[Part 1] What are 2017’s Trends and Pain Points for Financial Advisors?

Every year new breakthroughs and trends emerge in industries across the globe. Wealth management is, of course, no exception. At the halfway point, this year is shaping up to be a particularly tumultuous one for advisors and may represent a true inflection point in the evolution of the industry.

Whether it’s facing the harsh realities of the current economic climate, meeting investors’ expectations of returns whilst limiting risk, adapting to the different habits and values of a broad church of investors, battling with technology disruptors, or dealing with increased regulatory oversight, it’s clear that advisors have plenty on their plate. Below we highlight the significant trends and pain points facing advisors in more detail…

Client Acquisition & Retention. Clients are now demanding easier and more convenient ways to manage their assets. As wealth management performance in a low yield environment decreases across the industry, client expectations are increasingly focussed on quality of service, from the quality of the advice and the responsiveness of the service to the visible interfaces and wealth reporting. Changing advisor is becoming easier so it is important to upgrade to retain and attract new clients. This mainly translates into investments in technology and digital infrastructure.

Servicing a Large Base of Clients. Servicing a large client base can be a demanding task. Monitoring portfolios, making wholesale changes to securities, and keeping up with all client’s changing situations require a large dose of time management. For firms employing the right technology it is possible to construct and maintain dynamic solutions across a large client base.

Planning for More Retirement Accounts. The number of retirees will continue to increase meaning advisors will have to navigate more and more clients through the transition from employment to retirement. Much of today’s wealth is concentrated among the baby boomer–generation, who will need ever more advisory services in the retirement and asset-distribution phases of their lives. The costs of serving those clients, however, have gone up dramatically since the financial crisis. The compliance burden has increased, and the bar for technology-enabled customer service has been raised.

Working with a New Generation. A generational shift is under way with more young investors entering the marketplace. This youthful cohort has grown up around social media, the internet and technology so would require it when starting to invest their own assets.

Competing with Larger Firms. There is a current trend of advisors leaving larger firms to launch their own outfits. With developments in wealth technology and the power and ubiquity of the internet and social media continuing to increase, smaller firms can now compete with the larger players. What used to take a large outfit to build a well-staffed roster can now be done by a few motivated entrepreneurs in a small rental office.

Servicing the ‘Un-Serviced’. The underlying reason why there's huge growth in the robo-advice area is there's an enormous underserved portion of the population trapped in a ‘financial advice gap’ who have not previously had access to these types of services. The average person in the street generally can't afford an advisor for his pension and the current Financial Advisor processes were designed for people with a lot of money.

Rising Incomes in New Parts of the Globe. New wealth is being created in far flung parts of the world with little to no advisory infrastructure. Tapping into these markets via the internet and mobile devices could ultimately prove extremely lucrative.

Reducing Operational Margins. Operational leverage can be extremely high for many financial firms but new technology is able to substantially reduce costs. Margins will continue to fall in the industry, and investors will get more services whilst paying less for them.

Facing Regulatory Burdens. Regulatory complexity and the cost of compliance have continued to increase. This requires adjustments from advisors in terms of compliance and administrative support as well as more structural changes in their business and operating models. New rules such as Europe’s MiFID and the U.S. fiduciary proposal have been put in place to protect investors. For companies who fail to measure up, there will be fines and bad publicity that will likely threaten their standing with current and prospective clients.

Fees – A Race to the Bottom. A current industry trend is a reduction and simplification of fees levied by advisors, asset managers, and banks. This race to the bottom to attract new clients will persist into the future putting pressure on margins for the advisor community.

Layering Systems Upon System. Many financial service firms have layered system on top of system over many years of being in operation. This cumbersome way of working can add unnecessary complexity to processes, increase maintenance costs and navigating them can be an inefficient use of advisor’s time.

Battling it Out with Pure Play Robo-Advisors. Traditional advisors will find themselves competing with automated services that offer fewer fees, good returns and solid digital platforms. Whilst we do not expect these type of firms to immediately swallow up the advisor space we believe that adopting a hybrid / bionic model would be the best solution to compete.

Lack of Engagement and Financial Literacy. At a time when the need for financial advice is so great for so many, levels of engagement with financial advisors are disappointingly low. This lack of consumer engagement is compounded by low levels of financial literacy, which may negatively reinforce individuals’ willingness to engage with financial advisors.

Improving the Client Experience. Clients are demanding a digital, online, banking anywhere, anytime, anyhow type of service. Technology is driving user engagement. Firms are creating compelling user interfaces that are written in a friendly, casual voice with clear explanations, making investing more accessible and less intimidating. They’ve made investing more enjoyable and easier to fit into one’s digital life. As always, the most important channel remains face to face interaction but this should be complemented by digital channels.

Time Management. Due to all of the above administration many financial advisors struggle to free up the time to do what they do best – spend time with their clients.

At the halfway point of 2017 it is evident that financial institutions and advisors have a lot on their plate and we expect the rate of change seen so far to accelerate into the future. Firms should bear in mind that change is inevitable but transformation is a conscious choice. In the next issue we explore how financial advisors can adapt to this change and transform their businesses for the better.

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