Is Your Wealth Management Practice Future-Ready? Here Are Three Top Tips

The wealth management industry will face several major disruptors in the next decade. One of the biggest problems is the looming shortage of human advisors, which is necessary to fulfill the needs of investors. With inheritors, wealth creators, and under- served investors on the rise, juxtaposed with the number of financial advisors aging out and not being replaced by younger advisors, it is a pressing problem. This issue, combined with the ongoing 'great wealth transfer,' presents a compound challenge for the industry. So, how can wealth managers ensure their business is future-ready before this perfect storm hits?

The Perfect Storm

Experts predict that 109,000 U.S. financial advisors – or nearly 40 percent of the current industry headcount – will likely retire during the next 10 years. Many of these soon-to- be retirees are banking on rookie advisors succeeding them. However, new advisors are not entering the business in the same numbers, and the 5-year attrition rate for industry newbies is nearly 72%. According to Petar Arizanov, executive director of investments at Oppenheimer, "There are a lot fewer young advisors going into the business, so there will be less advice."

In the next decade, we'll also see the transfer of more than $85 trillion in assets from baby boomers and the silent generation to their GenX and Millennial heirs. This major event will bring a host of changes and new demands that wealth managers will need to address and adapt to, including changing their existing business models to better meet the needs of a changing clientele. Needless to say, it's going to have a massive impact on the industry.

Future Readiness Tip: Leverage Technology and Automation

The demand for digital wealth management services has skyrocketed. Unsurprisingly, the Covid years pushed everything forward by about five years, and today's investors have new expectations and preferences. Two key ways that wealth management firms can leverage technology and automation to help become future-ready are by harnessing the power of AI not just to research and inform better decisions for customers but also to help streamline the end-to-end processes and automate what have long been high-touch, manual processes.

These tools will also assist with compliance tasks, including KYC, transaction monitoring, identifying potential compliance issues and generating reports. Additionally, many advisors will increasingly rely on AI for portfolio management, a development that investors welcome.

Future Readiness Tip: Recruit and Develop New Advisors

Not only will more than a third of the industry's advisors retire in the next ten years, but more than 40% of the industry's client assets will be up for grabs. While younger investors may prefer digital platforms and robo-advice, firms are wise to pay attention to continued advisor recruitment and development.

Firms like Bank of America and Merrill are increasing their focus on new advisor training efforts. Merrill is currently training more than 2,500 new hires in the fundamentals of wealth management. Others are looking at their existing training programs and making innovative changes to help improve new hire development retention so that new advisors can train and mentor more experienced advisors before they retire. Both approaches are vital to attracting and keeping new talent.

Future Readiness Tip: Expand Service Offerings

According to a recent Thought Lab report, the demand is growing for products to help fund retirement, including pensions and annuities—especially among older investors. The demand for premium services like private banking, discretionary investment, and family office administration is also experiencing significant growth.

Clients are also showing a preference for firms that offer a broad array of solutions across adjacent needs, including tax, estate, and retirement planning. In a McKinsey survey from 2018, only 29% of clients indicated a preference for a holistic offering, but in 2023, that number jumped to 47%. Identifying and responding to these changing demands can help firms evolve and position themselves for long-term success.

The wealth management industry is experiencing rapid change. New technology will transform how work is done, and changing investor demographics will push firms to change how they interact with and service clients. By proactively addressing these challenges, wealth managers can navigate the impending disruptions and help ensure their business is ready for the future - positioning themselves for sustained success in a rapidly changing landscape.