It’s undeniable that hyper-personalization has become the standard for digital interactions, with algorithms being able to predict what people want even before they know that they want it. The technological innovations that have supported this shift in behavior, have made customized digital experiences the standard across many industries, forcing financial advisors who are reluctant to adapt to the current landscape to contend with the risk of not meeting client expectations.
For a lot of advisors, the resulting people-pressure has translated into burnout due to advisors needing to operate as coaches in addition to managing portfolios. Skilled professionals are humans, not machines. Independent advisors, especially those who run their own small businesses, simply cannot predict a client’s mood, decision-patterns, and communication preferences in the same way that Netflix, Hulu, and Amazon Prime Video can with their content recommendation algorithms.
So what exactly does this digital acceleration, particularly with the advancement of artificial intelligence and robo advisors, mean for the wealth management sector? On the one hand, technology creates a unique opportunity emerging for wealth managers to work smarter and more methodically—and to deliver a higher level of service to investors, as a result. On the other hand, technology creates unreasonable pressure for constant availability and instant access to insight.
As with any new tool or resource, there’s a balancing act to getting the technology formula right for your unique financial advisory practice.
Rather than chasing high-speed trends like artificial intelligence, the key is to discover the throughline back to human values. That means adopting a troubleshooting mindset to get ahead of less-than-obvious pain points that can bubble up in a financial advisory practice. Here’s a look into what that process can look like for specific points of business friction.
Challenge #1: Keeping Up With The Social Media Mindset
Every generation has increased their social media use over the past year, with 66% of Generation Z and 72% of millennials reporting that social media is essential to their lives. According to demographic data, baby boomers and Generation X are no exception. People of all ages are engaging with information content such as YouTube tutorials, podcasts, on digital platforms that are designed to evolve with them in real-time, resulting in 74% of consumers expressing frustration when a digital experience is not personalized.
While social media has tremendous benefits when it comes to content discovery, information-sourcing, and boredom alleviation, there are questions about whether or not it’s good for humans on an individual level.
A recent study from the Pew Center found that 64% of Americans think that social media has a mostly negative effect on the way things are going in the country. Researchers have also begun to study mental health effects of platforms like Facebook, Instagram, and TikTok, particularly among young people. It’s important to remember that in these industries, the end goal is to grow profits on the basis of sales and ad revenue (i.e. faster fulfillment times, higher sales order volumes, more precise personalization and targeting).
With this context in mind, financial advisors can uncover a competitive advantage by doubling down on conversational dynamics that matter to investors. One solution to implement is a client portal that can be tailored to deliver reports of varying complexity through web and mobile applications.
The most effective portal experiences empower advisors to configure communications for different types of investors with different sophistication levels. As clients evolve, advisors are better equipped with the infrastructure to support those changes and offer more services.
Success comes down to communication that advisors can control rather than being dependent on social media algorithms to stay top of mind with existing customers. Troubleshooting this pain point means asking the question, “what do my clients need to hear from me to know that I have their best interests in mind?”
Challenge #2: Navigating Generational Preferences
Millennials and Gen Z are gaining power as investors and as buyers in the United States. Meanwhile, the average advisor is 55 years old, according to a J.D. Power Study. The crux of the resulting generational gap is that digital natives engage with technology very differently than those who began using the Internet in their teenage or early adult years. Gen X is a smaller generation compared to boomers, millennials and Gen Z.
Meanwhile, almost 90% of advisors have engaged or plan to engage with the children and grandchildren of their existing clients, which means technology’s importance in wealth management will continue trending upward, parallel to client expectations. Younger generations, who are highly attuned to digital experiences, anticipate rich interactions through digital touchpoints that operate as a communication channel.
Advisors who are struggling to navigate generational shifts are not alone. Communication challenges between Gen X and younger cohorts are very real—not imagined.
According to research from Ernst & Young, as many as 70% of women and mMillennial/Gen Z investors will choose to part ways with their family’s financial advisor. However, research from the CFA Institute and FINRA has also found that younger investors lack the confidence, education, and expertise to make their best financial decisions.
Keeping this perspective in mind, the right technology will operate as a listening engine rather than a platform to increase the volume of alerts and push notifications. Gen Z and millennials are known to suffer from heightened depression and anxiety compared to other generations. The ability to listen is a demonstration of empathy and astuteness to their concerns.
Challenge #3: Pacing A Shifting Investment Landscape
Critical thinking and creativity key to standing out as financial advisors. After all, best practices in the industry are shifting. There are more financial products available to investors than ever before, and fundamental assumptions—including basic theories for portfolio diversification—are shifting.
However, advisors, focused on numbers, aren’t always well-positioned to communicate the rationale behind their decisions.
Consider a recent survey in 300 finance professionals shared that 64% of investors part ways with financial advisors due to feeling misunderstood. Much like social media, e-commerce websites, and streaming platforms, clients look to their advisors for individualized financial advice delivered through aggregated content that is relevant, valuable, and easy to navigate. Meaningful guidance and recommendations demonstrate advisors’ understanding of their clients’ unique interests and needs, making it vital for advisors to effectively leverage technology to match the customized digital experience and successfully align with their clients’ goals.
Advisors should gravitate toward a single provider that allows them to choose different software tools that appeal to clients and seamlessly integrates them for a bird’s eye view of everything that matters. As clients evolve, advisors are better equipped with the infrastructure to support those changes and offer more services.
Preparing For Evolution
It’s important to remember that technology supports adaptation. Ultimately, wealth management is a growth industry due to a confluence of macro factors: worldwide growth of high net worth individuals, rising alternative investment opportunities, more personalized investing products and increasing diversity of wealth holders.
Lincoln Ross is the CEO and president of CircleBlack Inc., a leading cloud-based software platform helping advisors better manage their clients’ wealth while growing and deepening advisor-client relationships in the digital age. Prior to joining CircleBlack, Ross was chief of business operations at Envestnet where he gained an appreciation for value creation in the RIA market.