Online advisors won't kill the financial advisory industry – but small- and medium-sized RIAs may be roadkill if they don't integrate an online model with their personal service offerings.
That's one of the takeaways from a new report on major wealth management trends by CEB, the
RIAs with less than
"The new models most closely replicate the RIA who uses a custodian platform, but the firms like
The report identifies a few key trends likely to reshape the wealth management industry over the next few years. Among them:
The CEB report distinguishes between the online-only services often dismissed as "robo advisors" and firms like
Integrating online and advisor experiences to keep up with the competition and better engage clients will be a critical priority for wealth managers in the years ahead, according to the report.
And don't imagine this is a youth-market issue: A CEB survey of high-net-worth clients found that while Gen X and Gen Y clients most favor a multi-channel experience, the trend toward digital engagement "spans across age groups." Specifically, more than 25% of retirees and 44% of baby boomers said they were comfortable with multi-channel access to their advisory firm.
To make digital integration work, wealth managers should emphasize online tracking and explanations of how a client's personal goals relate to market benchmarks, Blankenbaker suggests. "You want to make the information they can see and the conversation you're going to have as relevant as possible," he explains. "You want the client to see their own goals online, versus just their accounts.
"Real relevancy," he says, "is establishing what the client's personal benchmarks are and how they're doing against them."
2. Automated Onboarding Grows in Importance
As regulatory burdens grow, over three-quarters of wealth management firms surveyed by CEB last year said improving client onboarding – the process of moving data from front to back office – is of critical or high importance.
New record-keeping, reporting and "know your customer" rules have had significant impact on the onboarding process, the study notes. To maximize the efficiency and impact of a compliant client onboarding experience, firms must invest in automating key steps such as compliance and administrative tasks, the report says.
Such automation allows advisors to spend more time on client-facing activities. That's critical, because client satisfaction with account opening is very low, according to a CEB client survey. And the firm's research shows that the first six months of a client's relationship with a firm are when he or she is most likely to expand the relationship.
Firms should centralize the process as much as possible, Blankenbaker says, and try to implement an automated signature process so that clients don't have to make an extra trip to the office.
3. Firms Refocus on Planning
This one should be a no-brainer – but, ironically, because financial planning is seen as cost-inefficient by so many firms, it is probably the "least used product" among higher-end wealth managers, Blankenbaker says.
Yet it's also the most important, he adds. And things are changing, according to the report: "Shallow client relationships, low plan penetration and proven benefits from planning are leading firms to redefine financial planning from a peripheral advisory tool to the core experience for clients."
The benefits of including financial planning for clients include a deeper relationship, more referrals and increased wallet share, Blankenbaker says.
The time-consuming nature of planning has traditionally been a "barrier to return on investment," the report notes. However, decentralization of standard plan creation, automation, innovation in reporting and simplification of client deliverables are now making financial planning "more efficient and scalable," according to the report.
4. Avoiding Specialist Traps
Most wealth management firms now have star specialists with technical expertise in areas such as portfolio management or planning, the CEB report notes. Increasingly, however, those specialists will need to be more well-rounded and able to build stronger relationships through client interactions.
"The most important competency in wealth management is having interpersonal skills, not technical expertise," Blankenbaker says. "The industry is asking specialists to play more client-facing roles and have a more collaborative and client-centric relationship with their colleagues."
"Strong emotional competencies" are critical for specialists being asked to become more involved in relationship management, the report says.
To ensure that wealth managers have emotional intelligence and are able to relate to clients, firms need to reprioritize the way they hire, train and coach employees, Blankenbaker says.
More personality-based assessments will be needed, he says, as well as training to help wealth managers become consultative and service-oriented.
5. Advisor Teams Become Critical
The aging advisor force is hardly breaking news, nor is the pressing need for advisory firms to have a succession management strategy.
Yet the CEB lays out the numbers in sobering detail: Approximately 20,000 advisors are expected to retire in the next three years, it says, and roughly one-third of surveyed advisors plan to retire or leave the wealth management business in the next decade.
The first steps that firms must take are obvious: Particularly if you're not going to sell, start bringing in new advisors and structuring equity-based succession deals with younger wealth managers already at the firm.
But there's something else firms should do, according to the report: Start teaming up senior and junior advisors to make sure a firm's revenue productivity doesn't nosedive when a senior partner splits.
"If an older, productive partner leaves and is replaced by a less experienced, less skilled advisor, we're seeing a big drop in revenue production," Blankenbaker says. "The solution is to team seasoned advisors with big books of business with younger advisors in the firm. That way junior advisors become familiar with the clients and are able to service them seamlessly when the senior partner leaves."
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