No matter how well investors may think they understand themarkets, and advisors may think they understand theirclients, the gap between the two is a Great Divide that must bebreached if advisors are to get a handle on clients’ actual risktolerance.

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Related: Advisors too focused on portfoliomanagement

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That’s according to a survey of financial advisors by Natixis Global Asset Management, which foundthat 85 percent of advisors say their success depends onunderstanding client risk tolerance—something they are increasinglyaware of.

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In fact, investors expect an average annual return of 8.5percent above inflation; that’s 44 percent higher than whatfinancial advisors say is realistic.

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Related: Investor, advisor goalsdiffer

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While advisors are busy trying to manage client expectationsabout returns, they agree that active investments are a strongerchoice than passive for most objectives, including generatingalpha, providing risk-adjusted returns, taking advantage ofshort-term market movements and gaining access to alternatives andexposure to uncorrelated assets.

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Still, one of the reasons advisors use passive investments isbecause clients prefer them—76 percent of respondents saidinvestors have a “false sense of security” about passiveinvesting—and because they’re less costly.

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Another 43 percent of advisors say they use passive investmentsbecause there are so many active managers who are really “closetindexing.”

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Related: Investors want advisors to be morehands-on

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For advisors, the challenge is striking the right balancebetween clients’ interest in passive investments and the best wayto help them achieve their investment goals. And when it comes todiversification, 75 percent say they’re using liquid alternativesto diversify client portfolios.

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The vast majority (86 percent) say they’re not concerned thatautomated advice will make the traditional, high-touch advisorymodel obsolete.

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But those aren’t the only issues that advisors are dealing with;they’re really spooked by the prospect of new regulations.

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A whopping 86 percent of financial advisors say that meetingstrict regulatory and disclosure requirements are some of thebiggest challenges to the growth of their business.

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They expect the worst, with 79 percent saying that newregulations will increase costs for investors and 37 percent sayingthey’ll shed their smaller clients because of those newregulations.

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Advisors are so concerned over what’s to come that more than aquarter plan to drastically change how, or even if, they dobusiness; 27 percent are planning, within the next three years, tosell their book of business, merge with another firm, leave thefinancial industry altogether or simply retire.

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