Q: Who is driving change in financial planning? Is it the RIA or is it the consumer?
DOUG FRITZ: In order to really drive change in this space, investors need better access to planning, planners and education. But to answer your question: Unfortunately, it’s neither the client nor advisor that’s driving change right now. Research like Schwab’s May analysis of
One is that many advisors simple do not offer planning as a service to their clients. There are many factors that may lead to this outcome, but mostly it is because planning is not valuable to the advisor. In some cases, their firm does not compensate for time spent planning. In other cases, they simply do not have the skills, training or tools to do so. In others, they see client acquisition as the more critical activity.
Secondly, since financial planning is a highly personal experience between an investor and advisor, many Americans have no real idea how to go about pursuing one if their advisor does not offer it or are self-directed investors that have forgone professional advisor relationships altogether.
Both these issues are working against more Americans obtaining a plan and, more importantly, driving a shift toward a more meaningful and integrated planning experience. It’s hour hope that better client-facing tools, like PFM, that initiate the core planning questions will help lead investors down the path of a comprehensive planning experience.
There are competing studies about what the future wealth management client wants. Some suggest the client wants more digital, other studies say the client wants more human interaction. Why is there this disparity in results?
The disparity in answers seem to be based on how we’ve asked the questions. If asked, ‘Do you want more in-person interaction with your advisor?’ the answers might predictably skew toward ‘Yes.’ However, the real takeaway for us as an industry from these studies should be: ‘How has my client’s expectation for interacting with their world changed? How has it stayed the same?’ and, “At what point are my clients going to leave me for not offering them a great digital experience?”
There is solid evidence that more and more clients expect a better digital experience as part of their human-advisor relationship and they’re expecting this at much older generational tiers than we had expected. So while clients continue to want valuable relationships with their advisors, they want those interactions to be when and wherever they are and on whatever device they are holding.
Near the top of my 2019 wealth tech wish list is an industry study looking at clients that have shifted a large percentage of assets or moved wholesale to an advisor because she or he offered a better digital experience. That research has not been done and would be really fascinating.
Do you feel most firms understand what the future RIA client wants?
There are some classic expectations wealth client experience that appear to be well-known (hand-holding through volatility, a focus on being smart about the markets, etc.) However, digital expectations are way off the mark. Recent studies by firms like Scorpio Partnership have shown a large divide between how important digital is to clients and how important advisors think it is for them.
Fortunately many firms are starting to take digital and advanced technology seriously. It feels like the tide has turned and many firms are really tuning into their rapidly changing client expectations.
What factors are shaping the profile of the future client?
There are some obvious profile attributes that future clients are likely to possess.
One is a decreased tolerance for underperforming experiences. These are where time spent engaging, answering or filling out documentation increasingly lose their value and are perceived as negative. We tend to brush these frustrations off as just being lazy, but we feel that this is really an indication that clients are benchmarking the return-on-time with other experiences in their lives and (unfortunately) our industry is not universally beating the benchmarks like Amazon and Uber.
We feel the future client will expand the concept of alpha. The historic focus on risk-adjusted return or excess return will begin to expand. We see clients beginning to expect their portfolios reflect their own personal beliefs and values and to have a ‘values-alpha’ component.
We also think that 3-D applications and hardware is going to make a very large impact in how clients want to consume information as well as interact with their advisor. It’s hard to overstate how this shift is going to change our client interactions over the next three to five years.
Is the actual investment product that they want changing too? Why?
Certainly. There’s been a long-standing push toward market return for next-to-nothing. However I continue to see alpha, great investment concepts and ‘smart people doing smart things with money’ being a critical part of product lineups. However, we feel that the real change in products over the next few years will come in their connection to the underlying values of the investor. In this politically and environmentally charged world, the future wealth clients will want far more transparency and customization of underlying investments than they do today. This is a really interesting paradox as low-cost ETF portfolios are horrible at customization.
A number of RIA firms are trying to modernize to appeal to new client needs. What separates firms that are making meaningful change from those that are just tacking on tech?
One of our clients’ mandates is, ‘Digital to the Core,’ which represents the separation we see between these two types of firms. Those that are really modernizing see the world through different lenses than they did 10 years ago. They see technology and client experiences as the crucial battleground for client and prospect attention and growth. They’re making decisions that allow for future flexibility and improve speed-to-market. They’re evolving and recasting their value proposition into the digital age. All these things have a client experience benefit that drives growth and increasingly attracts top advisors.
Conversely, firms that continue to view (and budget) technology as an expense (and just tacking on tools as they go) are missing the bigger picture and many of them won’t survive. Sadly, like Blockbuster or Sears, there are a few well-known and large firms in the market today that may already be past the point of being saved.
Such change among some RIAs seems difficult to pull off because they just want to pick a winner, and they don’t have 100% confidence in any one particular move. Can you blame them for being cautious?
Not really. However, we’ve found there’s a way for RIAs and larger advisory firms to more safely navigate change. Our process starts with helping them establish a vision for what their advisor and client experience might look like in five to 10 years. It’s a simple step, but one that very few firms actually take seriously.
As part of that process, firms should articulate their specific value proposition and market differentiation. “What is it about us that brings and keeps clients here?” You’d be amazed at how few firms can answer that question. The last thing we recommend is taking these answers and determining what tools, capabilities and experiences are needed to really make it work. No firm can be great at everything, but those that know where they want to be great have a shot at getting there.
How harder does the job of an RIA become as banks and micro savings apps now claim they are offering wealth management advice too?
It will certainly make it harder and it will increase the amount of ‘noise’ their clients have to weed through. For those RIAs that don’t have a great social media plan and mechanism in place, this will be harder to combat.
Does the existence of automated advice through banks and apps muddy the definition of “financial advice”? Or is this just another industry evolution?
We see this as an evolution and likely some muddying of the waters. For RIAs, the biggest challenge will be defending the value proposition and creating a differentiation from lower-cost and (importantly) integrated experiences from bank-based automated advice platforms. Unfortunately, RIA clients have, by definition, multiple financial service relationships, which creates friction and potential frustration for clients. Building better relationships with competitive banks, especially those without a competing wealth management division, might be an attractive avenue for some to pursue.
