3 ways Arizent's 'Predictions' report was right about wealth management in 2023

3 ways Arizent's predictions for 2023 were right on the money

October 19, 2023 9:05 AM

In its '2023 Predictions' study, Arizent asked financial advisors to predict the future.

Back in January, we published a study predicting what 2023 would be like for wealth management. Now that the year is almost over, we can check how clear our crystal ball was — and as it turns out, it got a number of things right.

But we can't take credit for those prophecies; they came from financial advisors. Financial Planning's parent company, Arizent, surveyed hundreds of planners across the country to inform its report, "2023 Predictions: What to Expect in the Year Ahead." Respondents weighed in on everything they saw coming down the pike, both at their own practices and throughout the industry.

Taken all together, the answers forecasted "a year of change, not revolution" in 2023. Advisors expected to fine-tune their practices, but not to transform the way they did business — and they anticipated the same gradualism from the regulators that govern them.

Nine months later, it looks like those advisors were pretty good fortune tellers. In terms of client behavior, regulatory changes and trendy investments like ESG and crypto, wealth managers predicted what 2023 would look like with alarming accuracy.

And by the way, they're about to do it again. Right now, Arizent is collecting answers from readers like you for our "2024 Predictions" report, which will come out in January. To take part in that survey, click here. And to see how this year's "Predictions" compared to the real 2023, scroll through the cardshow below:

Retirement

The year 2022 was rough for retirement. The U.S. stock market suffered its worst year since 2008, battering retirement portfolios, and the highest inflation in four decades ate away at seniors' nest eggs.

As a result, financial advisors expected their clients to behave cautiously — even pessimistically — in 2023. Sixty-two percent thought their clients would postpone their retirements. Many thought their clients would invest more in alternatives to the stock market, including gold (15%) and real estate (18%).

As it turns out, this is pretty close to what happened in 2023 — especially in terms of clients postponing retirement.

"I think that was accurate," said Jason Diamond, a vice president at the financial advisor recruiting firm Diamond Consultants. "In fact, I think if you surveyed people today that number might even creep a little bit higher."

This year, large numbers of Americans delayed their retirement due to a variety of financial pressures, including inflation, educational expenses and family caregiving. And according to one study by Axios, 20% of Americans think they'll never be able to retire at all.

Also, many clients did shift their investments away from stocks, especially in recent months. According to our latest Retirement Advisor Confidence Outlook (RACO) survey, only 29% of advisors will put more of their clients' money in domestic equities in October — down from 44% in August. And 27% are investing more of their clients' funds in "alternative investments," including real estate — up from 16% in August.

ESG and crypto

Back in 2022, cryptocurrencies and ESG funds (standing for "environmental, social and governance") seemed to be the hottest new things in finance. But under the surface, many financial advisors were unimpressed.

"None of my clients have ESG or crypto, nor do I recommend crypto at all," said Nicholas Bunio, a wealth manager at Retirement Wealth Advisors in Downingtown, Pennsylvania.

In "Predictions," advisors did not expect 2023 to be a good year for those products. Only 30% of respondents expected more clients to buy crypto in 2023 — down from 60% in 2021. As for ESG, a majority of planners — 53% — said they were unlikely to recommend the socially conscious funds to their clients.

It turns out they were right. This year, the continuing fallout from the collapse of FTX, a crypto exchange accused of defrauding investors, has badly hurt the reputation of digital currencies. By July 2023, the percentage of hedge funds investing in crypto assets had dropped to 29%, down from 37% in 2022, according to the accounting firm PwC.

Meanwhile, ESG has become a political football, weathering an ongoing barrage of attacks from Republican politicians. In the first quarter of 2023, total assets under management in ESG funds fell by $163.2 billion, according to CNN Business.

"Both of those two products have gotten a really bad rep in the past year," Diamond said. "I think they're both just out of vogue at the moment."

Regulation

In terms of regulation, the picture is more complicated. Back in January, Arizent found that a slim majority of wealth managers — 56% — thought 2023 would bring changes to the Regulation Best Interest rule (Reg BI), the Securities and Exchange Commission's standard of conduct for broker-dealers.

That technically has not happened. The SEC has not officially made any changes to Reg BI, and the agency's chair, Gary Gensler, has repeatedly said he only intends only to enforce the rule "as written."

"It's not on our unified agenda" to rewrite Reg BI, Gensler told Congress in April. "We look to vigorously enforce it."

On the other hand, 61% of advisors predicted that the SEC would "strengthen" its enforcement of Reg BI in 2023. This, many advisors say, is exactly what happened — though they might wish it wasn't.

"This prediction was about right," said Robin Hovis, a financial advisor at LPL Financial in Millersburg, Ohio. "Seeking to protect the client's best interest is a worthy goal which is, in my opinion, being pursued in the wrong way."