emotion-based reason |
| Behavioral coaching | 17% | Emotion-based reason |
| Recommended by family or friends | 12% | Emotion-based reason |
| Quality of relationship | 10% | Emotion-based reason |
Numbers may not total 100 due to rounding. Respondents could select more than one answer.
While financial factors played an important role in hiring decisions, emotional reasons made up the largest share of total responses.
This illustrates that clients place a high degree of importance on reaching specific goals or needs, and how an advisor communicates with them. Furthermore, clients seek out advisors for behavioral coaching to help them make informed decisions while staying the course.
Key Takeaways
With this in mind, here are five ways advisors can provide value to their clients and grow their practice:
- Address clients’ emotional needs early on
- Demonstrate how you can offer support
- Use ordinary language
- Provide education to help clients stay on track
- Acknowledge that these are issues we all face
By addressing emotional factors, advisors can more effectively help clients’ navigate intricate financial decisions and avoid common behavioral mistakes.
The Top 5 Reasons Clients Fire a Financial Advisor
The Top 5 Reasons Clients Hire a Financial Advisor
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