Seven of the most disruptive trends in wealth management

Younger investors, older advisors, more tech and regulation…. the changes keep coming

Seven of the most disruptive trends in wealth management

There are many disruptive trends going on in the wealth management industry, and even more to come. Here are seven that are already making an impact on the wealth management environment.

○ Younger investors:  Younger clients want to be seen as individuals with their own goals and preferences, and they expect to receive advice that is tailored to their unique circumstances. They want to feel they’re in control of their financial lives and they understand the advice they receive, so they can make their own decisions. They are comfortable doing their own research, and more reluctant to buy discretionary services. They’re also more skeptical of authority than earlier generations, so may seek several opinions, even from friends and family, and then chart their own course. Given their comfort level with digital services, they also expect to access advice anywhere at any time. They see risk as a downside rather than volatility, which means advisors need to emphasize strategies that seek downside protection rather than those with traditional portfolio allocations. They also feel they should have the same investment strategies and products as ultra-high net worth individuals, even if they don’t have the same number of assets. The model they’re bringing with them is also likely to influence the industry as they proceed.

Read More: Advisors must 'get curious' about young clients' different relationship to money | Wealth Professional

Robo vs human advice: There has been a rise in robo-advisors in recent years, but the younger generation is also showing that it often prefers human-based tailored advice. The robo-advisors have shown the value of quantitative analysis, where asset allocation or fund choices can be disected by technology.  That approach also appeals to younger investors. So, while robo-advisors may entice the new generation to participate in wealth management planning, they may also be the first step on them seeking more tailored advice from an advisor who can look at the client’s own situation.

○ Analytics: As more wealth management firms invest advanced analytics and data management, they are finding that they can access key business insights about client segments, advisor books, product penetration, and training program effectiveness. They are also increasingly able to combine analytics that take into account internal and external, structured and unstructured data to create more complete and insightful client profiles. This enhanced insight will allow advisors to assess existing or potential clients’ desire to purchase various products and services as well as share their investment style and risk tolerance. Almost all of the core wealth management processes, from prospecting and sales to advice and portfolio construction, could be deeply impacted by this trend. All stakeholders, including advisors and their management teams, clients, and regulators, could also experience the changes. While not all wealth management firms may invest to sufficiently develop these new capacities, those that do could have a decided advantage.

○ Holistic advice: As more firms have been able to offer the same products to investors, there has been an increasing move to advisors offering holistic, goals-based advice that is specifically tailored to their clients. Given how uncertain the investment environment can be and the different factors that clients now bring to the table – with their financial goals, asset range, and risk tolerance – the importance of individual advice is being increasingly emphasized as advisors differentiate themselves. Many advisors have already moved into this space, but more will need to as the younger generation with its personal preferences begin to form the bulk of the new client base.

○ Booming retirement: Most clients are concerned that they may outlive their assets if they continue at their current standard of living. But, providing the assurance that they won’t isn’t as simple as it used to be, particularly with longer life expectancies, rising medical and long-term care costs, and clients’ intolerance of the continued market volatility. While planning for retirement is incredibly complex, and it is based on many assumptions that can change over time and thus impact a client’s retirement plan, many advisors are still challenged to help their clients plan their de-vestment as well as their investment phases. Meeting all of their clients’ needs will require new products, tools, and services that go beyond the traditional retirement products. But, it will also require advisors to find new ways to engage with clients early in their careers to ensure that they balance their short and long-term financial goals and begin to save early for retirement. 

○ Aging advisors and wealth transfers:  Many advisors are approaching retirement age, but so are many of their clients with baby boomers already beginning to funnel their assets to their children. Both of these trends could massively disrupt the current advisor/client relationship, particularly if the traditional advisors have not geared up to address the changes that the younger generation expects as they try to forge these new relationships. But, the aging advisors are also going to cause a challenge for recruiting new advisors, so many firms are already shifting toward a team-based approach to promote relationship continuity. New technologies and robo advisors could also ease some of the anticipated advisor shortage, but it won’t solve it since the younger generation are already showing that they may start with robo advisors, but then want more personalized advice.

Read More: How IPC program helps advisors plan their succession | Wealth Professional

○ Rising regulatory costs: The industry is already seeing it, but there are increasing costs as the industry’s regulation increases and there is more accountability expected at each level of an advisor’s business. This includes ensuring that there’s more cybersecurity and consumer protection, more product analysis, no conflicts of interest, and more oversight of potential outsourcing. The regulatory environment is already making seismic shifts, but more are expected in the long term.