Technology can help turn client conversations toward planning in next bear market

Unless you’ve been living under a trading desk since the early 2000s, you’ve heard all about the shift in wealth management away from investments toward comprehensive financial planning.​

Investment management is commoditized. Advisers today have to offer financial planning, risk analytics, insurance, tax optimization and all sorts of other services in pursuit of a feel-good, albeit nebulous goal of “providing financial wellness.”

Custodians, broker-dealers and wirehouses are all on-board, investing heavily in technology solutions for advisers. But why? What is driving this tremendous shift in the industry?

New regulations, fee compression and changing consumer preferences all play roles, of course, and firms love to talk about the importance of building a digital experience that matches what clients get on Amazon or Netflix.

A less spoken-about factor is a growing concern that this historic bull market may not have much juice left. Three-quarters of business economists expect the U.S. to enter a recession by the end of 2021, according to a survey by the National Association for Business Economics. In November, Morgan Stanley’s research team said there is a 30% chance of entering a recession in 2020.

While every adviser says they coach clients to focus on long-term investing over short-term gains, institutions still remember how many clients fled the industry in 2008 and 2009. The push toward using digital technology and offering “comprehensive advice” is, in part, to build stickier relationships more likely to survive the next crash, said Cerulli Associates director of advice relationships Scott Smith.

(More: Financial planning could help advisers retain client assets through a bear market)

“What else can the advisers bring to the table besides pitching investments and outperformance?” Mr. Smith said.

The technology is helping advisers change their sales pitch to clients. Many institutions are pushing model portfolios to take investment decisions out of advisers’ hands. Combined with automated investing and rebalancing, this can also free up time for advisers to talk to clients during rough times, which Mr. Smith said was a major differentiator between successful and unsuccessful advisers in 2008.

“Advisers who didn’t reach out lost clients. Those who did gained clients,” he said.

The threat of a prolonged downturn can also explain why firms like Fidelity and Envestnet put such a high value on financial planning technologies eMoney Advisor and MoneyGuide, respectively. With financial planning, advisers can talk to clients about individual progress toward long-term goals, a message much more likely to resonate during tough times than quarterly investment returns.

Envestnet MoneyGuide co-CEO and chief technology officer Tony Leal said that although he’s witnessed the shift toward financial planning for years, the company sees an uptick in interest when markets take a hit, especially from non-planners.

It’s also why so many firms are talking so much about helping advisers expand into areas beyond traditional portfolio management. Just look at Envestnet launching a new digital insurance exchange, or Ladenburg Thalmann looking at student loans and health care.

All of this is helping advisers better quantify the benefit they provide to clients outside of stock picking and market timing, said Jack Sharry, chief marketing officer of LifeYield, a technology helping advisers offer clients tax optimization strategies. LifeYield gives advisers the power to show clients exactly what they are providing them, in after-tax dollar amounts, no matter what the market is doing.

“We are shifting the metric away from guessing on a stock, or an [investment] style or model or whatever. Frankly, it’s a guessing game around all that stuff,” Mr. Sharry said. “When the market gets rocky, advisers can point back to the process they took to get [clients] through it and have a more reasoned conversation.”

However, most institutional firms shy away from questions about market forces influencing tech strategy. While Tricia Haskins, Fidelity Institutional vice president of digital strategy and platform consulting, said technology can be particularly helpful in times of market volatility, it isn’t what is driving strategy.

“The shift toward planning isn’t necessarily tied to a market cycle event — it’s an evolution we’re seeing in the industry as advisers increasingly look to provide more value to today’s discerning clients. ” Ms. Haskins said in an email. “Our technology strategy is driven by the needs of advisers.”

But advisers seem to recognize the importance of technology in surviving the next downturn. In a recent report from Schwab Advisor Services, 94% of advisers expect to grow over the next five years despite two-thirds of them expecting a major market drop. The reason? Investments in technology they believe will help weather the storm.

Not only will this new world of tech-powered advice help advisers and institutions retain clients and assets through the next crash, it should help clients as well.

“It’s more productive, and potentially one of those rare win-win scenarios,” Mr. Smith said. “Advisers aren’t great portfolio managers; clients are probably going to have better outcomes if advisers focus on goal management.”