Mohamed El-Erian hardly needs any introduction.
The CEO and co-CIO of investment giant PIMCO, who since the end of last year also serves as head of President Obama's Global Development Council, is one of the most talked about, influential figures in international finance.
He spoke with Savita Iyer-Ahrestani by email on what he feels are some of the more pertinent issues for financial advisors today, both with respect to the global environment as well as to the shifting dynamics within the United States and how they affect the advisory profession.
Q: Do you think financial advisors have the right combination of knowledge and tools to help clients achieve a satisfying retirement? What's lacking?
A: I believe the sources of return that allowed investors to meet retirement goals in the past won't necessarily be the same that enable investors to meet their objectives in the future. I also believe that correlations are evolving and the configuration of risks is changing.
As a result, the challenge for all investors, including financial advisors, is to keep an open mind in looking for additional sources of return that fit clients' needs, both return objectives and risk tolerances. This translates into broadening the opportunity set to take advantage of positive risk-return opportunities in all parts of the world, across asset classes and with a keen eye toward downside protection.
Q: Investment objectives aside, we have been reading a great deal about the importance of behavioral finance. Should financial advisors be making an effort to incorporate the principles of behavioral finance into their practices in order to cultivate the kind of deeper client/professional relationships that this post-crisis era calls for?
A: I do believe financial advisors should focus on cultivating deep client relationships to understand their clients' risk and return objectives and any biases that may drive behavior. This is particularly important during this time of global change, where fluidity seems to be the only recurrent theme.
In PIMCO's New Normal, I expect markets to exhibit higher volatility and a bumpier investment road than precrisis. For this reason, I believe it is important to invest for the long term within clear risk parameters, seeking to maximize an investor's potential without being held hostage to tactical traps and harmful unconscious biases. --SI