For the investment and financial advice industry, several hard truths can no longer be ignored and are poised to flip an old-fashioned industry on its head.
Truth #1: Sound financial advice and guidance have never been more needed
What happens when you combine a demographic time bomb, substantially low financial literacy rates, a decade-plus of near-zero interest rates, a severe economic shock and a global pandemic into a single point in time? Well…it’s not great. Roughly two-thirds of Baby Boomers say they’re not confident they will have enough money to live comfortably in retirement and over half (about 58%) of consumers over age 55 have less than $100,000 of savings. To make matters worse, for too long the industry has ignored the clients of tomorrow – turning their collective noses up at Gen X, Millennials and Gen Z opportunities.
That’s the bad news.
The good news is that the ‘shock and awe’ of 2020 has triggered more Americans than ever to seek out the calming, capable hands of financial professionals. In fact, the number of investors who say they are working with an advisor is skyrocketing – up to 67% in 2020 from 51% in 2016, according to Nationwide’s Sixth Annual Advisor Authority study.
But not every firm is prepared to seize this once-in-a-century opportunity. Those who lead with a financial planning and fiduciary responsibility will lead the way. At a minimum, the financial advisor and his or her firm should provide a combination of investment, retirement, insurance and financial planning. Done right, their guidance should also cover estate planning, tax planning and long-term care.
Truth #2: Lack of gender, race and cultural diversity is inescapable
An overwhelming lack of gender, race and cultural diversity has been the investment and financial advice industry’s biggest sore point for multiple decades. For too long, industry leaders have turned a blind-eye to inappropriate client behaviour, booze-filled horror stories from industry conferences and trading floor ‘bro culture’. In addition, a general lack of multi-lingual regulatory, education and marketing materials strongly linked financial literacy with socioeconomic background.
Roughly 79% of America’s 434,000 financial advisors are white (Caucasian) despite that cohort only making up 63% of the entire population. And 99% of mutual fund assets are managed by white male-owned firms. In contrast, minority groups are significantly underrepresented with Hispanics/ Latinos comprising only 7.1% of advisors (36% of population) and African Americans comprising only 8.1% of advisors (12.2% of population).
Even though this problem has been hiding in plain sight the industry has largely ignored it. One recent advisor survey showed that only 21% of financial advisors strongly agreed that the minority community is underserved.
But the tide has turned…in a big way.
Women in the United States don’t just represent a sizable opportunity, they control $10.9 trillion in assets according to McKinsey. That figure is expected to triple by the end of the decade. Social movements like #MeToo and the ongoing struggle for social justice, combined with women living over five years longer than men in the US and other demographic trends are rapidly making gender, racial and cultural diversity a primary driver of future business.
Those firms who don’t act quickly to this truth, as in right now, will suffer the unforgiving consequences of a consumer market that has left them behind.
Truth #3: Time is scarce. Talent is precious. Technology and operations processes must epitomize efficiency
The rules have changed. Rather than just focusing on retirement or investments, clients of all ages are now demanding their financial advisor provide more holistic advice and comprehensive planning services that are highly personalized to his or her goals. They seek estate planning advice, trust services, taxoptimization and a highly skilled ‘sounding board’ with whom they can talk through concerns and have questions answered. In addition, clients want ‘Amazon-like’ ease-of-use and on-demand accessibility to their financial picture.
Today, there are so many demands on a financial advisor’s time. Uberefficient operations and a well-oiled technology stack are must-haves to remain profitable. Although wealth management firms have spent big money on technology over the past decade, most are still struggling to realize the potential those technologies provide (see chart below).
Take advantage of the disruption
While these three truths are difficult to swallow, opportunities created by this disruption are plentiful. At the end of the day, those firms and providers who embrace change, seek out innovation and choose their technology wisely will succeed.
Those who don’t? Well, the truth is they likely won’t survive.
Firms have all the bells and whistles, lack the nuts and bolts
This article is originally from our US Wealth Technology Landscape Report 2021. Access the full report here.
