Once more, advisors are facing a year that promises significant change, but this time it’s not regulatory change inspiring hope and dread.

With federal fiduciary regulation likely out of the picture until mid-2019, advisors are focusing on developing their practices at the start of 2018. Industry consultants are encouraging them to take a broad and open-minded view of policy, technology, investments and their clients.

“Firms that build a framework that’s flexible will be in a more stable position to compete going forward,” said David Hyman, the U.S. segment leader of wealth manager solutions at global consultant Mercer.

An SEI survey of more than 400 financial advisors from December 2017 found that advisors’ concerns were concentrated on three main areas: practice management, investments and technology. The most commonly cited goal for advisors over the next year will be increasing their referability. Advisors were also planning to concentrate on communicating more effectively with their clients, on marketing, on building integrated work flows and on investor education.

A year ago, the same survey found advisors most focused on complying with the Department of Labor’s fiduciary rule.

“Even though the DOL rule has been pushed back to the middle of 2019, in the conversations we’ve been having, firms understand that they now need to meet certain acceptable standards or face penalties or reputational damage,” said Hyman. “We believe that adhering to the proposed regulations can help differentiate a firm’s business and help them to be more robust than their competitors.”

Advisor concerns have shifted toward technological disruption. According to a survey of 728 board members and executives of financial services firms conducted by global consultant Protiviti and North Carolina State University in the fall of 2017, the top risk facing the financial sector in 2018 is technological disruption.

Last year, the same survey of executives found respondents ranking economic conditions and regulatory changes as the two most significant risks.

Tom Holly, an asset and wealth management leader at global consultant PwC, argues that the trend toward automation will continue as advisors seek more efficient ways of doing business and do-it-yourself investors seek more cost-effective ways of accessing markets and diversifying their portfolios. The growth of robo-advisors and digital platforms may eliminate the need for manpower within financial firms and mitigate a potential advisor shortage.

While some advisors still view robo-advisors and other automation as a threat to the profession, others think these technologies will augment human advice, not pose a competitive threat.

Craig Hawley, leader of Nationwide’s advisory solutions business, argues that advisors can use technologies such as AI to gain insights into client behaviors and create personalized solutions and experiences.

But the technology comes with a cost, which means size is becoming more important to advisors as well, Hawley said. Thus, bigger firms should continue to get larger in 2018 as they absorb their smaller competition.

PwC’s Holly disagrees with that assessment.

“I think we all thought, 12 to 18 months ago, that consolidation was going to run through the entire industry, but it hasn’t quite played out that way,” Holly said. “As costs continue to come down on some products, and the ability of technology and output solutions expands across the asset management and wealth management industries, the opportunities for smaller firms to survive [increase]. It’s a very exciting time.”

To better focus on client engagement, Hyman said that advisors should consider outsourcing more of their functions to partners. This may include using technological solutions for middle and back office functions or partnering with a third-party investment manager. Hyman stresses that advisors should complete thorough due diligence on any third-party partners.

The consultants were split on 2018’s investing trends, with Holly believing that investors and advisors will renew their interest in active strategies should the market experience a correction.

“There’s certainly an attraction towards passive vehicles, but the counterargument would be whether active is better prepared for market corrections,” said Holly. “Managers and advisors are beginning to recognize that the future looks like a balance between the active and passive offerings to the client.”

Some investors will find a preference for active management in certain areas, like ESG or real estate investing, guessed Holly.

At Nationwide, Hawley believes that passive funds and ETFs will continue to dominate active funds. Smaller fund sponsors will be pressured into creating lower cost, simple, transparent products.

ESG investing should continue to gain adherents in 2018, said Hyman. Mercer believes that many investment analysts believe that ESG investing will produce more alpha over time, while many investors have warmed to the idea that their savings should also have a positive impact on the world around them.

“We’ve finally dispensed with most of the concerns that investors are giving up performance results to access ESG,” said Hyman. “The other thing we’re seeing is that, until recently, many people have felt like ESG investing had to be all or none, but advisors can actually start the process of ESG investing in a single small sleeve within a portfolio and gradually get comfortable with it over time.”

While investors have typically sought outperformance by concentrating their portfolios and using managers with specific expertise and constrained mandates, Hyman believes that 2018 will be a year in which managers with broader mandates and greater generalized investing skills create the most alpha.

Almost paradoxically, Hawley believes advisors will have to specialize more to justify their fees in 2018 as fee compression in investment products and trading costs makes their advisory fees more significant.

One potential area of specialization, given the recent tax reform package signed into law in December by President Donald Trump, is tax optimization.

“Tax alpha is becoming more important,” said Holly. “The more analytics, the more software, the more platforms an advisor has, the better off their clients will be. Clients are absolutely focused on after-tax performance.”

Mercer believes that by implementing strategies that can drive tax alpha, like technology-enabled tax-loss harvesting, advisors could boost their value proposition to investors, said Hyman.

“With the technology available and the clientele interested, we think it’s critical that advisors have some grasp of tax optimization,” he said.

Advisors’ greatest opportunity may lie in the massive $41 trillion transfer of wealth between aging baby boomers and millennials, said Holly.

Yet adhering to old ways of doing business will not attract the newly wealthy millennial generation, he said.

“Does anyone think that millennials will want to continue to relate to their mom and dad’s investment advisor?” he asked. “As a generation, millennials are a different asset and wealth management class with their own communications preferences, goals, experiences and needs. They’re more demanding in general as a community. Asset managers need to continue to invest in that change.

“The wealth transition is also an issue of educating an entire generation on how to handle their money,” he said. “I don’t know that we have enough advisors focused on that. The needs of 60-, 70-, 80-year-old investors today are vastly different from the needs of 25-to-40-year-old investors.”