What's coming in 2023? Advisors predict change, not revolution

January 4, 2023 12:28 PM

Arizent asked hundreds of financial professionals to tell us what's in their crystal ball for 2023.

Few financial advisors will look back on 2022 with nostalgia. For investors, it was a bruising year of high inflation, stock market volatility and rising interest rates.

And just because the year has ended doesn't mean those challenges are over. How will advisors adapt in 2023?

To answer this question, Arizent, Financial Planning's parent company, has conducted a survey of 362 financial professionals on what they expect in the year ahead. Their answers were sometimes surprising, but also typical of an industry that values stability: Most advisors expected neither radical changes nor strict adherence to the status quo. Instead, they saw their industry remaining nimble and flexible, making adjustments in some areas and staying the course in others. In general, they expected 2023 to be a year of change, not revolution.

Other details were also interesting. Few advisors expected to do much business with either cryptocurrency or ESG, despite all the attention both products receive in the news media. And even as the COVID-19 pandemic subsides, most respondents expected to keep working from home at least part of the time.

All these answers are analyzed in Arizent's new research report, "Predictions 2023." Here's a look at the study's biggest insights.

A tough year

The volatility of 2022 had real costs for financial advisors. Sixty-one percent of Arizent's respondents said their revenue decreased in 2022. Most of those — 55% — said the amount lost was only "moderate," but 6% called it "significant." Only 14% said their revenue increased.

On the client side, retirement investors were hit especially hard. More than two-thirds of advisors — 69% — said their clients were already postponing their retirement plans. Almost just as many, 62%, said they expect this trend to continue in 2023.

Retirement savers were also eager to find alternatives to the stock market. Eighteen percent of advisors expected their clients to invest more in real estate in 2023, and 15% expected them to buy more gold. A combined 11% predicted that they'd hold more cash, reduce spending, pursue other non-equity investments or simply "stay the course."

Fine tuning

In response to all these challenges, most advisors expected to make changes — just not dramatic ones. Fifty-six percent said their firms would focus more on acquiring new customers in 2023. About one-third said they'd make more efforts to reduce costs. Meanwhile, 21% expected to invest more in technology, and 17% expected changes in their fee models.

Like many clients, advisors also showed an interest in keeping their powder dry. Forty-five percent of advisors expect to increase their clients' cash holdings in 2023. Only 20% planned to reduce those holdings, and 35% predicted no change.

In terms of hiring, advisors were split in opposite directions. Thirteen percent said their firms would try to hire more employees, while 8% say they'd reduce their staff.

Staying the course on fees

In other areas, firms appeared to be hanging tight. For one thing, most advisors said they'd keep the same fee structures in 2023. Seventy-seven percent said they already offered fee-only services and would keep offering them, while 15% did not and still won't in 2023 — meaning a combined 92% will remain the same.

For other models, slightly more advisors anticipated a change. In terms of flat fees, 14% didn't offer them in 2022 but planned to do so in 2023, while 7% planned to discontinue them. The same percentages held true for hourly services. In both categories, however, the other 79% were keeping their payment systems the same.

No big waves from crypto or ESG

At least in terms of press coverage, cryptocurrency and ESG — a shorthand for investment concerned with environmental, social and corporate governance — were two of the biggest stars of 2022. But in advisors' crystal balls for 2023, neither product made much of an appearance.

Almost half of advisors — 49% — said they did not consider crypto a suitable investment. For three-quarters of advisors, less than 5% of their clients were invested in crypto last year. For 22%, none of them were. And only 30% of advisors expected more of their clients to buy crypto in 2023 — down from 60% who thought so in 2021.

Advisors showed little interest in ESG as well. As politicians debated the merits of do-good investing, 69% of advisors said they were unlikely to recommend ESG products to their clients in 2023. Twenty-one percent said they were somewhat likely, and only 10% said they were very likely to do so.

Still not back at the office

Even as COVID vaccines and falling caseloads made it safer to work at the office, few advisors expected to stop working from home. Only about a quarter of advisors — 27% — believed their firms would be back at the office full-time in 2023. Sixteen percent expected their jobs to be fully remote, and 57% expected a mix of remote and in-office work. As in many other industries, the post-pandemic "return to normal" is still not expected any time soon.

Advisors didn't foresee many big changes to their career paths either. Only 17% said they were more likely to move to another firm in 2023. A quarter of respondents said they were less likely to do so, and the remaining 58% predicted no change.