Future Financial Planning Megatrends (2 of 5)

Future Financial Planning Megatrends No. 2: The Rapidly Evolving Investor

Financial PlanningFinancial advisors are at the center of a rapidly evolving landscape; after all, the financial planning and wealth management industry is never static. To be a successful financial advisor in this “keep up or be kept out” industry you should constantly be asking yourself, “How can I transition my financial planning and advisory services to keep up with all these fast-paced changes?”

At the boutique independent broker dealer firm of Summit Brokerage Services, we are committed to helping our independent financial advisors keep up with all of the often dizzying changes and trends in this industry. Forward-thinking financial advisors should take note of Roubini ThoughtLab’s recently published September 2016 report entitled “Wealth and Asset Management 2021: Preparing for Transformative Change.”

Here on the Summit Brokerage Blog, we first discussed this trend forecasting report in the previously published blog entitled “Five Key Financial Planning Megatrends.” The first of the five megatrends, “The Big Shift”, was presented in greater detail in this previously published Summit Brokerage blog; this instant blog will provide a more detailed discussion of the second megatrend, “The Rapidly Evolving Investor”; and the remaining three megatrends will be discussed in future Summit Brokerage blogs.

 

The Rapidly Evolving Investor

The following are key takeaways from the “The Rapidly Evolving Investor” portion of Roubini ThoughtLab’s “Wealth and Asset Management 2021: Preparing for Transformative Change” report:

As a result of changing demographic and wealth patterns around the world, financial advisors and investment providers who want to keep up with the changes will need to engage a more heterogeneous set of investors.[1]

 

Core investor values remain the same:

  • According to the study, despite market upheavals and demographic shifts, individual investors are predicted to stick with their core investment beliefs that include: “Put money into what you understand, save for your family, trust known brands, and seek external advice.”[2] In addition, these individual investors value getting advice from additional sources and think that they will receive better results through working with experts in the industry.

 

But investors will behave differently:

Even though core investor values are predicted to remain the same, the Roubini study finds that over the next five years, there will be a dramatic shift in investors’ behaviors and product needs. Investors, especially those millennial and Gen X investors, plan to expand their use of mobile technology; accordingly, digital interaction between an advisor and his or her clients will be critically important to retain and recruit clients. In terms of asset choices, investors are predicted to seek out more personalized products and services, invest more in alternative investments, rely more or financial technology, and shift from active to passive solutions. In terms of desired relationships with their providers, investors are predicted to want to work more with providers who give specialized, holistic advice and organizations that provide better services as well as more investment options. Additionally, investors will want to reduce fees and transition away from commission-based fees toward more transparent fee-based services.[3]

 

Appealing to the next generation of investors:

According to Bank of America, “the wealth transfer to millennials in North America alone will amount to $30 trillion over the next 30 to 40 years.”[4] As such, it makes sense that a major looming concern of surveyed investment providers was this intergenerational transfer of wealth to a younger generation of investors and the significant effect it will likely have on their businesses. In order to actively prepare for this generational shift and sustain their businesses, providers are encouraged to develop relationships with younger, successive generations of clients. A key way to get ahead of the curve and actively deal with this emerging group of millennial investors is to implement forward-thinking technology plans that will resonate with this younger generation.[5]

 

Investors will widen their investment approaches:

According to the survey report, it’s predicted that changing investor behavior coupled with increased wealth will likely lead to investors widening their investment approaches. As cited by 67% of survey respondents, “alternative investments – such as real estate, infrastructure, and hedge funds – will see the largest increase in five years’ time, as investors seek new ways to diversify their portfolios.”[6]

It is predicted that some of the largest growth areas over the next five years will be newer investment forms such as socially responsible investments and trading as well as a shift from active to passive funds.[7]

 

Investor quest for value:

Pursuant to the Roubini ThoughtLab report, “Our survey shows that fees and transparency are clearly top of mind to investors. More than half of the investors in our survey say that that they expect their wealth service providers to offer more competitive prices and clarity on fees. After quality, fees and pricing structures are now the most commonly cited selection criteria for investors when choosing a provider (56%), and by 2021, this number will grow to 61%. Similarly, 49% say that reducing fees is the No. 1 way for investment providers to retain their business.”[8]

Additionally, new regulatory changes will put pressure on providers’ fee structuring and amounts. While there is a long and diverse list of major regulatory changes in the US, Canada, EU, and the UK, a clear direction among these changes is emerging: “Wealth managers will be increasingly discouraged from receiving commissions when their clients purchase investment products, and they will face rigorous requirements to provide independent advice in the best interest of the client. In the future, advisors will need to make most, if not all, of their money by charging – with full transparency – some form of fee for their advice directly to the client. Product packagers, meanwhile, will need to attract investors based entirely on the merits of what they are providing.”[9]

 

Goal-based investing:

According to the Roubini report, goal-based investing is a popular investment approach currently used by 51% of investors. However, the report predicts that this number will rise to 63% by 2021.[10]

To explain goal-based investing, the report quotes Kevin Barr, an Executive Vice President of SEI and Head of the Investment Management Unit. As Barr puts it, “Individuals are not looking any more at just ‘what’s my lowest- cost S&P 500 fund?’ They’re saying, ‘How am I going to prepare for retirement when I’ve got 25% of my working career potentially under my belt and I’ve not made any money?’”[11]

 

As an independent broker dealer, Summit Brokerage Services is in the business of your business. With over 20 years of experience and continual pursuit of knowledge, we provide or independent financial advisors with the support, services, technology, and research they need to build successful practices and establish strong, enduring relationships with their clients. To learn more about Summit Brokerage Services and becoming one of our independent financial advisors, visit www.joinsummit.com or contact us at (800) 354-5528.

 

 

 

About Summit Brokerage Services, Inc.

Summit Brokerage Services is part of Cetera Financial Group. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.

 

About Cetera Financial Group

Cetera Financial Group® (“Cetera”) is a leading network of independent retail broker-dealers empowering the delivery of objective financial planning advice to individuals, families and company retirement plans across the country through trusted financial advisors and financial institutions.  Cetera is the second-largest independent financial advisor network in the nation by number of advisors, as well as a leading provider of retail services to the investment programs of banks and credit unions.

Through its multiple distinct firms, Cetera offers independent and institutions-based advisors the benefits of a large, established broker-dealer and registered investment adviser, while serving advisors and institutions in a way that is customized to their needs and aspirations.  Advisor support resources offered through Cetera include award-winning wealth management and financial planning and advisory platforms, comprehensive broker-dealer and registered investment adviser services, practice management support and innovative technology.  For more information, visit www.ceterafinancialgroup.com.

*”Cetera Financial Group” refers to the network of retail independent broker-dealers encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Financial Institutions, Cetera Financial Specialists, First Allied Securities, Girard Securities, The Legend Group and Summit Brokerage Services.

 

 

[1] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 13)

[2] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 13)

[3] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See pp. 13-15)

[4] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 15)

[5] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 15)

[6] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See pp. 15-16)

[7] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 16)

[8] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 16)

[9] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 16)

[10] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 17)

[11] Roubini ThoughLab “Wealth and Asset Management 2021: Preparing for Transformative Change” report (See p. 17)

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