12 Advisor Trends That Will Shape the Next Decade
In this month’s issue, FP Magazine examines the future of financial planning not in 2014 or 2015, but in 2023. Drawing from advisors who have revolved, or are beginning to revolve, their businesses around new types of clients and technologies, we have compiled a list of some of the biggest trends that they see coming.
Here are 12 big trends to watch as advisors forge ahead into a new decade.
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Planners will need to help clients prepare to live much longer lives than previous generations. "The people in our industry who don't view this as part of their job, I think, are going to find that the people who do will gain market share in the next 10 years," says Dennis Stearn, president of Stearns Financial. As a result, planners may need to help their clients plan for sequential retirements - periods of work, followed by short-duration retirements that may include training to acquire new skills, and then second careers.
Compensation will continue to migrate to fee-only or fee-based models. This will benefit RIAs - who are already mostly paid by fees - over wirehouses. However, more firms may retain a dually registered model, though competitive pressures will force them to disclose commission income on the sale of insurance policies and other products clearly. As portfolio construction and asset management tasks become more automated in the future, the cost of planning tasks such as these could drop from tens of thousands of dollars at the high end to nearly zero. Partly as a result, planners may need to develop new skills and services for clients in order to generate new streams of income and remain competitive.
Succession planning will remain a challenge for many planning firms. Those who do not go to the trouble of setting up painstaking, costly internal succession plans - as have firms like Aspiriant of Los Angeles and Oxford Financial of Carmel, Ind. - will be sold to larger firms, possibly banks, which could undermine their unique cultures. Firms with internal succession plans will use this as a marketing differentiator to concerned clients.
With so much change ahead, most forecasters predict more volatile markets. This will force planners to continually seek new safe harbors for their clients' wealth - like annuities and, in some cases, alternatives.
The continued implementation of regulatory reforms, including regulations stemming from Dodd-Frank, will also help satisfy clients who demand greater transparency. Smaller firms will continue to be acquired by and merge with larger firms to avoid heavy compliance costs in an increasingly complex regulatory environment. Yet as compliance burdens rise, technological advances will cut costs.
A generation raised with new online budgeting and account management tools will create a client population with greater financial literacy. Many planners say that kids who grew up watching their parents go into debt want to avoid the same fate for themselves. More will use online tools to help "gamify" their own financial planning and will bring more savvy to their relationships with their planners.
As a regulatory framework evolves to allow crowdfunding for equity investing, some believe it could begin to draw substantial capital away from the stock market. It's still too early to say how important it could become as a means of helping firms access new private capital and investors generate reliable returns. What's likely is that, in the short term at least, crowdfunding will be exploited by fraudsters.
As planning technology develops, advisor Dennis Stearns anticipates having a souped-up version of Apple's Siri personal assistant that will combine client relationship management software with so-called big data tools and companies selling different products. Sean Belka at Fidelity predicts that the ability to collect and mine such large amounts of data will change client relationship tools, which will continually mine clients' social media accounts to look for life-changing events like job changes, marriages, divorces, births or deaths in the family. Those findings will flow into action items for planners and their staffs, who can then opt to contact those clients to update wills, account allocations and trusts.
As more technology moves off the desktop and toward mobile access, expect to see more systems with redundant log in requirements. Systems might combine password, fingerprint, voice recognition and iris-scanning entry points to allow secure access, suggests Edward O'Brien, head of technology for Fidelity Family Office Services.
More universities and colleges are likely to follow the lead of Texas Tech, which elevated its financial planning program to departmental status last fall - only the second university, after the University of Missouri, to do so. As financial planning programs proliferate and grow in size, more graduates will enter the workforce with financial planning degrees in hand. The industry will need to build new bridges to these graduates in order to effectively bring them into the field.
As asset management becomes commoditized, planners will need to get better at quarterbacking. This means drawing together other experts to handle clients' complex planning issues, or hiring that expertise in-house. And planners will need to work more with a new kind of third party when it comes to directing clients' investments, as more trustees see to it that the desires of the older generation continue to be respected - often after the original client has died. Planners will have to answer to these trustees and work with them.
A new array of outsourced services will emerge between now and 2023 to make it easier for planners to do business on their own. They will provide better planning software, offer new insurance policies and perform HR functions to help planners recruit, interview and test candidates. As outsourcing firms build a critical mass of planners as clients, they will continue to grow rapidly and provide some of the benefits of scale once only reserved for wirehouse brokers. That in turn will allow some planners to resist the roll-up trend and retain a competitive edge while staying independent.
For the text-version of this slideshow, click here