Wealth management businesses have fared relatively well in 2020. The Covid-19 pandemic has taken a psychological toll on everyone, but as millions of Americans remain jobless, financial advisors are employed.
It hasn’t been easy. The sharp market downturn earlier this year could have meant significantly lowered revenue for wealth managers, especially fee-only RIAs that charge a fee based on a percentage of the assets they manage. (Some wealth managers looked to a federal loan program for support.) But the bear market was short lived. Advisors are also still figuring out how to safely operate and grow their businesses during the pandemic, but some haven’t been fazed.
Still, advisors are fearful.
Even before federal stimulus dollars started running out, and a new stimulus bill stalled this month, advisors were observing the pandemic’s pressure on businesses and clients. They are not immune to the impact of the economy and their own recent forecast reflected that.
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Almost one-third (29%) of advisors and other financial professionals said their top practice management concerns related to the pandemic over the next 12 months were decreased profitability and client attrition, according to Nationwide's sixth annual Advisor Authority study published Wednesday. Out of the 1,768 advisors and financial professionals surveyed in May and June, there were 758 RIAs, 642 registered representatives, 500 wirehouse employees, and 165 other financial professionals.
In 2020, just 54% of respondents expected their profitability to increase in the coming 12 months, compared to 75% in 2019. But there was an even bigger year-over-year difference in a negative expectation. The portion of respondents who forecasted their profitability would decrease tripled to 19% this year, from 6% in 2019.
Most of the professionals, or 68%, expected their practice’s profitability will decrease due to the negative impact of the pandemic.
Advisors are trying to mitigate the impact of the pandemic on their businesses, given that operating circumstances are not expected to change soon. Vaccines against the virus are under development but might not be available and distributed until next year, and their arrival won’t instantly return life back to normal.
Advisors are adding new technology to their practices to improve client service; 21% surveyed said new technology will improve their profitability over the next 12 months.
Nationwide found that advisors were most interested in technology that would help serve clients remotely, free up time to “focus on one-on-one relationships with clients” and offer more personalized financial planning, among other things.
Between last year and this one, a shakeup in what specific technology advisors were most interested in integrating was telling: 39% of advisors chose "e-signature" solutions, a new choice added in 2020, followed by risk management (34%), the top choice the previous three years. Advisors’ websites and client portals closely followed.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.