Financial advisors are accustomed to having to adjust to new realities and keeping abreast of change. Market volatility has made some clients skittish about their portfolios, and the fiduciary rule that was handed down by the Department of Labor earlier this year has also made a substantial impact on the retirement planning industry. Increased competition from robo-advisors are also costing many advisors a piece of their business as clients switch over to these automated services that typically charge much lower fees than human advisors. Advisors who seek to grow their businesses over the long term will need to stay ahead of the curve in several key areas.
Top Industry Trends
Strategy and Resources recently conducted a survey for the Financial Services Institute (FSI), and the CEOs who responded said that industry regulations were their biggest problems, because they are powerless to change or contest them on an individual level and often struggle to prepare for them in a timely fashion. Many firms and advisors are still grappling with the new fiduciary rule that has been handed down by the Department of Labor earlier this year, and the fate of this rule is uncertain and may be decided in court.
According to Matt Lynch, a managing director at Strategy and Resources writing in ThinkAdvisor, advisors need to have multiple strategies ready to implement depending on the outcome of this issue. Advisors also need to build relationships with their clients that are based on trust. The financial industry has dealt many blows to consumers in recent years, from Bernie Madoff’s Ponzi scheme to the subprime mortgage meltdown, and these events have left many clients distrustful of the products and services that they receive. (For more, see: Financial Advisors Must Face These Looming Challenges.)
Another key issue that advisors must plan for is the consolidation or succession of their businesses. Many advisors are largely unprepared to deal with this eventuality, and this is a big mistake. Advisors must be able to assign a realistic value to their businesses and start looking for potential buyers early on, so that they can get a feel for what buyers are willing to pay. Many buyers are also unable to pay cash up front for a business, so advisors need to prepare themselves to receive a series of payments for their practice. Failure to execute a smooth transition from the advisor to the buyer can foster client neglect and other problems.
Advisors may want to consider selling their business to an institution or business consolidator if they want to receive a lump sum from the sale, but this can be difficult to negotiate in many cases. A growing number of advisors are now working in teams, so that other associates can take over when the time comes to leave the business. (For more, see: Trends Challenging Financial Advisors.)
Robo-advisors are ultimately going to cut out a share of the market for themselves, and advisors have the option of either trying to compete against them or using them in their practices in order to retain client assets. Those who use these platforms may be able to better scale their businesses and capture additional money that might otherwise to another robo-advisor. Those who eschew the use of these programs will need to be able to clearly demonstrate to their clients why they are worth the higher fees that they charge. For this reason, many advisors charge separately for financial planning, which requires a human interface and their investment management. Some advisors may start charging by the hour, while others adopt a retainer-based arrangement and may not manage assets at all, or else use a separate service for this.
The technological revolution that is sweeping the financial industry goes beyond robo-advisors. Younger clients today are comfortable with digital and mobile devices and social media, and advisors need to provide clients with top-notch digital services and maintain an active presence in this area. Apps for mobile devices can allow clients to access their money at any time and monitor their portfolios. Advisors who receive recommendations by satisfied clients on social media may benefit more from these endorsements than they will from more traditional avenues, such as face-to-face networking or cold prospecting. (For more, see: Top Digital Age Tips for Financial Advisors.)
Advisors need to stay abreast of the latest digital marketing trends in order to effectively make their presence known and generate new business. Creating a distinct brand will enable advisors to stand out from their competition and clearly convey to clients and prospects their philosophy and approach to financial planning. This can ultimately help advisors to land the kind of clients that are the best fit for them.
The Bottom Line
The financial industry is rapidly changing in many ways. Advisors who wish to grow their businesses will need to stay abreast of cutting-edge technology and the latest social media trends. Advisors today face more competition than ever before, and consumers now have an unprecedented number of alternatives to choose from when it comes to managing their money. (For related reading, see: Tech Trends Financial Advisors Must Stay Ahead of.)