Advisors are woefully unprepared to keep up with the speed of change in the investment industry on issues ranging from fee-based services to technological advancements, according to a recent report published by Lake Success, New York-based Broadridge Financial Solutions and Philadelphia-based ESI ThoughtLab.
The study on digital transformation in wealth management surveyed 1,503 investment providers worldwide in different sectors, including 250 wealth advisors.
Among the 250 wealth advisors, a significant number are not prepared in crucial areas. Specifically, 48% are not ready to shift from commission-based to fee-based services, 43% are not prepared to add low-cost smart beta products and 43% aren’t geared toward more holistic goal-planning, the report says.
The latter is particularly important, the report says, because clients will soon look to advisors as financial life coaches. By 2022, over 50% of investors will consider the ability to provide holistic goal planning as one of the most important criteria in choosing a wealth advisor.
“The majority of advisors are not really prepared, partly because of their age and where they are in their careers,” says Steve Scruton, president of Broadridge Advisor Solutions, in a statement. “They simply haven’t been operating their businesses with a digital mindset.”
Wealth advisors are also lagging behind other industries when it comes to leveraging data and analytics to understand clients. Thirty-five per cent of all investment providers are currently doing so while only 26% of wealth advisors are leveraging technology.
Optimizing data use will soon require advisors to use artificial intelligence (AI) but only 10% to14% of wealth advisors predict they’ll be using AI by 2022. Currently, less than 10% of advisors use AI.
Wealth advisors do agree on the fact that technology will take over many of their responsibilities, such as executing transactions, attracting new clients, selecting the best investments, asset allocation and insights into market events. However, advisors believe they will still play a primary role in client onboarding, as well as analysis and advice.
Scruton believes that amid technological innovation, advisors will still play a key role. “Their human experience and industry expertise will still be vital,” he says. “But their work will focus less on generating commissions and more on providing clients with the best communications and the best possible advice.”
In regards to adopting digital, Scruton adds: “If existing clients see you as even more on top of things, then they refer friends and give you more assets. Those kinds of clients stay with you; and amazingly, completely objective investment performance starts to take a back seat.”