Independent financial advisors constitute a young profession, but they and their partners over the past 35 years have always helped shape societal trends, technology and regulation. For this profession to thrive in the years ahead, it must harness five major transformative trends already in process.
These trends—mobile, micro, longevity, politics and the generations—have already affected how advisors run their businesses. They are already changing the expectations that end clients have of their advisors. Each trend is intertwined with the others, and the technology that advisors and their clients use underpins the changes that these trends are creating.
A stately bricks-and-mortar office, consumer/client awareness, an impressively bound financial plan, access to valuable investing vehicles and an air of sophistication were once necessary to succeed at the dawn of the independent advice age.
In the environment being formed by these five trends, success will come from meeting clients’ and prospects’ higher expectations by giving them unfettered access from any device, at any time, to their advisors and investments. Advisors will need to partner with their associations and designating bodies to make their clients’ needs known to regulators and legislators. They will need to solve the retirement funding issues faced by the majority of their current clients. Advisors will be plying their trade in an America that is changing rapidly. As Paul Taylor wrote in Pew Research’s “The Next America,” the country is in the midst of two demographic transformations. He wrote: “Our population is becoming majority non-white at the same time a record share is going gray,” which will place “stress on our politics, families, pocketbooks, entitlement programs and social cohesion.”
The advisor community has its own “generations” demographics issue as well. Will the advisor work force be able to replace all those members who are rapidly approaching retirement age? Will those replacements be able to continue the entrepreneurial habits of the profession’s pioneers?
1. The Mobile Trend
Author Mike Walsh said the modern world began in 2007 with the introduction of the iPhone. Since then, he reported at the Insured Retirement Institute national conference in September, our children’s brains “have been remapped” because of their exposure to mobile technology. The author of “Futuretainment” said that there is a “new global generation growing up today who have never known a world without smartphones and high-speed digital connections. They are a living challenge to all of us to rethink the way we do business.” So how will you rethink the way you do business with this mobile generation in mind? And remember, it’s not just young people who are mobile savants.
Pew Research released a study in April 2014 that found high levels of Internet usage among the over-65 crowd—59 percent go online and 77 percent report having a cell phone. Better educated and higher income older adults have Internet and smartphone usage that approaches the general population, Pew found.
Wirehouses and online brokerages, as well as advisor-friendly firms like Schwab, Fidelity, TD Ameritrade and Pershing, offer mobile applications to consumers and advisors.
Neesha Hathi of Schwab pointed out in a technology session at Schwab Impact in November that 30 percent of married couples met through an online match site. As reported by Executive Managing Editor Danielle Andrus on ThinkAdvisor.com, Hathi suggested that if “they’re comfortable finding their spouse online, they’re probably okay” finding their advisor there, too.
A survey of RIA firm staff members conducted as part of Schwab’s Solutions workshops last summer found that more than two-thirds already feel mobile technology’s impact at their firms. As reported by ThinkAdvisor.com’s Emily Zulz, respondents cited the ability to look up account information, send alerts and electronic approvals, and deliver reports and documents as key benefits of mobile tech. Then there’s the wow factor. Hathi said that more than 20percent of the 1,700 Solutions attendees have already adopted Schwab’s electronic authorization offering, attracted by its efficiency and security. “If I could show my client that through their mobile device they can actually approve a wire, that’s a really cool thing.”
Why should advisors care about what retail investors are doing on mobile devices? Because that directly reflects what clients will expect from their advisors. “Mobile allows you to do anything at any time,” said TD Ameritrade CEO Fred Tomczyk in an October interview. Beyond making trading more convenient, Tomczyk said, mobile access supported by big data and social media “personalizes the experience” of investors, providing the ability for investors to “collaborate with others.” It also allows TD to “present things that will pique their interests,” keeping them more engaged not only with other investors but with TD.
The client experience is also the major attraction presented by robo-advisors, not the commoditized investing models, Mark Tibergien, CEO of Pershing Advisor Solutions, argues. Many advisors believe that robo-advisors will fail to thrive in a market downturn, citing past downturns when do-it-yourselfers realized their limitations and returned to, or first engaged, advisors. Should that happen, those DIYers will expect the kind of easy access and collaborative atmosphere that they’ve experienced with mobile platforms and robo-advisors.
In a conference call with analysts focusing on TD Ameritrade’s FY 2014 results, Tomczyk said the company increased its expenses for technology during the year, particularly in “social media, mobile, big data and analytics.” Those tech investments, he said, “might take two or three years to gain traction.”
That echoed Schwab CEO Walt Bettinger’s statement in an interview during the Impact conference: that its “massive” investment in Schwab’s Intelligent Portfolios (its robo-advisor offering for retail consumers and RIAs) was an “investment not for now, but for 10 years from now.”
For clients, said Tomczyk, “the distinction between mobile and Web is going to dissipate.”
Advisors must provide clients with state-of-the-art mobile access and tools or be co-opted by digital advice providers that make the consumer’s experience pleasurable and efficient. As one advisor, who asked for anonymity, said in an interview about the threat of robo-advisors, “imagine if Apple got into the digital advice business.”
2. The Micro Trend
In a November interview, Schwab Charitable President Kim Laughton described trends in charitable giving, one of which was that donor-advised funds are attractive because they’re simple. Charities like donor-advised funds because they’re simple, too, but also because donors tend to give more through DAFs than through other philanthropic vehicles.
The Giving Institute’s annual GivingUSA study reported in June 2014 that total charitable giving rose for the fourth consecutive year in 2013 to $335.17 billion, with individuals giving $249 billion of that amount.
The 2014 U.S. Trust Study of High-Net-Worth Philanthropy, conducted with Indiana University’s Lilly School of Philanthropy, found that 49 percent of HNW individuals gave online from 2010 to 2013.
The ability of a potential donor to directly help a small or burgeoning charity is a reflection of our second major trend. Advisors have long known that the world is a smaller place when it comes to investing and have taken advantage of that by directing client assets into specific slices of the market via ETFs, closed-end funds or private investment vehicles.
Expanded social networks and globalization have widened investors’ horizons, but humans being human, we want to associate with those who share our interests.
Smart advisors are building their own social networks to serve clients, even as they provide access to smaller “slices” of the investing pie. One reflection of the micro trend is the proliferation of robo-advisors, and the rush by major custodians and broker-dealers to allow their affiliated advisors to use digital advice platforms. Those platforms allow advisors to reach underserved client segments whose asset or income levels don’t meet advisors’ minimums.
The micro trend is all about client and prospect expectations of their advice-givers, which has been built on the foundation provided by online shopping, dating, networking and music. Those applications—whether it’s Amazon or Pandora—learn from the user’s actions, continually narrowing down what the user likes most. They build profiles of each user to personalize the experience.
There’s no doubt that prospective clients will increasingly find or vet you online using your online presence and through the recommendations of their intimate online social networks, just as most of us do in picking a restaurant or a hotel.
An advisory firm’s younger advisors and employees are as comfortable with this micro trend as older advisors are with reading a newspaper. Firms that take advantage of such digital natives’ comfort level and expertise will attract more clients who are more likely to be a firm’s most appropriate clients, which has long been a challenge for advisors.