Editorial

Assessing the future of the financial advice industry

Financial advice will learn a lot from a world based on efficiency

Jun 17, 2017 @ 6:00 am

Let's look into our crystal ball for a moment to see what the future holds for the financial advice industry.

A couple of coinciding projects at InvestmentNews encourage us to do so now, with the benefit of crowd-sourced knowledge from some of the future leaders of the profession — versus the all-too-common guessing-game method. Of course, no one can know precisely what is to come. But having just spent four months with our new crop of 40 Under 40 winners in preparation for publication this week, as well as having wrapped a Future of Our Business event June 7, which tapped the brains of alumni from previous classes, we can share some reasoned insights. And stay tuned for a full debrief from that day-long think tank in a special report publishing this September.

First: There will be fewer advisers, possibly many fewer. The trend line points down, and there's nothing in the three- to five-year outlook to change that. The surprising upshot from the think tank on this point? That's A-OK.

FAR MORE CLIENTS

The future leaders of this profession see advisers serving far more clients with a greater assist from technology, as well as more reliance on outsourcing. For those with small shops or in rural areas this could be particularly useful in the form of remote collaboration. In the expanding "sharing economy," firms will find scale by sharing, for instance, the workday of a paraplanner among several firms — even in other states or countries. One of our previous 40 winners, who is years ahead of many adviser peers in several respects, is already seeing the fruits of this arrangement through a collaboration with talent overseas.

(Watch: The making of 40 Under 40)

The other side of this coin is financial literacy among average Americans. If we are taught the basics of personal finance along with reading, writing and arithmetic at a very young age — potentially starting in elementary school — those with straightforward financial needs will be less dependent on professional help. Because people are increasingly responsible for managing their financial well-being throughout life (defined contribution plans, health savings accounts, etc.), this need for some general education will only grow.

COMPENSATION TO EVOLVE

But those requiring expert financial advice will undoubtedly seek a more complete look at all areas where money touches their lives — and how those areas intersect. Who will need it most? A large population that isn't necessarily today's prime prospect pool, at least for advisers paid based on a percentage of assets: the HENRYs (high-earner, not rich yet). As investment advisers move beyond mere investments, and the field becomes a profession, compensation surely will evolve to ensure those who most need advice can get it and those giving advice can still run a profitable business.

And as more and more people are drawn into the portable-job world of the gig economy, those with complex financial situations and zero free time will seek quality convenience above all else. We're already seeing demand for this in another realm: pre-chopped, organic ingredients boxed up and delivered straight to your doorstep for dinner each night. There's an app for that.

(More: 5 robo-advisers with the most client assets)

In financial advice this will take the form of a planning quarterback who strategizes the entire financial game plan and keeps clients on track largely through automated accountability programs. Some advisers serve this role today; all will do so in the future. Advances in big data and artificial intelligence will make mere portfolio selection, tax harvesting and whatever else is programmable a computer's forte alone.

If you find this hard to believe, just wait until Google or Amazon moves full throttle into the asset management business. Who really knows your clients better — you or a company that tracks your clients' every online search and can connect a million data points to know what they want or need before they want or need it?

But this doesn't mean human advisers won't be essential in the future. People with complicated financial situations will benefit from some personal creativity complementing the cold competence of the machine.

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