At the end of May, I read a Wall Street Journal article* about how many quants run Wall Street now. The article focused on bonus payments and regulation around algorithmic-driven trading. However, it made me think of the impact of the transformations on Wall Street.
The impact of algorithmic-driven trading can be swift, steep and game-changing. As an advisor, you’ll need to adapt to the way Wall Street trades – even if you remain in the fixed, indexed and income annuity marketplace. Clients should have a balanced portfolio with guaranteed income, equities and bonds. But, equity trading is rapidly changing. With quants driving performance and trading, large blocks of business are likely to change hands quickly going forward.
How does that affect you? A quant-driven Wall Street will likely see wider and steeper movements during corrections. In past corrections, investors have moved to conservative positions when they “see” the first signs of a downward correction. In the future, with algorithms dictating trades, it’s entirely possible to get caught in the tsunami of a correction and never “see” the signs like old times.
You need to recognize that the markets are driven more by technology and formulas and less by emotions and human behavior. That means your clients, who still make decisions on emotions and behavior, will likely be left in the dust in market downturns. Your clients are at a disadvantage versus a quant.
Be proactive. The lack of urgency in our economy troubles me. Talk to your clients about the changes on Wall Street how they will be affected – secondarily, not just by investments. Create urgency to protect their wealth that has increased over the last eight years, while remaining bullish on equities through an FIA.
The marketplace is demanding financial professionals to work in our clients' best interest, which will not only need to address retirement income, but also the risk of longevity.
*Wall Street Journal, “The Quants Run Wall Street Now,” May 21, 2017: https://www.wsj.com/articles/the-quants-run-wall-street-now-1495389108
Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”
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