by Sophie Antal Gilbert, Russell Investments
The perfect storm continues to grow, spelling opportunity for those advisors who are committed to continuously evolving their approach.
Nearly every aspect of the advisory industry is undergoing some form of transformation todayāwhether through demographic shifts, capital market regime changes, rising regulatory pressures or technological disruption.
This can be a daunting prospect for many advisors: the activities that brought them to their current level of success are unlikely to help them reach the next tier of performance. However, for those advisors who embrace new approaches and re-engineer their businesses, the rewards can be tremendousāfor them and their clients.
The inflection point: The key challenges facing advisors today
The changing investor population
Demographic trends are having a huge impact on advisorsā businesses. On the one hand, many advisorsā most lucrative and long-standing clients are aging: starting in 2030, 1 in 5 Americans is projected to be 65 years old and over.1
[interscroller_banner_web bannerid="4"]These clientsā planning needs are changingācustom income plans and guarding steadily shrinking nest eggs against investment mistakes they wonāt have time to recover fromāand they require more time from advisors at precisely the time that their value to the advisor (in terms of on-going revenue stream) is declining.
On the other end of the demographic spectrum, advisors who want to maximize the long-term health and value of their business need to shift their practices to serve the next generation of clientsāGen XĀ and millennialsāwho have different client service expectations and investment goalsĀ from previous generations.
Advisors who can deftly thread the needle of these complex demands on their time and resources will build successful businesses.
Shifting capital markets
The current extended bull market has been a blessing and a curse for many advisors. After all, whatās not to like about steadily upward moving markets? Itās great! Except, it weakens investorsā emotional resilience to market volatility. That resilience is like a muscleāand it hasnāt been exercised in several years.
While the investment crystal ball remains foggy about when the next recession will begin, how deep it will be and how its impact will be felt in capital markets, future-minded advisors are preparing their clients to anticipate the potential emotional impact of renewed market volatility.
For instance, they are introducing their clients to the concepts of investor behavior, reviewing their financial goals, circumstances and preferences and ensuring their portfolios are positioned accordingly.
Rising regulatory scrutiny
Governments around the world have responded to the Global Financial Crisis and the growing retirementĀ crisisĀ by increasing regulation in the financial services industry. While this may have strained many advisory firms, the regulations also create an opportunity for advisors to distinguish themselves.
Those who continuously improve their businessāadopting a client-centric approach, streamlining product inventory and implementing a team-based approachāare likely to have a long, bright future.
Disruptive technology
Technological innovations have not left the advisory industry untouched. To some, robo-adviceĀ and fintech can appear threatening. After all, many of these technologies purport to do what advisors do: create investment portfolios aligned with a clientās goals and risk tolerance. However, here again advisors have an opportunity to differentiate themselves. Many advisors deliver much more to clientsĀ than simply an investment portfolio. They offer comprehensive wealth managementāsuch as deep and ongoing discovery of the clientās financial goals, circumstances and preferences, financial planningĀ andĀ behavior coaching, for instanceāthat requires a level of emotional sophistication that machines are not able to replicate and that many investors donāt entrust to machines.
At the same time, advisors have an opportunity to intelligently incorporate technological innovations into their business. Improving efficiency and productivity of some back- and middle-office functions and delivering on many clientsā desire for greater accessibility and personalization of services online, can create great value for advisors. Technology can play a vital role for advisors: efficiency, effectiveness and differentiation.
The bottom line
The advisory landscape today is not what it was even 10 years agoālet alone what it will look like in 10-plus yearsā time. This creates challenges, but also opportunities, especially for those advisors who are committed to evolving and continuously improving their practice. Focusing on those areas of the business that will drive growth in the future is critical.
With over 20 years of experience coaching thousands of advisors as they evolve toward better businesses and better client outcomes, we believe that running an advisory business like a CEO, adopting a client-centric approach, aligning product inventory with clientsā desired outcomes, and taking a team-based approach will help advisors not only survive todayās disruptionsābut thrive in the future, as the industry continues to evolve.
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