You’ve got to risk it to get the biscuit.

New retail investors — those who have been in markets for five years at most — are looking at tariffs, geopolitical tensions and overvalued stocks and saying “Psh, whatever.” Nearly 20% of new investors want to grow their wealth even if it means greater potential for loss, and more than half see their portfolios performing better over the next year than the past 12 months, according to Fidelity’s inaugural State of the American Investor study. Meanwhile those who have been investing for more than 11 years have a less positive outlook and are most concerned with limiting losses.

Newcomers started building their portfolios in a bull market when retail investing became highly accessible, so they’ve yet to face the reality check of downturns their more experienced counterparts have grown to anticipate. While markets generally perform better over time, it’s up to advisors to prepare bright-eyed new clients for potentially rainy days … or months.

“Especially in times of market volatility, knowing and sticking to your plan can help maintain a level head,” said Josh Krugman, SVP of brokerage at Fidelity Investments.

Hodl Steady

New doesn’t necessarily mean younger, even though that’s the case for many investors. Younger clients are expected to be more risk-tolerant since they are building wealth and have plenty of time to make corrections. “As you invest over time, you learn from your mistakes, and hopefully don’t make those same mistakes again,” Krugman told Advisor Upside.

That risk entails more than just heavy exposure to stocks over fixed-income, however. Nearly 55% of new investors said their portfolios were more diversified than their parents’. New investors’ top priority is building their financial knowledge, and the study showed that they are more familiar with advanced income-generation methods like fully paid lending, bond ladders and covered calls, while also favoring non-traditional assets like crypto and other alternatives. In fact, crypto can be a big indicator of a client’s mentality, the study found:

• More than half of crypto holders predict the stock market will perform better in the next 12 months, compared with just 31% of investors who don’t hold any crypto.
• Also, crypto investors are two times as likely to say their risk tolerance is higher than it was in 2024.

“Regardless of a client’s age, it’s always important to help your clients develop a financial plan that they can stick to,” Krugman said.

Breaking up is hard to do.

Building a book of business and constantly seeking out new clients is grueling but essential for advisors. So when the time comes to drop a client, it can be just as difficult but also just as important. Whether a client ignores advice, withholds information or is simply rude, cutting ties might be the healthiest option.

“Holding onto a toxic relationship drains more than it gives,” said Thomas Ravert, CFP with Pathway Capital. “Letting go creates space to focus on clients who value the relationship.”

I Saw the Sign

An advisor’s main job is to advise (duh), so when clients don’t follow recommendations, the relationship loses meaning. Tom Arasz, founder of Bmore Financially Fit, said he experienced that firsthand with one couple. In meeting after meeting, the three would agree on a financial plan, but the couple would never stick to it. “They’d go out and buy a new car instead of paying off credit card debt,” he told Advisor Upside. When Arasz ultimately fired the clients, he felt like he was fulfilling his fiduciary duty by not having the couple waste money on his services if they weren’t taking them seriously.

As the saying goes, there’s no such thing as a free lunch. Some clients, however, try to get one, or at least a cheaper meal. Arasz recalled firing another client who misled him about complex tax issues that were beyond the advisor’s expertise. “Even if I had the expertise, I would’ve quoted them a higher fee to balance out how much work they were going to be,” he said.

If a client is kind but uncommitted, an advisor might give a final nudge or recommend a better fit elsewhere. But if a client is abusive to staff, that’s an immediate red flag, said Tom Balcom, founder of 1650 Wealth. “I wouldn’t want to drop that ‘grenade’ in the lap of another financial advisor, so I would merely de-link them from our firm,” he told Advisor Upside.

Break It Off. Even with glaring red flags, letting go isn’t easy. Rising acquisition costs make every client feel hard-earned. The median cost to acquire a new client hit $3,800 in 2023, up 75% from 2021, according to Kitces Research. High-growth practices now spend 12.5% of revenue on marketing, compared with 9.7% by their peers.

“Part of it is that it is so difficult to get clients,” said Monica Dwyer, CFP with Harvest Advisor. “You work so hard for it and you have likely already made a huge time commitment.”

RIAs held more than a third of ETFs’ total assets at the end of 2024 — but their popularity among independent advisors isn’t universal.

The top 50 RIAs in the country vary widely in their discretionary asset allocations to ETFs, according to a recent AdvizorPro report analyzing regulatory filings. United Capital Financial Advisors, for example, has more than 80% of its total AUM allocated to ETFs, while NISA Investment Advisors has less than 2%. The divide arises from the fact that many firms continue to rely heavily on mutual funds — a trend experts said will likely reverse in the coming years as ETFs become more mainstream.

“What I’m seeing with mutual fund issuers is they’re creating overlays. So it’s still the core strategies, but now they’re offered as an ETF,” said AdvizorPro’s Hesom Parhizkar, who contributed to the report. “[ETFs are] just a more agile vehicle.”

ETFs FTW

While ETFs have been around since the ’90s, they only recently blew up as a major investment option. That followed the SEC’s adoption of the ETF Rule, which allowed issuers to bring the strategies straight to market without obtaining an exemption. The number of ETFs has exploded, and early adopters are more likely to be all in, said Amrita Nandakumar, president of Vident Asset Management. “It does not surprise me that firms like Creative Planning and Hightower continue to be at the top of the list, as they were among the first RIA adopters of ETFs,” she said. Still, the fact that there are roughly twice as many mutual funds available has meant that certain firms haven’t had to “venture too far into ETFs,” she added.

Other findings from the report include:

• Captrust, which had the highest AUM of any of the firms included, at more than $1 trillion, had less than 2% of its assets allocated to ETFs.
• Valmark Advisors was second to United Capital in terms of the proportion of its AUM allocated to ETFs, at 80%.
• Churchill Management Group was third, at 77%.

Modera Wealth Management allocates roughly a third of its assets to ETFs, as many clients are in legacy mutual funds that they have no reason to sell, chief investment officer George Padula said. Modera’s proportion of new money going into ETFs, however, is 45% and expected to rise, he added.

Splitsville. There isn’t necessarily an ideological divide on ETFs, since things like mutual funds and alternatives might not be included in the public filings that the dataset is based on, Parhizkar said. The recent explosion in crypto ETF allocations has been “mind-boggling” and more a result of client demand than advisor recommendations, he added. “It’s much easier to buy [crypto] off of one the bigger custodians as an ETF vehicle, versus trying to set up a coin-based account and actually buy the underlying holding.”