Adding Value in an Era of Uncertainty Divergence in Current and Future Millionaire Sentiment Accentuates the Importance of Having an Advisor Executive Summary Fidelity’s Millionaire Outlook sentiment is at its most dramatic disconnect: highest ever current This report examines current and future financial outlook and near-record lowest future financial outlook. millionaire sentiment, and provides insights on how to deliver value to Given the changing needs of investors, as well as economically uncertain times, advisors need investors facing an uncertain future. to provide fulfillment and peace of mind to prove their worth and to help calm investor anxiety. Uncertain times highlight opportunities for the value an advisor provides… • The value of real estate is mostly driving positive current Paid advisor usage Millionaires more often Even millionaires without outlook, compared to last year when stock market sentiment among Millionaires is feel that their advisor advisors are willing to was most positive up since last year has proven his / her pay for one who can help • Millionaires are most skeptical about the future of both the worth compared to the them take advantage of economy and the stock market, signifying great uncertainty previous year the recent tax reforms – a (more uncertainty since before the 2008 financial crisis) huge area of opportunity …but there is more sustained value that an advisor can provide: • Millionaire Advice and Non-Advice users are willing to pay more Financial Planning Peace of mind Fulfillment for many higher-level value services an advisor could provide. Developing a holistic Making financial Providing a roadmap for financial plan based on decisions easy for how investors can investors’ long and short investors achieve their lifetime term goals goals / dreams 2 Focus on IQ, EQ, DQ to Deliver Value Advisors need to focus not just on IQ, but EQ and DQ* as well Advisors who perform well across IQ, in order to deliver high levels of value to clients and prospects: EQ, and DQ areas are rewarded by their clients: Advisors say listening Two-thirds mention Half of Millionaires say if • Higher likelihood to recommend the advisor / empathy skills and problem solving ability they were in the market • More referrals communication skills (or is most useful (or IQ)1 for a new advisor, they’d EQ ) are ahead of sales be more likely to consider • More likely to follow the advisor should they ability as skills most useful one that uses the latest leave their current firm to an advisor1 technology (or DQ) *EQ = emotional quotient, such as listening and empathy skills, IQ = intelligence quotient, such as analytic and problem-solving skills, DQ = digital quotient, such as use of technology to support client 3 interactions/collaboration as well as internal processes 12018 Fidelity Financial Advisor Community – Talent and Diversity Study What’s inside? 1 An Overview of the Millionaire Profile 2 An Introduction to the Millionaire Outlook 3 Uncertainty Can Mean Opportunity for Advisors to Provide Value 4 Focus on IQ, EQ, DQ to Deliver on Value Stack 4 Millionaire Profile 5 Demographics Financial Profile: 65 Age (Mean) Median Household Facts at a Glance: Income of: Sex 65% 35% Profile of Millionaires in the Study $200K Male Female Median Retirement Relationship 73% 27% (Workplace) Assets of: Married / partnered Single / Other $750K About the Research Median Investable Racial 93% Assets of: identity The 2018 Fidelity Millionaire Outlook Study was White / Caucasian conducted during the period March 22nd through $1.75M May 8th, 2018. Residency 79% It surveyed a total of 1,429 investors, including 639 in the U.S. 2nd or higher generation Americans Millionaires. The study was conducted via a 25-minute 38% online survey, with the sample provided by Kantar, a Education 85% Employed full or part time third-party firm not affiliated with Fidelity. Undergraduate degree or higher Respondents were screened for a minimum level of Top professions: investable assets (excluding retirement assets and Disabled 17% primary residence), age, and income levels. IT Hearing or vision impairment / loss, Medical / Healthcare Statistics shown throughout this deck are from the 2018 physical, mental, or emotional disability Finance / Insurance Millionaire Outlook Study unless otherwise noted. 