Few industries have faced as many changes recently as the financial advisor industry. These developments have been driven by a wide range of factors including shifting client expectations, new technology, changing demographic trends and important regulatory changes.
These trends present both challenges and opportunities for financial advisors and raises the question: How will you grow your business and enhance your profitability in 2022? Now is the time to be proactive and plan for how you will position your firm to take advantage of these emerging opportunities.
Shifting Client Expectations: Becoming a Holistic Advisor
In 2022 and beyond, clients will expect more from their financial advisor than just managing their investment portfolios. They want more holistic advice and an advisor who understands their overall financial wellness. They expect their advisor to help them in a wide range of different areas including financial management, debt planning, tax preparation, and estate planning.
This requires looking at clients more holistically across their entire balance sheet so you can deliver a broader level of service that focuses on the client’s overall financial wellness, not just their investments. Your focus should be on providing comprehensive, holistic advice, delivered with outstanding, highly personalized service.
Providing holistic financial services requires a breadth of guidance, products and services that goes beyond just investments. It requires access to an expanded suite of products and services including banking, lending, tax planning and estate planning, among others.
Becoming a holistic financial advisor can result in a number of benefits for your firm. For example, it can help you improve client retention, boost revenue by cross-selling more products and services, differentiate yourself from the competition, and offer more comprehensive, well-rounded advice to your clients.
New Technology: The Digital Revolution
The digital revolution is having a tremendous impact on the financial advisor industry. The pandemic has resulted in advisors and their clients embracing new ways of working together — and this trend is here to stay. Digital adoption by advisors and investors has accelerated as today’s clients have become more tech-savvy. They are expected to take a more active role in their own finances in 2022 using apps and other technology.
By using digital technology, for example, clients expect to receive advice and information much faster. However, a virtual relationship is a not complete substitute for an in-personal relationship with their advisor. According to The New State of Advice, a study conducted by Accenture, only 17% of clients prefer a complete digital relationship with their financial advisor.
Given this, advisors need to find the right balance between offering services digitally and in-person. Both can be utilized effectively in the right moment — the key will be learning how to understand and meet both the virtual and in-person needs of your clients.
Robo advice platforms are also expected to be commonly used by advisors in one capacity or another in 2022. These platforms may be able to execute sophisticated investment strategies that use artificial intelligence to make informed buy and sell decisions based on clients’ risk tolerance and time horizon. In addition to investment management, robo-advice platforms can also help with tasks like new account onboarding, risk profiling, tax-loss harvesting, and account rebalancing.
Changing Demographic Trends: Generational Wealth Transfer
The largest wealth transfer in history is going to happen over the next few decades when baby boomers transfer an estimated $68 trillion to millennials and members of Generation X. Have you thought about what will happen to the assets of your baby boomer clients when they are transferred to their heirs?
Studies have shown that between 66% and 95% of adult children do not retain their parents’ financial advisor after inheriting their assets. This makes it critical to begin building relationships now with your baby boomer clients’ adult kids. However, in a survey conducted by MFS Investment Management, 75% of the investors who responded said that their advisor had never met with their adult children.
This makes it critical to define and focus on your value proposition, especially as it relates to what younger clients expect from their financial advisor. For example, many of these younger clients want to work with an advisor who can help them with environmental, social and governance (ESG), socially responsible investing (SRI), and cryptocurrency investing strategies.
According to Accenture, Generation Z (80%) and Millennial (63%) investors are more than twice as likely as Baby Boomers (27%) to ask their advisor about ESG investments. Also, 95% of Generation Z and 83% of Millennial clients would consider wealth products and services offered by Google, Apple, or Facebook, compared to just 30% of Baby Boomer clients.
A New Regulatory Environment: The Fiduciary Rule
The Department of Labor’s proposed Fiduciary Rule was vacated in 2018, but its impact has been felt across the financial advisor industry. Due to the attention and publicity the rule generated, many advisors have altered their business practices and become fiduciaries by avoiding the appearance of any conflicts of interest with their clients.
If you already are a fiduciary, such as an RIA, there’s an opportunity for you to use your designation to differentiate your firm from your competitors. If you aren’t a fiduciary, now might be a good time to consider shifting your business toward a fiduciary model.
Start Planning Now
The role of the financial advisor will remain critical to clients’ investment success in 2022. But change is inevitable, and how you respond to it will determine your level of success going forward. Take some time now to think about how these and other developments could affect the future of your business and start making plans accordingly. Doing so could give you a jump start on your competitors and position your firm for long-term success.
Mike Watson is SVP, Head of RIA Custody at Axos Advisor Services