Emerging issues affecting financial advice

Management guru Peter Drucker once described predicting the future as driving down a country road at night with no lights on while looking out the rear window. Admittedly, no one can precisely predict how advisers and firms will work too far down the road. Nevertheless, several forces in the larger economy and society evident today are shaping the future of advice in key ways. Here are three examples coming our way, and their possible impact on the provision of financial advice.

Demographic shift. By 2022, most baby boomers will be near retirement, retired or working part time. Meanwhile, the similarly sized millennial generation (roughly, those born between 1980 and 2000) will be ascendant. More diverse, more do-it-yourself, less politically and religiously affiliated, more skeptical, and more immersed in technology than boomers, the preferences and demands of millennials will dominate the advice business.

Possible scenarios: Investment management becomes even more passive and automated; subscriptions replace fees based on assets under management; relationships become shorter and more episodic; nonprofits provide advice in exchange for donations; more big firms mix salaried advisers in call centers with in-house RIA-like advisers serving the ultrahigh-net-worth.

Health-care burden. The U.S. spends a growing percentage of its gross domestic product on health care, yet has worse outcomes than nations that spend less. This can’t continue, but no solution appears imminent.

Meanwhile, our aging population and health care’s increasing expense and complexity are making financial planning more fraught.

Possible scenarios: Good but expensive health care becomes available only to the wealthy, making health-care planning an even bigger part of an adviser’s role; states, not the federal government, assume more of the burden, shifting the tax responsibility; the role of mega-hospitals grows as they add insurance arms and prepaid, HMO-like plans; a Social Security/Medicare/Medicaid fix is concocted that results in a modified single-payer plan with private options.

(More: The future looks very different)

Financial illiteracy. Responsibility for one’s own financial future is growing (think​ 401(k)s versus pensions and health savings accounts and high-deductible plans versus traditional insurance), yet only a sliver of the population understands anything about budgeting, borrowing, saving, interest rates, inflation, insurance or investing. Financial illiteracy, and its societal costs, keep mounting.

Possible scenarios: As market forces and regulation increasingly propel financial planning and advice into a full-fledged profession, pro bono financial education becomes a responsibility of practitioners; advisers and firms make education a bigger part of marketing; new technology makes financial education more game-like and its content easier to grasp; regulation grows to protect consumers too uninformed to protect themselves; personal finance basics becomes a required course throughout the country on curricula from grade school through high school.