The financial sector is rapidly changing in many ways. But what does the future hold from here? Although it is impossible to say for certain, several recent trends have quickly gained traction in the marketplace and are likely to play themselves out within the next decade. Financial advisors need to get ready for them now.

Key Takeaways

  • For decades, financial advisors have done things more or less the same way—checking in once or twice a year and focusing on accumulation.
  • The next few years, however, will see a shift in trends that promises to reshape the ways that successful advisors need to think about to stay ahead.
  • Technological trends in roboadvising, an aging client population that seeks income rather than risk and accumulation, and regulatory changes toward fiduciary duty are all among future considerations that advisors must take heed.

Technological Trends

Almost nowhere is the digital revolution making an impact as large as it is in the finance industry. It's now easier than ever for investors to access their accounts and see how their portfolios, not to mention the markets themselves, are performing. The future will likely make seamless digital portals as commonplace as cell phones are today, allowing clients to log in and manage their money, communicate with advisors and planners around the clock and place trades.

Robo-advisors will also likely be employed by every firm in one capacity or another. In 10 years they will likely be able to follow very sophisticated strategies that employ a measure of judgment regarding buy and sell decisions. Access to these services will likely become completely mobile and cloud-based and these innovations may combine to drastically drive down the price of financial planning and asset management for the public.

There is in fact speculation that financial planning may become available at no cost once computer technology reaches the point where it can use automated programs to help clients to determine their risk tolerance and time horizon and formulate an investment strategy.

Fiduciary Trend

The Department of Labor’s fiduciary rule, which mandated that all those involved in retirement planning, product sales and advice maintain a fiduciary status, was quashed by a federal court in June 2018. But it may yet leave a legacy. Many financial services firms had already begun altering business practices to lessen conflicts of interest (or the appearance of same).

The Securities and Exchange Commission (SEC) is also working on a set of new regulations requiring brokers to put their customers’ financial interests ahead of their own. Many futurists in the industry see more transparent pricing and disclosure policies ahead, along with an advisers compensation model that is based on a regular periodic retainer rather than fees or commissions.

Generation Gap

Advisors who are ignoring potential Generation X and Millennial clients are doing so at their peril. More than $18 trillion dollars is going to pass from the Baby Boomer generation to their descendants in the next few years. Planners need to make a point of getting to know their older clients’ kids in order to retain them after their parents are gone. This means a shift away from risk and growth to stability, conservation, and producing retirement income from portfolio assets.

Globalization

The increasing globalization of the world’s economies will lead to enormous new marketing opportunities for advisors who are able to reach clients that were previously beyond their grasp. The number of people with mobile phones will rise to five billion in the next few years, double the number that has them now. The amount of private wealth in the world is also expected to rise to $400 trillion by 2021, $73 trillion of it in North America alone, from the $220 plus trillion out there now. And women will soon control about 60% of the liquid investable assets in the U.S. 

Education Debt

Paying off student loans is a huge burden for many graduates and parents, and there is now more educational loan debt than credit card debt in America. More clients will be looking for advice on how to deal with this issue, and a legislative overhaul will likely be necessary to deal with the problem on a national scale.

Retirement Planning

If retirement planning seems difficult now, it will only get harder for many younger workers who may substantially outlive their parents. Modern medical advances in areas such as cancer research are combining to push average projected lifespans into the 90s and past the century mark at some point. The demand for new products, such as longevity annuities, will most likely mushroom in the next several years.

Other vehicles may become available in the insurance marketplace that can help savers to preserve their incomes for as long as they live. Accelerated benefit riders that allow life insurance policyholders to access a portion of death benefits for expenses such as long-term health care are also likely to become integral parts of every term and permanent insurance policy.

The Bottom Line

The financial industry is in the throes of a digital and marketplace revolution that may result in the availability of low-cost financial planning for the masses. Seamless, cloud-based technology will enable round-the-clock mobility for traders and younger clients who have grown up in the internet era. Automated services and transparent pricing are on the horizon, along with stricter rules and regulations for advisors who service retirement plans and accounts.