Contributed by Michael Kim, AssetMark Chief Client Officer. If you would like to discuss any of these points with him and the AssetMark team, the VIP Messenger is only a few clicks away.
As 2020 finally comes to a close and we move into 2021, one thing remains the same: uncertainty.
The first few months will certainly be topsy-turvy ones for advisors and investors. Questions remain about the pandemic, regulatory landscape, control of the Senate, and direction of the market. This will require advisors to remain especially close with clients as they work to keep them focused on the long-term. With unemployment in the US hovering at 6.7%¹, 28.6 million baby boomers forced into early retirement in the third quarter alone², interest rates that remain stubbornly low, and a host of other factors, investors will need more guidance than ever before and delivered in new ways.
But while the advisor-client dynamic has certainly undergone a dramatic transformation in the past year, the pandemic merely accelerated many of the trends that were already contributing to this shift prior to 2020. In many ways, 2021 will oversee a continuation of these trends:
- Investors Will Continue to Demand More
One of the biggest factors that will continue to transform how advisors serve clients are investors themselves. Demand for advice is growing--40% of investors say they need more advice than ever before--but advisors will still have to be extra savvy in demonstrating their value to generate and convert leads into clients.³ Trustworthiness will increasingly matter, with transparency rated as a top factor in choosing an advisor.⁴ Investors will choose advisors according to the technology and digital experiences they’re able to provide, and advisors must continue to engage clients at the level required during the pandemic.
- Advisors Should Expect Some Client Turnover
After a year in which advisors had to manage client expectations through high volatility while pivoting to serve clients digitally, clients will grade their advisors on how well they’ve done by either sticking with them or going elsewhere as the pandemic begins to subside in 2021. While some advisors will experience bigger client losses than they’re used to, others will find themselves gaining new clients like never before. The focus on ‘generating alpha’ has been superseded by truly understanding the client's goals and dreams--and continuously demonstrating that understanding. Even advisors who struggled to pivot during 2020 can rebound by embracing technology, constantly looking for new and better ways to digitize their services to create deeper interactions, and aggressively marketing their new capabilities.
- Technology Will Continue to Transform the Advisor-Client Relationship
Digital-first capabilities will continue to power more advisor-investor interactions, fanned by growing investor and advisor comfort levels as well as technologies that will continue to deliver new capabilities for greater engagement, trust, and success. Static quarterly reports, for instance, will give way to interactive, goal-based discussions supported by dynamic reporting options.
- Advisor Practices Will Continue to Grow
Despite nearly a year of high volatility, many advisor practices have grown and will continue to do so with independent broker dealers, hybrid/independent RIAs, large $1B+ firms, and independent/hybrid RIA channels leading the charge. Fee-based revenue will contribute 69% of total advisors’ gross production⁵, but the growth of individual practices will also depend on their ability to specialize, differentiate, and embrace digitization throughout the business--particularly in client servicing, marketing and lead generation.
- More Advisors Will Break Away from Their Brokerages
Expect the journey toward independence to accelerate as hybrid and fee-only RIAs continue to demonstrate the benefits of breaking away and the success of evolving business models, giving more advisors the confidence to step out on their own. While well-known brands have provided comfortable cover, the freedom to make their own technology decisions and create their own brands will likely prove a more attractive offer for more entrepreneurial advisors.
- Investor Interest in ESG Will Grow Despite Advisor Reluctance
While the Biden Administration is likely to try to roll back the Labor Department’s rule implemented this year to discourage environmental, social, and governance investing in retirement plans, the dramatically accelerating flows suggest a larger trend towards impact investing, though advisor interest remains relatively low. With growing investor demand for ESG investment opportunities--sustainable index mutual funds and ETFs doubled in assets under management over the last three years to $250 billion⁶--we think this is an area that advisors should not ignore with investors.
What does this mean for advisors? In a recent survey conducted by AssetMark, more than half of the investors and non-investors surveyed reported new interest in deepening their education around investing since the pandemic started. This further cements the notion that advisors must continue transforming their client engagement capabilities and marketing strategies to keep up with the pace of growing investor demand for guidance and their evolving expectations when it comes to the advisor-client dynamic. Those who are able to do so will not only have happier and more successful clients, they will put themselves in a stronger position to participate in the industry growth that seems to be in store.
¹Bureau of Labor Statistics (Nov. 2020)
²Pew Research Center Fact Tank (Nov. 2020)
³Cerulli U.S. Retail Investor Advice Relationships 2020
⁴Cerulli US Retail Investor 2019
⁵PriceMetrix State of Wealth Management, 2016 and 2020
⁶Morningstar Passive Sustainable Funds: The Global Landscape (Sept. 2020)
Contributed by Michael Kim, AssetMark Chief Client Officer. If you would like to discuss any of these points with him and the AssetMark team, the VIP Messenger is only a few clicks away.
