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February 18, 2015 at 10:35 AM
Changes in demographics, technology and markets are influencing the way financial advisors interact with their clients, according to a new white paper from SEI.
These changes are affecting every aspect of the industry and forcing advisors to deliver advice in different ways.
“Financial planning is in the midst of a generational shift, among both financial planners themselves and the clients they serve,” Michael Kitces, head of research at a private wealth management firm and co-author of the white paper, said in a statement.
“Coupled with the accelerating pace of technology change, this transition period provides advisors the opportunity to take their practice to the next level, but also presents the risk of falling dangerously behind the curve.”
The paper points to several key drivers of change within the financial advisor sector.
Some two-thirds of financial advisors classify themselves as financial planners or wealth managers, while analysis of advisory firms often shows that they are not. Only 26% offer services that meet the definitions of those classifications, according to the paper.
It calls for true wealth managers to clearly communicate the higher level of service they offer clients and what makes them more than a traditional investment manager.
The authors note that 64% of the American population was born after 1964, and tomorrow’s successful advisors will serve clients who are technologically savvy and diverse in terms of gender, age, ethnicity and aspirations.
Goals-based planning is on the rise, they write, but advisors need to be prepared to report on progress to goals instead of investment benchmarks. Investment-only advisors, employing a passive investment approach, are at risk in today’s market.
The paper says that the rapidly emerging number and type of technology-enabled tools available to advisors — aggregation, mobile, cloud — are outpacing their adoption.
Investors across all socio-demographic segments are way ahead of their advisors with their technology know-how. What used to be done by pen and paper can now be done with financial planning software—yet 29% of financial advisors still don’t use the software.
The paper suggests that future investors will likely require a mix of robo-advisor strategies along with more personalized human service.
What Advisors Can Do
The white paper lays out eight ways for advisors to think about their service delivery model and gain a competitive advantage in the evolving advice landscape:
1. Co-plan with clients
This will force advisors to rethink their client relationships and their role. They should move away from selling product and become a co-creator of interactive plans that are unique for every client. They should expand the client conversation beyond finances and investing.
2. Fully Adopt Goals-Based Planning
