How can wealth advisors prosper at this critical time when clients are expecting much more than just investment advice and advisors’ margins are being squeezed?
That’s a key question posed by a new study conducted by the CFA Institute in conjunction with market research firm Scorpio Partnership that surveyed wealth advisors — both chartered financial analysts and non-CFAs — and private wealth clients, revealing critical gaps between the two.
The headline takeaway: “The future wealth client will be much more demanding, discerning and wants the advisor to showcase how they’re adding value,” says John Bowman, the institute’s managing director, Americas.
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“The traditional advisory business is at risk,” says Bowman. “There’s an urgent call to action to reshape the business to address a new generation of clients, digital substitutes and other sources of advice. The easy days are over [for wealth advisors] to win and retain business.”
The study, which surveyed 1,370 wealth advisors (including 892 CFA charterholders) and 4,000 affluent and high-net-worth individuals, found big gaps between what advisors believe clients need and want and what wealthy individuals desire from advisors now and in the future.
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For example, advisors believe transparency and competitiveness on fees as well as non-investment advice and enhanced digital access will be the key factors wealthy individuals consider when choosing a wealth manager in the future, but that “grossly” underestimates other factors that are important to clients, especially those under 55 years old, according to the study.
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They want advisors to meet or exceed investment benchmarks and to offer a full range of services including customized reporting and sustainable investment solutions and to develop relationships with external client supports such as a CPA or attorney.
“Advisors must start to think in terms of client experience, not just performance,” according to the report. They need to “put client engagement front and center in their performance evaluation.”
More specifically, advisors need to offer not only technical expertise in investing — in financial products and solutions integrated into a strategic financial plan — what the report calls “IQ” — but also empathy and a solid grounding in behavioral finance — what the report calls “EQ.” “Gone are the days where advisors could compete for advisory retention based on investment returns,” says Bowman. ”Now clients are demanding that advisors operate across a broader relationship spectrum.”
These include, says Bowman, offering competencies in financial planning, tax planning plus a “bedside manner” during difficult times, as well as “strong confidence in asset allocation and the right portfolio strategy.”
Advisors also need to incorporate digital tools in their practice, offering a “convergence” between human advice and digital online tools that complement each other. “They are looking for a hybrid of the two, not one or the other,” says Bowman.
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He noted that according to the study, 25% of wealthy individuals are not using advisors, citing a preference to make their own investment decisions, the costs of professional advice and a belief that advisors don’t act in the client’s best interests.
That percentage will only grow as the population of millennials grows. “Clients under the age of 35 have a larger set of requirements across the entire value proposition,” according to the study. But he added that millennials desire human advice in additional to digital advice. “You have to showcase that,” says Bowman.
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