The financial advisor industry, like many others, has been through a roller coaster ride this year. From social distancing forcing advisors to adopt virtual communication to a rollicking stock market that couldn’t seem to decide if it was bullish or bearish, 2020 has been a year for keeping your arms and legs inside the vehicle at all times.
“2020 has certainly presented us with what seems like more change that we were prepared to handle, but how we respond to it will determine who will lead in the future of this profession,” says John Diehl, senior vice president of applied insights at Hartford Funds.
While change is not always desired, it does bring opportunity. Many advisors have taken charge of the changes brought by the 2020 pandemic to strengthen their practices.
Bernie Clark, executive vice president and head of Schwab Advisor Services, which helps independent advisors start, build and grow their firms, saw a shift in mindset among advisors during the pandemic. “Over the course of a few weeks, we saw clients transition from working from home to growing from home,” he says. “And that is really a change in mindset, from just working remotely to growing remotely.”
This shift brings new possibilities for how advisors can thrive in the new norm that may follow the pandemic.
Limitations of Virtual Communication
The first and perhaps biggest change for the financial advice industry during the 2020 pandemic is the push to virtual advice. “It wasn’t only a change in communication between financial professionals and their clients, but also between team members within the practices themselves,” Diehl says.
This change has brought both positive and negative consequences for the industry. “Initially, I think there were positives,” Diehl says. “We were exploring the use of tools that had been at our disposal for years but that few of us had utilized, and we learned new ways to interact with people where previous means of communicating were not available.”
But over time, the limitations of virtual communication began to reveal themselves. While established client-advisor relationships could adapt to virtual communication and may even be enhanced by it, new client relationships are harder to develop remotely.
“Although new relationships may be initiated, cultivating those relationships through understanding, empathy and sharing of common experiences seems more difficult through a medium where we can only employ two of the five senses,” Diehl says. That said, advisors who can find ways to work around or through these challenges may get a competitive advantage going forward.
Clients Are Shifting Their Focus
It’s not only the modes of communication that have changed in 2020, clients themselves are changing, Clark says. “Whether it is the movement of wealth between generations, increased client diversity, or evolving planning needs and priorities, with shifts ranging from long-term care and charitable giving to private equity and socially responsible investing. Advisors will need to think deliberately about their ideal client and the value proposition that will differentiate their firm.”
Aditi Javeri Gokhale, chief commercial officer and president of investment products and services at Northwestern Mutual, says her firm saw an uptick in interest from younger Americans looking for a financial advisor to help them create a comprehensive financial plan.
“The pandemic has first and foremost reinforced the importance of comprehensive advice and client service, delivered in a highly personalized way,” says Rajini Kodialam, co-founder and chief operating officer at Focus Financial Partners. “Our partners’ clients focused more now than ever on integrated tax and estate planning, philanthropy and intergenerational wealth planning.”
She says the pandemic has also amplified the need for access to additional investment options, such as alternatives in a low-yield environment. Likewise, it has “accelerated the need for access to an expanded suite of services such as deposits, lending, family office services, insurance and trust services,” she says. “These services are important to client retention, and we anticipate that they will accelerate the flight to quality of advice post-crisis.”
Clients aren’t just demanding during the pandemic. They’re also taking more active roles in their finances now. Gokhale notes she has seen an increased net cash flow in their retail investment products and services business and a record amount of life insurance sold. “One silver lining from the canceled social events and routine commutes is that clients have had fewer distractions, giving them more time to focus on their financial plans and take steps to act on their financial goals,” she says.
More Personalized and Comprehensive Advice
Advisors and their clients have come a long way, but where to from here?
“The changes that will fundamentally reshape the business are the ones that make sense from a client and business standpoint, not just as a response to the current crisis,” Clark says. “Independent advisors and their clients have largely embraced the new ways for working together, and for that reason, we can expect that many of the changes we have seen are here to stay.”
Kodialam expects clients to continue demanding more integrated advice across both their investment and cash management needs. This will lead to “an emergence of integrated banking-wealth management ecosystems that are expected to drive a competitive advantage,” she says. Evidence of this already exists in the major banks building new wealth management offerings or making strategic acquisitions to access these capabilities, such as the acquisition of United Capital by Goldman Sachs last year.
As clients continue to demand more personalized and comprehensive advice, advisors will need to adapt to how they provide that advice.
“Even when people are widely comfortable with face-to-face meetings again, there is a new level of expectation that has been set regarding virtual and digital interactions,” Gokhale says. “Through the pandemic, digital adoption has accelerated. And we think that an increased level of digital access is the new normal.”
Kodialam agrees: “We anticipate that the demand for advice that is hyperpersonalized, data-driven, digitally delivered and goals-based is here to stay,” she says. “However, we expect the role of the advisor to remain central to the success of advice, even as advice goes digital.”
Advisors needn’t make a binary choice between in-person meetings and virtual: The two can coexist in a hybrid model. It’s this hybrid approach that experts say is likely to define the financial advice industry of the future.
“(Advisors) are thinking about how to continue using the best of both in what will be a rethinking of the in-person and virtual needs of client relationships, business operations and firm culture,” Clark says.
While social distancing has given many a greater appreciation for in-person interactions, virtual check-ins can enhance the face-to-face experience.
“Communicating facts and figures, analytical updates and the like may well be more efficiently done through virtual means for both the financial professional as well as their clients,” Diehl says.
Ultimately, the pandemic was less a cause of change in the financial advice industry than it was a catalyst for changes that were already underway.
“Change is inevitable,” Diehl says. “It is not what happens to us that determines our success in the future but how we choose to respond to it.”
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