In the Face of Drastic Changes and Challenges, Here’s What You Can Expect
When you look forward in your career and at the future of the financial advice industry, it can be easy to feel uncertain about how things may evolve. Post-COVID economic uncertainty and market volatility has been challenging, of course, and advisors from all corners of the industry are finding themselves facing issues like advancing technology, ever-changing demographics, and heightened regulatory confusion, too.
However, in the face of all this unease, one thing remains true: there continues to be a strong demand for financial advice. So, while we can be sure that the financial advice industry will look different 5, 10, or 15 years from now, that’s not necessarily a bad thing. Below I’ll discuss three of the biggest factors driving change in the financial advice industry and how you can adapt to ensure lasting success for your business.
#1. Technological Advancements
It can be tempting to look at technology as a competing factor to the success of the financial advising industry. After all, why would someone pay an advisor to build a perfectly balanced portfolio when they and do one online for a fraction of the cost? This anxiety becomes even more understandable when we look at the rapidly growing world of robo-advisors. According to research done by Aite Group, robo-management grew 15% last year and is projected to top $1 trillion by 2023.
However, there’s a fundamental component of financial advising that robo advisors are missing – and can never truly harness – and that’s human connection. They’re unable to talk with people about what they value and what they’re working towards in order to create a custom financial plan that is flexible enough to adjust when life changes occur. That’s a significant missing piece of the puzzle.
Yes, financial advisors give investment advice and manage portfolios, but consider how you also engage with your clients as human beings and help people deal with financial stress and creatively address goals. Make it your goal to stay on the cutting edge of technology while maintaining the personal touch your clients can’t get from a robo advisor. Embrace digital solutions, meet your clients where they are, and you can continue to outperform robo options.
#2. Fiduciary Regulations
The debate over how to best regulate investment brokers and financial advisors isn’t a new one, and it’s not going to find a resolution any time soon. Under the Securities Exchange Act of 1934, the Securities and Exchange Commission instituted a rule that requires any brokers or advisors to disclose any potential conflicts of interest as well as only make recommendations that are in their clients’ best interests.
Though this rule has led to substantial improvement when it comes to setting a standard in the financial advice industry, only RIAs operate under the fiduciary standard. Additionally, it leaves much up to interpretation when it comes to what exactly is in a client’s best interest. The rule also fails to clarify the difference between brokers and RIAs for investors making it easier for advisors to claim that they’re doing something they’re not.
While it’s hard to be sure where exactly this debate will take the industry in the future, it’s clear that within the next decade, anyone calling themselves a financial planner will be under a standard of duty to protect their clients.
#3. The Consolidation of RIA Firms
In a rapidly changing technological environment, small RIA firms are having a harder time than ever finding the necessary resources to stay competitive against larger firms. Not to mention, many are finding themselves with no successor to carry on the business once they retire. This puts small firms in a tough spot because so many advisors today are in the later stages of their careers and may find it hard to sell their firms if they choose not to invest in new technology, leaving their clients to gravitate toward larger firms.
Over the next few years, as advisors leave the industry – whether voluntarily or involuntarily – we can expect to see a lot of consolidation within the financial advice industry. In fact, research shows that the top 200 financial advising firms are growing faster than the industry as a whole, setting them up to have a significantly bigger share of the market down the road.
Despite these statistics, the entrepreneurial spirit continues to thrive within the industry, with many new firms being created each year. This is due to the support systems of the custodians and turnkey asset management programs that work to make launching a new practice easier than ever before.
Final Thoughts on the Future of the Financial Advice Industry
You can expect the landscape of the financial advice industry to look different in the near future, but to continue to find ways to thrive in the face of these new changes and challenges. No matter what technological advancements are made or what mindset the newer generations maintain, the demand for financial advice with a human touch will continue.
At TriCapital, we work to provide our advisors with the resources they need to face challenges like this so that they can stay focused on what’s important – helping their clients achieve financial freedom through personalized planning. Contact us today to book a 30-minute call and see if becoming a TriCapital Advisor is right for you.