0 100 6 Millionaire Outlook 7 The Millionaire Outlook Confidence Index Fidelity has been tracking Millionaire sentiment for over 10 years via its Millionaire Outlook Confidence Index, since prior to the 2008 financial crisis. The Current Millionaire Outlook Confidence Index (‘Current Outlook’) consists of five measures based on millionaires’ assessment of the current strength or weakness of the following: The ‘Current Outlook’ aggregate index is compiled based on the five separate measures and can be positive or negative. Economy The ‘Future Outlook’ aggregate index Stock market consists of the same five measures based on Millionaires’ assessment of how much stronger or weaker they think each will be Value of real estate a year from now, compared to today. Consumer spending Business spending 8 Historically-Strongest Current Millionaire Outlook is Coupled With One of the Weakest Future Millionaire Outlooks Index: Range 100 to -100 Current outlook is at all-time high among 100 Millionaires 80 13 60 48 With Advisor 41 37 39 40 40 28 32 18 21 11 20 6 28 7 1 5 0 2006 2008 2009 2010 2012 2013 2014 2016 2017 2018 2019 -20 -29 -15 -40 -50 -54 Whereas their future -5 -60 outlook is at the lowest No Advisor in last decade -80 -91 -100 Investors without advisors are Current Outlook Future Outlook more skeptical about the future. 9 The Importance of Having an Advisor is Evident During Periods of Market Volatility S&P 500 and Future Outlook Comparison (by Advisor Usage) During Fielding (Mar 22 - May 08, 2018) 2,800 30 Data collection occurred after a 2,760 20 downswing in the market which 13 likely helped to shape future 2,720 10 outlook, but having an advisor 2,680 0 mitigated concerns about the -5 2,640 -10 future to a degree. 2,600 -20 2,560 -30 March 2018 April 2018 May 2018 Investors with an advisor: S&P 500 62% 66% Advice User Non-Advice User 2017 2018 10 Sources: S&P Dow Jones Indices LLC, 2018 Fidelity Investor Insights Study Advisors Can Tailor Their Communications to Address Areas of Greatest Concern Among Millionaires The economy and the stock market are the areas of biggest concern among investors without advisors. Driving positivity These are also areas where advisors can play more of a Value of Consumer Business Stock Aggregate Economy role in shaping sentiment, and real estate spending spending market index may be an opportunity for you to reach non-advised investors. 62 66 53 55 46 45 45 49 47 36 37 32 Current outlook vs. 22 20 13 11 8 9 Future outlook 7 <.05 -6 -5 Advice Users -11 Non-advice Users -19 Driving negativity 11 Index: Range 100 to -100 (see slide 9) Uncertainty Can Mean Opportunity for Advisors to Provide Value 12 Millionaires’ Perceptions of Their Advisor “Proving Their Worth” Continue to Strengthen “My Primary FA has really proved his/her worth over the past year” (Advice users - % Agree, top 2 ratings) 76% 70% 70% 68% 67% 2013 2014 2016 2017 2018 The recent bull market run coupled with uncertainty about the future may be playing a role in Millionaires valuing their advisors even more. 13 Navigating the Latest Tax Reforms May Be a Key Opportunity to Develop New Client Relationships and Deepen Existing Ones Attitude towards financial advice 63% Agree “I feel a financial advisor is important to have to Most advice-users think having an advisor (top 2) understand how to deal with the latest tax reforms” is important to understanding how to deal (Millionaires with an advisor) with the latest tax reforms. Given the Advice Users’ willingness to pay more for Reasons for paying more for an FA an advisor who can help with tax reform, 55% advisors have an opportunity to deepen Agree “Helps me take full advantage of the recent relationships with existing clients. (top 2) tax reforms and minimize taxes” (All Millionaires) Additionally, nearly half of those without 59% with advisor, 46% without an advisor an advisor would be willing to pay more 59% of deca-millionaires* for an advisor who can help navigate the latest tax reforms. Reasons for choosing an advisor: “Was able to help me minimize my 10% mentioned as one taxes / take advantage of tax reforms” of the top 5 answers 14 * Definition of deca-millionaire: $10M + in investable assets, excluding employer - sponsored 401(k) assets and real estate. But Many Advisors Seem to be Missing the Opportunity to Help Guide Investors in this Area Primary advisor actions in response to tax reforms None/Nothing/NA 39% Most advisors have neglected bringing up tax reform, with 17% of I reached out first to my primary advisor to Millionaires bringing it up 17% discuss the potential impact of tax reforms on their own to my investments This represents a huge missed opportunity My primary advisor reached out to me by given willingness to pay phone or in person to discuss the 27% Only 4 in 10 potential impact of tax reforms to my investments Millionaire Advice Users report that their FAs My primary advisor reached out to me via proactively reached out to a personal email to discuss the potential 11% them regarding the impact impact of tax reforms on my investments of tax reforms Got a generic email from my primary advisor or his/her firm about the potential 4% impact of tax reforms to clients’ investments Given that these types of regulatory changes are consistently in the news cycle and may be top-of- mind with millionaires, advisors should consider starting the conversation to help alleviate any fears investors may have.