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The future wealth advisor

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The following is an excerpt from the white paper, Wealth and Asset Management 2021: Preparing for Transformative Change, written by Roubini ThoughtLab based on a global survey that BMO Global Asset Management sponsored. To download the full content of this section, scroll to the bottom of this page.

 

To stay relevant in a fast-changing marketplace, where investors are seeking greater value and on-demand support, wealth advisors will need to elevate their role in the wealth ecosystem. Next-generation wealth advisors will need to be hyper-responsive, highly empathetic, and digitally savvy. Equally important, they will need to be multidimensional professionals able to provide both specialized investment advice and whole life goal-planning – while always keeping the client’s best interests in mind.

Something old, something new

Source: Roubini ThoughtLab
Source: Roubini ThoughtLab

In no industry is the juxtaposition of the old and new as evident as in the wealth profession. Just look at this study’s participants. On one side of the spectrum is Berenberg Bank, founded in Hamburg in 1590 by the same family that owns it today. On the other is LearnVest, launched by Alexa von Tobel seven years ago after she dropped out of Harvard Business School.

Similarly, investors’ attitudes toward advisors combine traditional values and innovative thinking. When selecting wealth advisors in the years ahead, long-standing criteria remain top of mind: fees, reputation, and range of service, but most of all, quality. (See Figure 4-1.) For Putnam President and CEO Bob Reynolds, it comes down to the essentials: “There’s no question that the most important thing in selecting an investment company is which one offers high-quality products on a consistent basis.”

But finding the right balance between quality and fees is crucial. Putnam’s Reynolds put it simply, “People want to know what they’re paying for, and what they’re getting for it.” But demonstrating higher value is far from straightforward. (Listen to our Better Conversations podcast on this topic: Stop providing only investment advice).

“Differentiation is probably our biggest challenge right now,” says Nathan Erickson, Chief Investment Officer, MRA Associates. “It comes back again to your ability to illustrate, almost quantify, value: ‘Here’s what you’re getting for the fee you’re paying.’”

Investors are also assessing wealth advisors on new criteria: their digital capabilities. These include anytime, anywhere, any device access, integrated omnichannel experience, and advanced use of digital technology and analytics. According to Amit Sahasradbudhe, Head of Wealth Management Strategy and Digital Solutions at RBC, “Digital is not just a separate, complimentary channel for our clients, is it becoming core to their wealth management experience.” (Listen to our Better Conversations podcast on this topic: Create, curate and connect: social media for advisors).

The race against the machine

Technology will transform the wealth profession, but it will not replace humans anytime soon, according to our survey. Even after taking into account the lower cost of digital solutions, the majority of investors – including millennial and mass affluent ones – prefer using personal wealth advisors for every investment activity covered in our survey. (See Figure 4- 2.) This is the case for both matters of investment judgment and mundane tasks, such as rebalancing their portfolios and asset allocation. None of this surprises Dr. Dominik Helberger, Head of Strategic Clients and Managing Director at Berenberg: “While technology can offer much, in the end, money is a people business.” Clark Blackman II, Founder and CEO of Alpha Wealth Strategies, adds, “People are people. That doesn’t change. The advent of WebMD didn’t change the fact that people want to see a doctor for medical advice.”

Source: Roubini ThoughtLab
Source: Roubini ThoughtLab

However, Figure 4-2 also shows that machines are making headway. A significant minority of investors would rather use technology for getting investment tips and finding market opportunities. More worrying, just over one in five investors believes that by 2021, personal investment advisors will not be necessary for portfolio management, and a similar number says that technology will make advisors less important.

At the same time, technology is transforming client-advisor interaction from face-to-face and telephone to a wider mix of digital channels.

Source: Roubini ThoughtLab
Source: Roubini ThoughtLab

“If the client has a question about anything, we need to be available to answer that by email or phone and provide the information that they want to see, when they want to see it,” Erickson says.

This does not mean that traditional methods of communication will be displaced. Instead, the popularity of a wide range of digital channels will rise substantially. (Figure 4-3.) This will be the case particularly for the young: In the future, 59% of millennials say they will use social media to communicate with advisors, compared with 29% of boomers, while for web collaboration tools the figures are 39% for millennials and 19% for boomers.

Just how fast digital technology will transform the industry is hard to predict. But it is safe to say that wealth organizations will struggle to keep up. “Wealth managers get it. They see it, and they’ve started to move,” says Erickson. “I just don’t think they appreciate how fast it’s going to happen.”

How advisors can add value

Rather than compete with machines, personal wealth advisors will need to add value in the digital age. The most obvious way is through personal relationships, according to Bahren Shaari, CEO of Bank of Singapore. “Getting insights from clients and understanding their needs will always remain paramount to the business of private banking. This is something technology cannot do. Humans need to interact with humans.”

Adding value may involve leveraging technology for the benefit of clients. In fact, Christopher Jones, EVP of Investment Management and Chief Investment Officer of Financial Engines, sees fintech morphing from self-directed applications to being advisor-directed. “You’re going to see much of the actual generation of advice being done by computers and simply communicated by the human being, as opposed to a human being having an explicit role in creating it.”

But repeating what a computer says is not a high-margin activity. Ways that machines cannot easily replicate, particularly to justify their fees, personal wealth advisors will need to apply judgment, intuition, and lateral thinking in during times of volatility. MRA’s Erickson explains: “When crises come, it’s not necessarily bad investments that cause people to lose money – it’s bad decisions. The robo-advisor will not be able to call people at that critical moment to say: ‘Everything is all right, stay invested, stick with the plan.’ It’s that personal relationship during the challenging moments that matters the most.” (Listen to our Better Conversations podcast on this topic: Deliver WOW client reviews).

It is hard, then, to disagree with the view from Al Chiaradonna, SVP, SEI Wealth PlatformSM, North America Private Banking: “In my lifetime, I do not see someone giving total control of their wealth to something completely technology-based.” Rather, technology should be an integral part of a wealth manager’s approach. In the future, the interplay of advisors and machines will reshape the advisor’s role and the advisor-investor relationship.

The 24/7, multipurpose advisor

Investors and providers have similar views on how the role of wealth advisors will morph in the coming years. The biggest shift is…

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Thank you for your interest in this white paper.  A link to download the paper is below.  Be sure to check out other valuable insights from BMO Global Asset Management.

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Additional sections from Wealth and Asset Management 2021: Preparing for Transformative Change:

The future trajectory of wealth

The rapidly evolving investor

Rethinking product and market approaches

This article was written by Roubini ThoughtLab and is based on a global survey that BMO Global Asset Management sponsored. BMO Global Asset Management is not affiliated with Roubini ThoughtLab. The views and opinions expressed in this article do not necessarily reflect those held by BMO Global Asset Management or any division of BMO Harris Bank N.A., nor by BMO Financial Group or any part of BMO Financial Group.

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