While the profession has been resilient in the face of financial downturns and headwinds, the wealth management industry is in the midst of a shift that will define the way that advisors run their practice even after the pandemic fades.
In this analysis, we take a deeper dive into two key trends that will shape the advisory profession in the years to come, including changes to the ways that consumers discover financial advisors and shifting preferences in how they receive financial advice.
The advisory business is built on community. Most advisors’ clients live within driving distance; and business development efforts reflect this: networking events, seminars, centers of influence and even referral networks are predominantly local.
While larger firms have found success in disintermediating advice and delivering portfolio management remotely, most advisors have stuck with what works: developing and strengthening local relationships.
While many advisors have invested in their online and social media profiles, the bulk of financial advisors have typically focused on local, event-based marketing to grow their businesses.
Advisors aren’t the only ones driving this trend. As recently as 2015, only 20% to 30% of investors were open to working with an advisor virtually. While the internet has disrupted many industries, the financial advice industry has been slow to adapt to changing times.
As the coronavirus arrived in the United States in March 2020, advisors experienced what Microsoft CEO Satya Nandella referred to as “two years’ worth of digital transformation in two months.”
Widely mandated lockdowns and self-enforced social distancing hurt advisors’ ability to grow their businesses through in-person channels. Travel limitations and fear of contagion meant that not only were some investors unable to meet in person, but fewer were willing to take the risk of doing so.
Fortunately, most financial services companies were able to quickly transition to a remote-first model. Eight in 10 advisors surveyed by professional organization LIMRA reported being optimistic about their ability to service clients remotely during the pandemic.
While some advisors have returned to the office, few report a return to business as usual. And while some states have fully reopened, many people are still hesitant to leave their homes for non-essential activities.
Though this may fluctuate as the pandemic continues, it’s likely that a significant portion of investors may hesitate to embrace traditional in-person advisor marketing, even if they’re able to do so.
Searching for Advice
For those looking to buy goods and services online, one destination consistently ranks highest for both research and initiating a purchase: Google.
Due to the nature of the relationship and the trust involved, financial advisor-client relationships have historically taken a different route. The activities that drive new business for advisors — community involvement, networking, developing centers of influence and local volunteering, as well as referrals — have historically begun offline.
Since consumers take more time to research and choose a financial advisor, they frequently visit seven or more sites to conduct research on financial services purchases. While online search hasn’t been the primary discovery channel for financial advisors, investors have still used the search engine to conduct due diligence on their potential advisor choices.
The coronavirus turned that trend on its head. The virus’ emergence in the U.S. drove two major changes. First, most investors began to limit their social interactions, either due to fear of contagion or shelter-in-place restrictions. Second, global markets fell precipitously, and financial stress reached its highest point since the 2008 financial crisis.
Investors responded as expected: those who had a financial advisor reached out to them in record numbers. Those who did not turned to the internet.
The above chart shows how frequently a given term is searched on Google. The figure compares the frequency of a given search term relative to the site’s total search volume.
During the first six months of the coronavirus in the U.S., the relative frequency of user searches for the term “financial advisor” increased 17% compared to 2019’s average. With people confined to their homes and facing uncertainty, the need for financial advice has never been greater. The only difference is how it’s delivered.
An Emerging Digital Divide
While it’s clear that investors are using search to accommodate their short-term need of finding a financial advisor, what happens when the threat of infection from the coronavirus fades?
It’s likely that some in-person prospecting will reemerge. A set of investors will still want to meet their advisors via referrals, seminars or in-person networking. However, it’s unlikely that in-person prospecting will be as effective for most advisors as in the past.
There are two reasons for this shift. The first is demographic. Younger generations are now beginning to earn and inherit substantial wealth. By 2030, Generations X and Y will surpass Baby Boomers in terms of holding the most wealth in the country.
And younger investors prefer that advisors incorporate technology into their practices: 53% of millennials would seek out a new advisor if their current advisor wasn’t utilizing satisfactory technology, while only 29% of Baby Boomers reported the same.
While virtual tools were growing in popularity before the coronavirus crisis, consumer adoption was slower, especially across generations. The coronavirus has dramatically accelerated those trends.
Record numbers of consumers now utilize digital channels to access entertainment, grocery and banking services for the first time. It’s likely that substantially more young investors will prioritize technology in their advisory relationships in the future.
Second, those newfound habits are likely to stick, no matter the investors’ age. Three quarters of consumers who use a digital channel for the first time are likely to continue doing so, even once things return to normal.
This is the second “peak moment” that is likely to reinvent advisor prospecting. In addition to shifting their discovery behaviors online, consumers of all ages have grown more comfortable replacing in-person interaction with virtual.
While this most clearly holds true for office work, with more than 60% of Americans working from home during the pandemic, one of the most striking shifts to digital has been that of location-dependent social events and services.
Source: New York Times , 4/7/20.
We can look to telehealth services for potential lessons. Before the pandemic, the public was slow to adopt the technology. Despite heavy marketing and implementation by health groups and insurance companies, analysts in 2019 projected that about 36 million telehealth visits would be conducted in 2020.