The world is changing at a rapid rate. Culturally, economically and politically – the world is barely recognizable to the time when many current advisors entered the business. Every industry is being forced to transform the way it operates, but, as a group who plays such a fundamental role in the prosperity and financial wellness of its clients, advisors face a pressure to evolve that is hard to match.
“Advisors can’t put their head in the sand and pretend this goes away; think that the way their parent’s advisory business was run is going to endure,” says John Bowman, Managing Director of the Americas for CFA Institute. “That period is coming to an end and clients are going to demand much more.”
Bowman believes that many advisors will need to ask themselves some tough, existential questions before they can start to implement real change. “This is where the fiduciary rule debate strikes at the heart of the modern advisory business - what are advisors really in the business to do,” Bowman says. “It’s a question of why do you exist as an advisor. That needs to become a bigger part of the way we speak to clients about our business, solutions and fee structures.”
Being able to effectively defend fee structures will be a crucial skill to develop going forward. All too often Bowman sees advisors having the wrong types of conversations when it comes to fees. Many people in the industry are getting lost in the passive versus active debate, when they should be concentrating on long-term solutions and meeting client objectives, Bowman explains.
“Asset allocation can take several approaches and typically uses a combination of passive and active,” Bowman says. “So, we’re getting drawn into the wrong debates and we’re conditioning our clients to ask the wrong questions. It’s about building a long-term trustworthy relationship that has a broad, holistic value proposition. That needs to be the way we reshape the business.”
Attracting the next generation of clients is also going to become increasingly important for advisors. Bowman believes that millennials are more discerning and questioning than previous generations and, as a result, advisors need to put more “sweat equity” into building relationships with younger people earlier.
“Start conditioning them to ask the right questions - to be worried about the right things and not be anxious about the wrong things,” Bowman says. “Millennials are, generally, much more demanding and cost centric, so you have to make sure you lead with the broader value proposition of what you are doing for them over the course of their life.”
Advisors should speak to younger clients - or prospects - about the challenges associated with market cycles and unexpected events and how each of those situations raises tough and important questions.
“Advisors need to bring to life how they are going to hold their hand through the rocky and volatile process that is life,” Bowman says. “It takes the focus off of pure quarter by quarter, year by year performance. That needs to be much more intentional with this millennial generation than previous ones.”
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