By Tom Sedoric and Casey Snyder

This post was originally published on 4/1/2018, and updated on 4/6/2021

The future landscape of the financial services industry continues to knock, knock, knock on the door today - and every day. Whether financial services firms will be welcomed in the future, or not, will likely determine if they will survive. How current firms might even thrive in a tomorrow that is rapidly changing and being structured now is unknown. 

A recent Vanguard research study on trends in the financial advising industry found that future success will depend on “advanced tasks” that technology and automation cannot duplicate: critical thinking, active listening, maintaining relationships, synergistic team formation, empathy, strategizing and planning, behavioral modification to align goals with behaviors, sequential planning, and thinking creatively. 

There is no doubt that the firms and practices that really understand, and fulfill, their client’s evolving needs—whether those needs are large or small, complex or simple, serving the young or the old, or attending to the financially secure or those of more modest means—will be those that deliver value. These firms will look dramatically different in 10 to 15 years. Those that do not evolve may become as quaint and irrelevant as operational procedures from the 1970s. 

A combination of two factors changed our profession in ways that few could have foreseen: the deregulation mania that began in the late 1970s, and currently, the technologies driving an information revolution that rivals the impact of the Gutenburg press in the 15th Century. We have reached a paradoxical crossroads. Never has so much technological power been readily available at our fingertips. But it is human relationships that enlighten and transform our profession, and ultimately those relationships secure better client outcomes. 

Financial Advisors Must Act as Educators

In the past three decades the norms of our profession have been rendered as obsolete as the dominance of the so-called wire houses. Financial advisors trained in the ‘80s and ‘90s, were trained as stockbrokers working mostly on commission during an era when stock markets largely went up and commissions were just deregulated. Today, the value of an advisor stems from their ability to coach and communicate complex concepts in a convenient and digestible manner. 

The best advisors understand this and view their role as one of an educator, a communicator, and quasi-life coach helping their clients to make the best informed decisions they can. In an era when financial literacy should not be taken for granted, the personal touch is becoming the new normal for tomorrow’s financial stability and successful financial outcome for each client. 

Successful Financial Advisors Don’t Rely Solely on Tech

Consider a recent study by J. D. Power which focused on the Millennial generation’s attitude towards financial advising (researchers and demographers have different start and end dates: Pew Research Center uses 1981 to 1996). The J. D. Power survey found “while great digital experiences are important for attracting Millennial investors, technology alone will not keep them engaged. Millennials are most likely to indicate their intent to switch firms (44%) when they are using self-service mobile tools and advisor communication fails to meet their expectation. By contrast, when advisors deliver frequent, effective communication and show progress toward goals, Millennial likelihood of switching drops to just 17%.” 

In other words, the technology factor for millennials—and increasingly, their elders—is baked into the value formula. A strong relationship with concise and meaningful communication are the critical variables for better outcomes. When a firm has clients already deep into retirement as well as other clients entering or fully planted in the prime earning phases of their lives, a “one-size-fits-all” approach to clients or advisors serving them will not work. If team members aren’t investing the time and energy in doing an information deep dive to fully know the capabilities, goals, and behavioral tendencies of each one of their clients, they are not—and cannot—be serving them properly. 

Financial Advisors Must Keep Up with Trends

There’s a significant shift already happening in the way individuals and companies invest their money. Where once the sole focus was making as much money as possible and driving returns for shareholders, investors today are much more conscious of their impact on the world and the communities they live in.

Sustainable investing, or ESG investing, has increased in popularity at an astonishing pace in recent years. At its core, ESG investing empowers individuals to invest in causes that align with their values and divest from industries with potential to harm the environment and social progress. Financial advisors must take this into consideration as they help their clients build their portfolios—ESG is a sound investment strategy and should be examined as an opportunity for all clients. It’s a stark contrast to investment strategies that have proliferated financial institutions for decades, but a welcome one at that.

Building Diversity in Finance Matters

The ability to formulate a diverse team, with the approach of diversity in ages and genders, is vital for a firm to successfully evolve. This is especially true in a profession where the median age of financial advisors is near 60 and there is a dramatic shortage of younger financial advisors on the immediate horizon. 

The Vanguard study also reminds us that “Financial advice has undergone the same transformation, with technology liberating advisors to devote more time to advanced tasks,” the report noted, “…the path to greater client satisfaction and asset growth should lead to an underappreciated destination—relationship management.” 

For engaged clients and for financial advisors who embrace change, the opportunities for the future will be significant.

This material is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, investors may forego some market opportunities available to those who do not use these criteria. Investors should consult their investment professional prior to making an investment decision.