It’s no secret that the wealth management industry is in the throes of profound transformation. Confronted with potential upheaval, advisors are starting to reimagine who they are and how they work. In the next decade, the primary drivers of change will compel advisors to occupy three key roles: Technology guru, educator and full-service consultant. These roles will help advisors deliver client value and shore up a competitive advantage.
Drivers of Change
Rapidly shifting conditions are forcing advisors to adapt quickly and fight for survival:
Changing demographics.Over the next 20 years, millennials will inherit nearly $30 trillion in generational wealth. This is a big deal because millennials represent a different breed of investor altogether. Doing business in the office, face-to-face, isn’t their cup of tea. They tend to be extremely confident, mostly because they have access to almost limitless information. As a consequence, they tend not to lean on advisors to confirm their gut, boost their confidence or soothe their anxiety in a bear market.
New regulations. Most of the regulatory talk over the past 18 months has centered on the DOL fiduciary rule, currently in limbo. Will the new administration enforce the rule or not? But the fact is: Regulators are merely catching up with industry trends. Successful advisors recognize that fee-based or, increasingly, fee-only compensation is good for business. It’s what clients want, especially in an environment marked by near-perfect information symmetry. Fee-only compensation is transparent, helps eliminate conflicts of interest and advisors can advertise that they don’t work on commission.
Digital transformation.Algorithm-based portfolio balancing (robo-advising) is now ubiquitous across the industry. And disruptive startups are finding ways to leverage advanced analytics via machine learning and artificial intelligence. Many advisors genuinely worry they’ll be replaced by computers and automation.
At the same time, new technologies have transformed the marketplace, changing the way investment products are priced, bought and sold. New trading platforms and the rise of fintech underwrite immense competitive pressure. Greater transparency and comparison pricing drives management fees and commissions ever lower. Margins are incredibly thin. To stay afloat, advisors work overtime, scrambling to bring new assets under management.
Three Ways Advisor Roles Are Changing
Taken together, the picture can indeed seem daunting. But, in the wake of tremendous change, the key is to think about who you are and what you do best.