As the financial advisory industry transforms itself in an increasingly digital world, advisors have to provide more holistic personal service at the same time that they offer more do-it-yourself digital tools for clients.
To be successful in the future, financial advisors will have to walk this tightrope of seemingly contradictory demands, according to Mike Lee, global wealth and asset management leader at EY (formerly Ernst & Young).
“Clients today have a greater propensity for self-direction through digital channels, but they also need the personalized services of an advisor,” Lee said in an interview. “This brings more responsibility to the advisor. For today’s investors, it is not going to be all one way or the other.”
Clients’ demands, particularly those of the affluent and high-net-worth, for sophisticated products and services are going to continue to grow, but services provided digitally will also increase, which provides an opportunity for wealth managers to use digital technologies to improve their efficiency, he said. At the same time, the need for customized help becomes even more important in the current environment of geopolitical disruption, inflation and rising interest rates.
“The advisor can break these challenges down into digestible pieces, and bring some level of calm to the situation” Lee said. “Advisors need to be able to deal with the clients’ shift away from products to service and dealing with life events.”
Another contradiction advisors need to be ready to address is investors’ growing aversion to risk at the same time that they are turning to alternative investments for returns, Lee said. These situations point to the need for advisors to be proactive and to bring ideas to clients even before they ask.
“I’m a big fan of looking at other industries and seeing how they solve problems,” Lee said. “One trend that is catching on is providing service through subscriptions,” which is something more advisors may want to adopt. In the future, advisors will need to offer individualized experiences tailored to the specific needs of the client; holistic advice across a broad spectrum of traditional and new wealth products; and a clearer value creation for all stakeholders, Lee said in a whitepaper he authored.
Changes in the financial industry will be driven by a number of trends, including clients’ new expectations; the continued democratization of advice across the wealth spectrums; and the integration of data and technology in advice generation. “These changes will have far-reaching implications for the structure of the wealth industry,” Lee said in the whitepaper.
“The appetite for wealth advice will expand significantly” during this decade “powered by socioeconomic shifts and fast-growing demand for alternative investments, tax planning and financial education,” Lee said. However, “a failure to deliver enhanced advice will leave firms vulnerable to faster-growing, more dynamic new rivals able to combine high touch with high tech.” Many wealth managers and private banks “are setting ambitious targets for client experiences and asset growth, targeting mid-single digit annual growth in net new money.”
Firms have to develop a culture that supports continuous transformation,” Lee added in the interview. But they will have to fight against “ingrained cultural habits that can make it hard to achieve real transformation.”