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5 disruptors that will transform advisors’ businesses

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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, 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’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.

3. The Longevity Trend

Signing up younger, less wealthy clients through online platforms not only meets the needs of those clients, but also solves a serious problem for advisors: Their clients are older. It’s not just that older clients are more likely to, well, die, they’re also drawing down their assets rather than accumulating wealth. While some advisors are addressing the aging client issue by instituting revenue models that do not rely on managing assets for a fee, the longevity trend poses broader issues for advisors.

Life expectancy in developed countries has been increasing at a regular pace since the mid-19th century, helped along by improvements in sanitation and medical science. In October 2014, the National Center for Health Statistics reported that average life expectancy for Americans aged 65 as of 2012 had risen to 19.3 years—20.5 years for women; 17.9 years for men. Robert Anders, NCHS chief of mortality statistics, told The New York Times that “there’s been a fairly substantial increase just in the past decade” in Americans’ lifespans.

How long increases in life expectancy will continue is impossible to predict because scientists studying longevity have yet to discover why some people live very long lives. While many correlations have been found with longevity—the wealthier a person is, and the more educated—finding the cause of longer lifespans is proving difficult.

One of the challenges for advisors and their partners is to find the right ways—through medical savings accounts, new insurance products and effective retirement income planning—to make those extended golden years enjoyable to the end. 

But advisors aren’t in the business of predicting whether average longevity will increase slightly, dramatically or stay the same; they’re in the business of accommodating a range of possible outcomes. Most financial planners assume their clients will live at least into their 90s; some go even further. The Census Bureau reported in 2010 that there were 53,364 Americans aged 100 or higher, or 1.73 percent of the total population. Consider that the average life expectancy of a person born in 1910 was 48 years for men and 51 for women. Life expectancy for someone turning 65 this year—born in 1950—was 65.6 years for men and 71 for women. For people born in 2014, life expectancy is 81.2 years for women and 76.4 years for men.

There will be many older people as each year progresses. While some advisors use individual and family medical histories to project the likely life expectancy of individual clients for purposes of a financial plan, the simple truth is that we can’t accurately predict when someone will die.

4. The Politics Trend

In May 2009, Mohamed El-Erian of PIMCO began his speech at Morningstar’s Investment Conference by bluntly saying, “Get used to the government being your partner.” While he was referring at least partly to the Federal Reserve’s then nascent TARP program, El-Erian was also voicing a broader truth: that the environment in which advisors operate is more political than ever.

Just as the Great Depression led to unprecedented government oversight of the country, the Great Recession inserted legislators and regulators permanently into the markets. Only advisors and associations who can wield influence with regulators and legislators on behalf of their clients will succeed.

If you are an advisor, your interests and those of your clients should be made clear to the legislators and regulators. The only way to make those interests known is to become political. That means not simply contributing to election campaigns, but also supporting the broader advisor associations and groups that speak on your behalf. There’s no direct quid pro quo to making political donations. Rather, donating gets you a place at the table with lawmakers through which you can exert influence.

There’s another angle to politics: who votes and who doesn’t. In the 2008 presidential election, 58.2 percent of the 235 million eligible voters cast ballots, the biggest turnout since 1968. However, according to the Census Bureau, only 48 percent of U.S. citizens aged 18-24 voted in 2008, compared to 72.4 percent of citizens aged 65–74.

The last of the baby boomers will have turned 65 by 2030—only 15 years away—and 18percent of Americans will be 65 or over then, compared to 13percent now. There are now 2.8 workers for each Social Security beneficiary; by 2033 there will be 2.1 workers for each beneficiary, the Social Security Administration projects.

Social Security’s costs exceeded its income from payroll and other taxes in 2013 as it has since 2010, the SSA trustees reported in 2014, and are expected to continue to do so through 2023, when Social Security’s “reserves will be depleted.” So as we approach 2033, the needs of which part of the electorate will be satisfied—voters or non-voters?

It’s not just lawmakers that politics affects. The Financial Services Institute has had much success in marshaling its thousands of FA members to derail or soften state legislation threatening BD reps’ independent contractor status and efforts to tax the provision of financial advice.

As Washington Bureau Chief Melanie Waddell reported in these pages just last month, the SEC has become more dysfunctional over the years due to greater interest in Congress over the securities laws. According to former SEC commissioner Steve Wallman, lawmakers now evince “far greater activism and deeper immersion” in matters that impact the agency, resulting in Congress now becoming a “major and continuous player” in SEC matters.

The government will remain a partner for some time to come, not only as Dodd-Frank is implemented (or scaled back), but also as major political issues like Social Security funding and the long-term federal debt ferment.

5. The Generations Trend

Advisors are old: Their average age is in the mid-50s, while top producers at wirehouses average 60 years of age. Current clients—the baby boomers, mostly—match their advisors’ age. Advisors tend to be white males, reflecting their brokerage house and insurance company lineage. Boomers won’t live forever, and the country’s ethnic and racial composition is changing rapidly. To succeed, the advisor community must become more female and brown so it can serve the next generation of clients, whose expectations and preferred methods of communication are far different from the boomers.

The advisor talent shortage has been well documented, and those who train advisors are all making efforts to attract more younger people, women and minorities to meet the need. In February 2014, Cerulli reported that more than one-third of advisors plan to retire over the next decade, resulting in the need for an additional 200,000 new professionals.

But the generations trend goes beyond advisor demographics; there are broader demographic trends at work that will affect how advisors plan for individuals and their families, which will increasingly be multiple generations. According to Pew’s Taylor, more than 50 million people in the U.S. are now living in multigenerational households, a record.

How will an advisor make an estate plan for a client when three, four or five generations of a family already exist? Which set of grandparents or great-grandparents will contribute to a 529 plan? How will clients draw up trusts to keep a business or the family wealth in multiple generations’ hands?

While Taylor found that only 29 percent of Americans say there is a “strong conflict” between the young and old, 58 percent say there is such a conflict between the poor and the rich. There are deep divides between the old and young on some hot-button social issues: only 38 percent of the “Silent Generation” say they favor allowing same-sex marriage, while 68 percent of millennials say they do. The generations also divide on traditional American practices like church membership, though (luckily for boomers and silents) there remains strong multigenerational support for funding Social Security and Medicaid.

It’s certainly true that people younger than the average advisor like to communicate in different ways, and perhaps (as the robo-advisors suggest) they may even want to work with their “financial advice provider” in different ways. They certainly have higher expectations of their advice givers when it comes to expecting access to their advisor and their own financial data that is mobile and direct, unhindered by geography or time of day or intermediaries.

Summing Up

Speaking at the Junxure annual user conference in October, Pershing’s Tibergien presented a number of reasons why he believes “the golden age of the advisory business is just beginning.” To participate in that golden age, he said, advisors have to ensure that their firms have consistent profitability, transferable value and loyal clients, and must provide career growth for firm employees. He urged advisors to look ahead 10 years, to ask themselves what they’ll be doing then, what their clients will look like and which of their colleagues will still be around. “Are you planning for your destiny,” he asked, or for “your exit?” The advisory profession, he said in a late October speech at Pershing’s Discover conference in New York, “is a business created by boomers for boomers; that has to change.”


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