5 Compliance Tips for Anticipating Shifting Investor Needs

Over the next three decades, trillions of dollars are poised to transfer from baby boomers to their millennial heirs. And in just the next few years, according to Roubini ThoughtLab’s Wealth and Asset Management 2021 study, the U.S. is expected to enjoy an increase of nearly $45 trillion in wealth. In order for advisors to capitalize on this opportunity, they will need to adapt their businesses to remain in compliance with applicable regulations. The compliance tips included here can help you anticipate and accommodate shifting investor needs to support Generation X and millennial clients and stay up to date on important regulatory changes.

FINRA Rule 2165 and amendments to FINRA Rule 4512 went into effect in February 2018. The amendments to Rule 4512 require that member firms make a reasonable effort to gather the contact information of a trusted adult who may be approached about a client’s account. Members may contact this individual to address potential financial exploitation or elder abuse, as well as to confirm the specifics of the client’s current information and health status or the identity of any legal guardian, executor, trustee, or holder of a power of attorney.

You may want to consider establishing connections with your clients’ trusted contacts before those contacts are needed. According to the Wealth and Asset Management 2021 report, 65 percent of millennials and 42 percent of Gen Xers expressed a willingness to change financial providers. Building relationships with these trusted contacts now can help you highlight your value proposition and win future business while protecting your baby-boomer clients.

For additional information on these rules, see FINRA’s FAQs.

In today’s increasingly digital world, presenting your brand effectively online is crucial for building your business and keeping up with shifting investor needs. In a panel at FINRA’s 2017 annual conference, it was reported that millennial clients are 1.5 to 2 times more likely to check the background of financial professionals than Generation X clients, so it’s important to make sure your website and social media pages meet the criteria prospective clients are looking for. Social media comes with a number of compliance considerations, however, so maintaining a professional social media presence, while staying abreast of evolving regulations for these platforms, is critical.

Though your firm’s policies may vary, in general, when posting on social media, language that does not imply an endorsement or recommendation, such as “Follow us,” “Join our community,” or “Connect with me,” can be used to increase your audience. Feel free to “like” or retweet general market-related and human-interest posts (being mindful of their source and content) and promote your firm with posts that have been approved by your compliance or advertising review team.

Keep in mind that statements of a client’s experience with, or endorsement of, the advisor on social media constitute testimonials. According to the SEC, this could include “Likes” on Facebook company profiles and recommendations or endorsements on LinkedIn.

The ability to create unique portfolios and offer personalized expertise and a full menu of services is something that cannot be replicated by a robo-advisor. According to the Wealth and Asset Management 2021 report, a majority of investors expect advisors to offer the following services:

• 68 percent expect advisors to “offer innovative and customized financial solutions and products”
• 68 percent expect advisors to “provide more holistic goal-planning advice to help [them] respond to life events”
• 68 percent expect advisors to “provide a range of financial services/support in addition to wealth management”
• 62 percent expect advisors to “use the latest technology to provide sophisticated analytics and 24/7 digital access”

A key factor in creating unique portfolios is keeping up with new products or investing trends, such as socially responsible investing (SRI). Be careful, though, that you don’t run afoul of your firm’s policies. At Commonwealth, for example, our policy prohibits advisors from providing a recommendation or opinion or otherwise guiding a client toward a decision about an unapproved product. Advisors may, however, provide factual or resource information to their clients.

Legg Mason’s 2017 Global Investment Survey found that 85 percent of millennials considered themselves “conservative” in terms of their risk tolerance, with a majority subset considering themselves “very conservative.” While personal debt is an issue, the survey showed that 57 percent of millennials and 39 percent of Gen Xers say they are “strongly influenced” by the 2008 crisis.

Generation X and millennial clients still have a long time horizon until retirement, but their low risk tolerance, combined with the continued growth of goal-based investing, may make it challenging to determine their investment objectives. In such an environment, your single greatest ally for demonstrating fulfillment of your suitability and fiduciary duty is documentation. Accurate and detailed notes of client meetings provide evidence of what investment decisions were made with each client and why, which can reduce the risk to your business and prevent any disruption due to inquiries by your compliance department or regulators.

The way in which clients communicate with advisors and access information is undergoing a transformation. Clients increasingly expect seamless 24/7 access to their financial information. In fact, according to the Wealth and Asset Management 2021 study, 49 percent of Gen Xers and 41 percent of millennials “expect to use anywhere, anytime, any device access over the next five years.”

Making sure your clients can access their account information—whether via desktop or mobile app—can reduce or even eliminate the workload associated with responding to client requests. And by adopting web collaboration tools, webinars, and video conferences for client service, you can provide performance and asset allocation information to clients on demand.

Adapting to shifting investor needs can be challenging, but focusing on what your Generation X and millennial clients want and need from you is a great place to start. As their advisor, they look to you for financial guidance that works with their lifestyle and fits with their communication preferences. By continually adapting the services you offer to better serve your clients’ needs—while staying on top of regulatory changes in the industry—you’ll put your firm on the path to indispensability for generations to come.

What changes has your firm made to accommodate shifting investor needs? Which services have you found to be most valuable to your Generation X and millennial clients? Please share your thoughts with us below!