As clients evolve, they are steadily becoming more financially literate and aware. At the same time they are becoming less trusting and more loathed to be left out of the financial decision making process. All of which will put more and more pressure on financial advisors to adapt and that is when the big challenges begin. Advisors will need to admit to themselves that they cannot continue to operate in the same old way.
The handwriting is clearly on the wall as study after study delivers the same hard truth: change is coming. A study conducted by AT Kearney showed that approximately 50% of the clients surveyed said that they had some interest in using robo-advisors to manage their accounts. A Cap Gemini survey indicated that 64% of affluent clients expect their future wealth management relationship to be digital. Additionally, 65% of these clients will leave their current advisor if an integrated digital experience is not offered. A recent Gallup poll indicated that nearly two of three investors preferred to get financial advice from both online/digital sources and from personal financial advisors. A report by Accenture shows that investment into financial technology tripled in 2014 to US$12.2 billion versus 63% growth in overall venture capital investment, catapulting the digital revolution into the financial services industry at an unprecedented rate.
If these scenarios do actually come true then advisors will need to adapt or become irrelevant. Advisors that fail to react will face severe challenges to their future profitability and growth because change is not optional. Competition will force advisors’ hands. To compete successfully advisors must differentiate themselves, otherwise they will have to compete in price to win or retain clients. So a unique identity will be imperative, to clearly define in the client’s mind a distinct value proposition that helps advisors stand out in a very crowded market.
Advisors need to focus on their core competencies and outsource non-essential processes by streamlining back office and portfolio management activities; and rationalizing services offered where they do not have the necessary skills to meet client expectations. Compliance is an absolute cornerstone of any advisor’s practice, so a sound business model and sound operational processes are non-negotiable. However, in the coming challenging regulatory environment, even this can largely be outsourced or structured to provide opportunities to enhance profitability and ensure growth.
No longer will the product push model lead to successful results. Advisors will need to focus more on solutions that deliver enhanced services. Solutions that meet a client’s personalized goals and objectives will be most highly regarded. Emphasis will have to be placed on delivering customized solutions. By shifting to a flexible service based practice, visionary advisors have an opportunity to benefit from new innovation and provide excellent client satisfaction.
At the end of the day, meaningful growth will only be achieved by embracing change. Advisors need to identify and efficiently exploit niches through specialization and differentiation. If advisors can deliver a unique service platform, successfully build a distinct brand and provide world class communication they can avoid becoming irrelevant. Advisors need to embrace change to win the battle because change is constant; and like sharks, if you are not moving forward then you are going to drown.