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Using Analytics Tools to Capture the New Generation

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Financial advisors today are rightfully concerned about the growing adoption of robo-advisors among new, younger clients, as it also coincides with the wealth transfer from an aging generation, according to a report by Deloitte Consulting.

In addition, the newer generation expects to be treated as unique individuals, wants control of decisions, accesses on-demand advice, seeks data independently and perceives risks as downside, according to the report.

But there are ways to succeed with these clients, using many of the same digital tools. For one, technology has lowered the cost of client engagement and data analytics technology. At the same time, today’s wealth analytics technology can help advisors identify the unique human capital factors in a client’s life and correlate them with a portfolio’s exposure, enabling them to tailor recommendations. This technology also enables advisors to evaluate the upside and downside of multiple options interactively to help clients make informed decisions. 

A Human Approach to Risk

No longer is it sufficient to offer generic models. Advisors must get to know their clients deeply while also using technology to customize portfolios that consider more than age and income. It’s also important to quantify risks and adjust the portfolio as personal circumstances change and the market environment shifts. 

Platforms that consider a range of human capital factors such as geography, work sector, health, family, real estate, balance sheet and time until retirement help advisors maximize financial results for their clients. Additionally, this holistic approach enables them to differentiate their proposals and surface risks that clients may not be aware of. 

For example, for a high-income software engineer in her thirties living in Silicon Valley, where the technology industry drives property prices, a robo-advisor or a traditional risk tolerance survey will most likely recommend a growth portfolio based largely on her age and income. But these tools would not identify the concentration in technology within her career, property and portfolio.

For another example, consider two clients of the same age and gender. One is a lecturer with modest income living in college-subsidized housing and leading a healthy, low-stress lifestyle. The other client is a highly-paid, over-worked investment banker with much higher expenses. Traditional tools would recommend a higher risk approach for the investment banker who has a higher income, when the lecturer, in fact, has a greater ability to endure market crises.

Clients need different risk assessments as they move through different phases in their lives, such as possible layoffs, marriage, the birth of children, and possibly the care of aging and sick parents. With a platform that analyzes human capital factors, advisors can help individuals fully understand their distinct financial situation in any stage of life. 

The ever-changing market environment can be challenging for the most experienced advisors. Available technology can help them mitigate market fluctuations by providing intelligent recommendations. Platforms that adjust the risk exposure portfolio and compare results over various market conditions enable advisors to propose targeted solutions in a more engaging context.

Engage Diverse Clients Digitally 

Although human service is what distinguishes human financial advisors from automated investment technology, advisors should not complacently believe that robo-advisors will never be able to deliver such service.

Advisors must embrace new technology. It will help them better understand their clients, while also monitoring and measuring risk metrics and attributions within portfolios. These tools are no longer solely in the hands of large institutions; they’re accessible to RIAs and even wealth managers of banks, demonstrating the evolving future and potential of wealth management. 

As a diverse generation of millennials accumulate and inherit wealth, advisors will have to cater to a new era of needs and include clients of all ages, ethnicities, genders and asset levels. The wealthy white male client has given way to a new clientele of minority small business owners, young startup entrepreneurs, specialized immigrant tech workers and self-employed female web designers. 

Technology will be critical to engaging those who are accustomed to the benefits and prevalence of digital technologies and devices. Younger clients have incorporated technology into every aspect of their lives and expect businesses they interact with to do the same. 

Advisors who leverage these new wealth analytics tools will be able to manage their practices more efficiently and free up resources to focus on the personal coaching and strategic advising that robo-advisors cannot offer.

Through analytics, advisors can offer personalized investment strategies to help the newest generation achieve their goals, while also enabling them to navigate life's ups and downs. By expanding their technological capabilities, human advisors can successfully build a sustainable business in an increasingly competitive market.

Min Zhang, CFA, is CEO and co-founder of Totum Wealth.

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