The past year has been a rough ride for investors and financial advisors alike.
Record inflation, deteriorating asset prices, skyrocketing rents and concerns about an impending recession have many rethinking aspects of financial planning. They’re not sure they want the same things in 2023 as they did in previous years.
For advisors eyeing where the next year will lead them, here are the top financial advising trends for 2023:
— Engagement.
— Defensive planning.
— Tax and estate planning technology.
— Banking and wealth management consolidation.
— External investment solutions.
— Financial wellness.
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Engagement
Bill McManus, vice president and managing director of Applied Insights at Hartford Funds, would sum up the trends that will continue into 2023 with one word: engagement.
“We will undoubtedly continue to see uncertainty and volatility in the next year,” he says, but the challenges clients face will be the same, such as generating retirement income and solving challenges with housing, transportation and social connectivity.
“Financial professionals will have to continue to adapt how they engage with clients in order to educate them and connect them to resources,” McManus says. He recommends finding a balance between in-person and virtual meetings while also leveraging social media and websites by providing relevant bytes of information and hosting client events.
“Having a system to ‘drip’ on clients throughout the year can go a long way in helping them solve challenges, take advantage of opportunities and maybe most importantly, avoid making mistakes,” he says. “The financial professionals and teams that can successfully do this will be able to more deeply serve their clients, build relationships, attract new prospects and run a more efficient practice.”
[READ 20 Financial Advisor Marketing Tips]
Defensive Planning
Most predictions suggest many of the challenges plaguing the economy and stock market in 2022 should ebb in 2023. Inflation is expected to slow and the U.S. may narrowly avoid a recession, but that doesn’t mean advisors or investors can sit back and relax.
“If the U.S. economy does slip into a recession next year, it’s crucial to have a plan in place,” says Michelle Young, private wealth advisor at Ameriprise Financial. “We continue to meet with clients at least twice per year, are asking them about the security of their employment, and talking about their emergency cash reserves.”
She says her focus will be on understanding what can be expected from company earnings in 2023 “because this is what moves the stock market.” Based on that information, she plans to point out opportunities for each individual investor based on his or her unique situation and time horizon.
“We will guide them through the advantages of CDs and fixed-income products in rising interest environments,” she says. “Investors should continue to lean into areas which reduce portfolio risk, including diversification. The beginning of the year is an excellent time to reevaluate your financial goals, risk tolerance, and to make any necessary adjustments.”
Stephanie Genkin, a certified financial planner and founder of My Financial Planner LLC, says she also expects a renewed interest in cash equivalent accounts like CDs, I bonds and Treasury bills in 2023.
“For the volatility-weary, they provide safety and guaranteed income that hasn’t been available on cash in a very long time,” she says. While good for short-term savings needs, she adds that investments are still the best way to bulk up on long-term retirement accounts for the future.
Tax and Estate Planning Technology
Holistic financial planning is not new, but it will become increasingly important for advisors to adopt in 2023, especially with regard to adding tax and estate planning services.
“We are no longer in the age of collecting fees to manage investment-only portfolios, and advisors who are not doing more for their clients will eventually lose clients, sell to advisors who are offering more, or retire to avoid having to add services to their suite of offerings,” says Brian Dudley, senior vice president and financial advisor at Wealth Enhancement Group.
Broadening your services into tax and estate planning is especially important in the coming year, and something advisors can and should offer to clients with lower assets under management, rather than reserving it for only wealthy clients. Luckily, this will also become easier to do thanks to advances in advisor technology.
“We have companies like Holistiplan, for example, that allow an advisor within minutes to analyze a client’s or prospect’s tax return and provide meaningful financial advice and discuss actionable items,” Dudley says. “Tax and estate planning advisor technology will be a massive catalyst – or a hurdle, for some – for financial advice in 2023 and beyond.”
[READ: 2023 401(k) Contribution Limits: What Advisors Should Know.]
Banking and Wealth Management Consolidation
Another consolidation that advisors can expect to see more clients looking for in 2023 is banking and wealth management under one roof. The share of investors who prefer to consolidate these two under one roof has risen from 13% in 2018 to 22% in 2021, according to research by McKinsey. This is particularly true for younger and affluent investors: over half of investors under 45 and nearly one-third of those with $5 million to $10 million prefer consolidated relationships.
“In 2023, it will be increasingly important for advisors to offer their clients access to personalized, open-architecture solutions where they can pick and choose which offerings are most valuable to them,” says Rajini Kodialam, chief operating officer and co-founder of Focus Financial Partners.
“Advisors that have access to firms with scale… are afforded comprehensive solutions in areas such as alternatives and private investments, lending and credit, valuation and investment banking, and family office solutions,” he says. “This in turn fuels greater success for advisors in their ability to meet the complex wealth structuring needs of their clients.”
External Investment Solutions
Offering a broader array of services is no small feat for advisors. Perhaps this is why there’s been a growing trend toward using external investment solutions. Nearly one-third of registered investment advisors, or RIAs, increased their usage of third-party providers in 2022, compared with 27% of RIAs who increased usage in 2020, according to a recent FlexShares survey of 500 advisors. Laura Hanichak Gregg, director of practice management and advisor research at FlexShares ETFs, says this trend is likely to continue into 2023.
“Advisors choosing to outsource often do so to spend more time with clients and focus on more personalized financial planning services, though recently outsourcing has also proven to be a source of stability in more turbulent market conditions,” she says.
That said, advisors should tread carefully into the realm of outsourcing, as regulators have yet to finalize their stance on the practice. For instance, the Securities and Exchange Commission recently proposed a rule that would introduce new requirements for RIAs to engage third-party service providers.
“This is an important development that we’re continuing to monitor heading into next year,” Gregg says.
Financial Wellness
Another financial planning trend Genkin expects to see in 2023 is “an increased use of the buzzword ‘financial wellness.'”
“There is a world of hurt out there when it comes to money,” she says. “Inflation is at a 40-year high, retirement account balances have taken a hit this year as a result of stock and bond volatility. The housing market is out of reach for many families thanks to rising mortgage rates and not enough housing stock in many parts of the country, keeping home prices high.”
In a world still reeling from the economic shakeup caused by the COVID-19 pandemic, “financial trauma is more widespread than ever, and people are looking for relief,” she says.
“As a society, we are genuinely seeking financial wellness,” she says, “but people aren’t going to find it in a product.”
Financial wellness is about more than the numbers in your portfolio. “It’s getting right with your personal relationship with money,” she says.
There may be an increase in and need for financial therapists, experts trained to help clients manage their stress around money. Genkin is one of those experts, and she points to the Financial Therapy Association to learn more or find a financial therapist near you, if you’re in the market.
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6 Financial Advising Trends for 2023 originally appeared on usnews.com
