The mere mention of Wall Street can instantly bring to mind extraordinary complexity and blinding speed owing to the world’s most sophisticated technology. But equally extraordinary is the degree to which advanced finance-related technologies have become commonplace for everyone, spawning capabilities unimagined just a couple of decades ago.
The impact of digital technology in everyday life is changing advisors and their interaction with clients, laying a foundation for a whole new way of doing business. That’s why it has become more critical than ever for advisors to understand the ways in which technology is defining how investors of different generations -- especially millennials -- operate, and how these developments are changing the way the advisors must work.
Well before defined contribution retirement plans began supplanting defined benefit plans, a desire for long-term financial security shaped the outlook of many if not most investors. The traditional relationship between advisor and investor was clear-cut, with the advisor seen as a source of hard-to-obtain information and seasoned insights cultivated over many years and market cycles.
Investors, for the most, part saw investing as a unique set of highly specialized skills -- comprising things such as market insights, product knowledge, recommendations on asset allocation and portfolio construction, and interpretations of long-term trends -- all of which was best left to the experts. The day-to-day nature of these relationships was characterized by infrequent contact and semi-annual meetings, typically face-to-face, with the advisor doing most of the talking.
For a new breed of investors, however, any similarities to past generations of clients has all but disappeared. The investor of today is far better informed, better connected, and significantly more involved in day-to-day considerations where their investments are concerned. Just as they are in other facets of their lives, today’s millennial-era investors are “always on” when it comes to finance, markets, financial news, and the latest investment trends.
They are active participants in the management of their assets. As a result, the ways they prefer to engage, communicate, collaborate, and make decisions has changed. Investors want to engage on-demand, often through a digital channel of their choosing. The sheer volume of information available today can leave many investors with the impression -- even if it is frequently not the case -- that they are on a par with their advisors where market information is concerned.
All of these developments have myriad implications for advisors, ranging from technology to process, to behavioral considerations, among other factors. Advisors seeking to be well prepared for the investor of the future will want to consider taking some specific steps:
- Advisors who successfully serve tomorrow’s investor will embrace technology today. Millennial investors are eager to adopt technology that gives them an edge where investing is concerned. For some advisors, that may mean enlisting a consultant to keep them well-versed on how to utilize today’s digital tools and platforms.
- Serving tomorrow’s investor effectively will mean cultivating a relationship as a trusted resource. This will require evolving away from a transaction-driven mentality. For example, the latest wave in investment-related technology, so-called robo-advisors, connotes an automated approach to decision-making. I prefer to use the term “digital advisors,” reflecting the ultimate importance of both human and automation perspective in managing the truly dynamic nature of tomorrow’s investment ecosystem.
- The successful advisor of tomorrow will make communications a sustainable, competitive advantage of his or her practice. Expanding automation and increasing speed only reinforce the importance of communication in managing clients’ financial futures. Replacing the occasional newsletter with proactive, ongoing, personalized communications -- face-to-face as well as digital -- has gone from being nice to being necessary.
- Advisors who succeed in serving tomorrow’s investors will serve as “information agents” for their clients. That means actively filtering the torrent of news, data, research, and analysis inundating clients today to extract the highest-quality, relevant, and useful content that will inform the decision-making process.
The evolution of an elegant technological experience will be key. The ability to employ a client app to notify investors of a financially relevant geopolitical development or a sudden insight into how to invest an impending inheritance has become the norm rather than the exception. At the same time, just as critical and currently underappreciated are: the timeless importance of a trust-based relationship, the enormous importance of recognizing emotional and behavioral tendencies a particular client brings to investing, and the overarching importance of regular, ongoing, relevant, content-rich client communications.
Going forward, responsiveness to these game-changing evolutionary developments will enable certain advisors to be the winners with Gen X, millennials, and even savvy boomers.