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Practice Management > Building Your Business

The New Secret to Wealth Management Success

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What You Need to Know

  • Innovative technologies have made it easier than ever for investors to move on to greener pastures as the mood strikes.

While clients of wealth management services generally report that they are satisfied with their advisors, a careful analysis reveals a more precarious situation for established players in the field. The wealth management sector is moving into uncharted territory as an already competitive market experiences new disruptive challenges from fintech and other non-traditional players.

The next generation of investors could upend the status quo by redefining how financial advisors manage — and protect — their clients’ savings and investments in the aftermath of new digital and hybrid offerings being brought to market.

As a result, expectations are rapidly changing, laying a foundation for disappointment among leaders who are counting on conventional engagement practices to capture and retain clients through the next generational changing of the guard.

J.D. Power research clearly shows that younger generations do not tend to share the same advisor loyalty as their parents. The way these consumers create and manage new wealth is entirely different.

They are no longer solely motivated by making money, but instead are focused on defining what it means to have a life well lived and are looking at investments as a means to that end.

While this general sentiment is true for all generations, many firms are quickly concluding that Millennials and Gen Z require a wider range of factors to be incorporated into their financial planning process. They are also more open to engaging and co-creating their financial future using digital platforms.  

(J.D. Power defines generational groups as Pre-Boomers (born before 1946); Boomers (1946-1964); Gen X (1965-1976); Gen Y (1977-1994); and Gen Z (1995-2004). Millennials (1982-1994) are a subset of Gen Y.)

This shift means that advisor interactions need to move well beyond transactional services and engage differently with customers if they expect sustained loyalty, prompting serious concerns about whether current providers have the experience and expertise to truly understand how customers earn, invest and save.

It raises important questions that revolve around what it means to be a financial advisor in today’s global digital environment and how value — built on trust — can be offered to customers today and in the future. And it raises an important question: Are today’s established advisors prepared to respond if clients cease experiencing value from current relationships?

Embracing data partnerships to develop a more comprehensive approach to aggregating customer experience assessments in a more objective manner will be critical to maintaining market share for firms and advisors alike.

New Game, New Rules

As markets continue to express volatility in the context of digital, social — and now geopolitical— upheaval, maintaining traditional levels of investment performance will be increasingly tricky.

Consumers are displaying signs of being more fickle and new digital engagement models have reduced barriers to entry by new competition — including self-guided investment vehicles. New technologies have made it easier than ever for investors to move on to greener pastures as the mood strikes.

In this environment, any investment missteps or engagement management snafus can give clients pause and trigger dramatic reevaluations of their advisor relationships. Technology has thrown the door open for new fintech players who have their eyes set on taking market share away from complacent providers.

Cultural Adjustments

While wealth management firms have been working for years to provide comprehensive advice— curated adjustments based on the demographics, life stage, affluence, needs, and values of each individual client — a new set of cultural factors are coming into play. This is forcing the industry to challenge a broad array of assumptions that have been taken as articles of faith for decades.

For instance, a sales-based culture has been embedded into wealth management for a long time. Consumers and advisors alike are concluding that these incentives are not translating well to updated workflow models and emerging customer demands.

Changing direction when it comes to compensating financial advisors is a tricky proposition. Many firms fear losing top advisor talent if they make meaningful changes to their incentive and compensation structures.

While these cultural shifts by nature are challenging, our data shows that firms willing to make those difficult moves will be sought out by incoming generations of investors. It can be a competitive differentiator. That said, establishing new incentive and compensation models for advisors to meet the needs of a new generation of customers is only the tip of the iceberg. Other adjustments need to be made as well.

For instance, there has been a broadly accepted belief that advisors do not require ongoing guidance and professional development in customer service once they have been hired and trained.

The thought is that financial advisors achieve success through their own innate ability to treat customers well. Many in the industry fear that introducing programmatic education could remove the sense of autonomy that advisors have over managing customer relationships. It could be perceived as unwelcome micromanagement from the mothership.

J.D. Power analysis, however, suggests that additional skill development has high ROI potential for wealth management advisors and improves the performance of firms overall, by helping the advisor community to effectively stay in tune with changing customer expectations.

Competing in the immediate future will require firms to focus on discerning client motivations. In this context, the most important variable to keep track of is customer satisfaction. The data that provides insight into these factors must be gathered and analyzed in an environment that is free from confirmation bias.

That is why establishing, developing and acquiring expertise in advanced data analytics will be so important to this market. Financial advisors should lean into rich customer satisfaction data from internal and external sources to ensure client engagements are grounded in the same rigorous analysis used to make investments and design portfolios.


Craig Martin, is Managing Director and Global Head of Wealth & Lending Intelligence with J.D. Power.

(Image: Shutterstock)


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