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Technology > Marketing Technology

4 'Must Watch' Megatrends in Wealth Management

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The famous demographer and futurist John Naisbitt wrote the seminal book “Megatrends” in 1982. In it, he and his research team predicted various outcomes for the future of societies worldwide based on current events.

His methodology? Reading magazine and newspaper articles as research into how demographic changes, technology improvements, globalization and their trajectories would transform how we all live our lives.

This body of work turned into Naisbitt’s 10 predictions for what to expect, and most academics and researchers agree that his prophecies were spot on and still are playing out nearly four decades later.

Re-reading his prophetic tome during the quarantine sparked my own curiosity about the future of wealth management. So, I recently took a similar approach to researching this topic with a much better and more powerful research tool: Google!

Compiling the results of my searches, I uncovered four megatrends in wealth management that should have a profound impact on how the industry will be transformed in the years ahead.

Cloud Native

Technology improvements and advancements have been much more exponential since Naisbitt’s time in the early 1980s, and nowhere has that played out more than in how information is stored, processed, analyzed and delivered.

The evolution in operating systems — from DOS to Windows and then to Cloud-based and now Cloud Native — shows the accelerated progression for information technology infrastructure as new methodologies, computing power and data models get better.

Instead of business applications being installed on servers or PCs, or accessed through the Internet, Cloud Native means that the applications that drive business and the data needed to process them are all deployed inside a Cloud systems’ architecture — hence the name Cloud Native.

With Cloud Native technology powered by such tech titans as Amazon Web Services, Microsoft Azure and Google Cloud, the power, efficiencies, security and flexibility provided are exponential and bring new hope to the disparate technology stack that is wealth management.

Instead of a bunch of stand-alone applications all loosely connected via API integrations to pass data back and forth, Cloud Native technology lets the infrastructure seamlessly unite these applications and data in one environment.

The benefits of Cloud Native technology are transformational, and it soon will get rid of the many manual, clunky and painful workflows that are constraining the capacity of financial advisors, which limits their growth.

This will provide the scale needed for advisors to work with more clients on a closer, more personal level. It will free up advisors from the day-to-day administrative tasks, so they can finally spend the majority of their time on clients and their businesses, instead of on their systems.

Video First

Wealth management is a relationship business. Accordingly, in-person, one-on-one communications and interactions have been the go-to approach for advisors to meet with prospects, convert business and nurture client relationships over time.

Behavioral finance tells us that a human-to-human approach is the key differentiator when it comes to personal issues like money and why investors are more than willing to pay a premium for financial services from an expert professional.

But what happens as we move through (and then hopefully past) the coronavirus, because many of these in-person interactions could be months if not years away? How can advisors develop relationships at a social distance?

The answer is video. According to my colleague and pioneer in wealth management communications, FiComm Partners CEO Megan Carpenter, a “video first” strategy in these times of social distancing will be critical to connecting with clients and prospects.

Investors and prospects want to see their advisor in these troubling times, so video communications will be powerful, particularly as new advice buyers are social distancing and Google searching for a financial advisor for the first time.

Additionally, with the universal proliferation and adoption of video conferencing platforms such as Zoom, most investors are more than comfortable meeting and working with service professionals via video. Video communications are rapidly becoming the new norm.

Beyond video, just communicating in general is critical during volatile times.

Surveys show the No. 1 reason clients fire their financial advisor is because of a lack of communication. Sadly, the results of recent research from JD Power showed that advisors were “AWOL” during the pandemic, as two-thirds of investors did not have any communication with their advisor.

Those advisors communicating and using video will be way ahead of the curve in finding, converting and nurturing client relationships.

Adding Value in a World of Free

One dramatic outcome of technology’s rapid transformation of this industry has been the powerful scale and efficiencies that have ripped just about every cost out of the investment management supply chain. In fact, now a majority of investing and financial planning services are being offered “free.”

Leading this “free” highway and low-cost tsunami are the discount brokerages and asset managers from Vanguard, Schwab, Fidelity and others.

As these technology players continue to add scale and find ever more ways to squeeze tiny basis points out of the distribution and manufacturing of investment products and services, they are disrupting and transforming just about every aspect of wealth management, with no end in sight.

This has tremendous implications for the delivery of financial advice from “premium” priced providers. Just saying you offer financial planning and fee-based advice will no longer be enough to differentiate yourself, when anyone can get equivalent and feature-rich services online and in-person for “free.”

Accordingly, to survive and thrive, advisors will need to re-position themselves as specialists in various niches, such as those based on client demographics, investing specialties, business owner issues, tax planning and more, as well as do more behavioral finance coaching.

The good news is that we are already seeing this movement play out, and advisors are rapidly re-positioning the work they do and better communicating the value they provide to clients.

This shift is similar to how the predicted-to-become-extinct travel agent enjoyed a pre-pandemic renaissance for their services, as they pivoted away from selling destinations to selling “experiences.”

Subscription-Based Services

A ton has already been written about the “Netflix-ing” of just about every ­industry in terms of the packaging of products and services into monthly subscriptions that don’t seem as costly when paid for over time vs. a one-time total purchase.

What this means for wealth management is that the traditional practice of paying for advice, guidance, products and services through an AUM fee is rapidly becoming unbundled into its core components, which are now being paid for in new models.

Which makes sense, as the industry has traditionally given away what clients value most — financial planning and personal relationships — while charging for commoditized investment management. The price-value alignment under an AUM model is backwards.

Leading advisors already are making this move, and the early experiences of the runaway growth and success of platforms such as AdvicePay from Michael Kitces and Alan Moore provide powerful evidence that this trend has staying power. This has happened despite the addictive nature of an AUM fee the industry has clung to for decades.

There were about a dozen “megatrend” themes identified in my quarantine research. However, these four stood out as having the most immediate impact on how the industry operates, and they provide real lessons for advisors and the industry about what may seem like small blips on the radar now but likely will become massive mountains of change in the years ahead.

Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy, LLC, a consulting firm to the wealth management industry. He can be reached at [email protected] or on Twitter @NexusStrategy.


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