A Looming Threat to Wealth Managers Has Arrived

Financial advisors who reported losing business in 2020 due to technology lost an average of more than one-fifth of their book, a Broadridge survey shows.

(Illustration by RIA Intel)

(Illustration by RIA Intel)

The Covid-19 pandemic has accelerated changes already underway in the wealth management industry: The market downturn in the spring tested the health of some companies for the first time. The virus’ limitations on life and business forced financial advisors to entirely rethink how they communicate with clients (and how they find and interact with prospective ones).

Now, because of the pandemic, a looming threat to wealth management firms has reached the forefront and is costing them clients.

The majority of advisors (87%) have experienced “sustained changes in investor communication and engagement” in 2020 and they were not equipped to accommodate that; 77% say they have lost business because they did not have the appropriate technology tools to interact with clients, according to a survey of 254 advisors in North America by Broadridge, the brokerage technology company.

On average, advisors who reported losing any business said they lost one fifth (21.7%) of their book.

The pandemic caused consumers to spend more time reviewing their personal finances online and reevaluate which institutions they bank or invest with, according to a report also published Tuesday by Aite Group, a research and consulting firm focused on financial services. Any company that was reliant on a physical presence to operate or grow has not navigated the pandemic as well as competitors with chic mobile apps and easy, effective ways to communicate with customers online.

And the companies lagging behind on technology can’t delay improving it any longer because consumers are not expected to revert to their old preferences; these are here to stay. The pandemic has heightened their expectations and they’re leaving companies that don’t meet them for ones that do.

At wealth management firms, this problem compounds itself. When an institution loses desirability to clients, it also loses desirability to financial advisors, who are either losing clients already, or recognize they could. This is troubling advisors, a group of professionals fixated on growing their businesses and routinely rank it as a top priority in Schwab Advisor Services’ annual RIA Benchmarking study.

Half of financial advisors (51%) surveyed by Broadridge said they often think of leaving their current firm for one with better technology tools. Younger advisors — which there aren’t enough of and are highly sought after by firms — are even more likely to leave (59% often think of doing so for one with better technology).

“Financial advisors are reliant on their firms for technology that allows them to best serve their clients wherever they may physically be and whatever market conditions are like that day. In the fallout from the pandemic, wealth firms are going to face increased pressures to invest in modernizing their advisor technology or risk losing their advisors to firms that already have next-generation wealth platforms,” Michael Alexander, president of Wealth Management at Broadridge Financial Solutions, said in the report.

Before advisors in the U.S. complain too much, remember, things could be worse.

Advisors surveyed in the U.S. seem to have it better than the ones in Canada, at least when it comes to marketing. Almost every advisor in the U.S. (95%) said they get enough marketing support from their firms to grow their practice, but only 59% of Canadian advisors feel the same. Half of all Canadian advisors said they receive no marketing support at all.

Advisors use social media all wrong, but 67% of them in the U.S. are “very satisfied with the tools they are provided to interact with clients and prospects over social media. In Canada, only 17% of advisors said the same, according to Broadridge.

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