Over the past year, a promising pandemic recovery fizzled into a volatile inflationary reality stemming from the aftershocks of a pandemic and the emergence of a disruptive major conflict in Ukraine. On the heels of Covid-19, a new economic contagion has reverberated across the globe just as businesses were finding their footing in a “new normal.”
Since most advisory firm revenues are tied to a fee collected on assets under management and with inflation driving up the cost of doing business, much of the wealth management industry is going to encounter some form of margin pressure—but they can still excel, said Adrian Johnstone, president and co-founder of Practifi.
“Financial advisors don’t need to be told that economic downturns are inherently cyclical, but it’s important to keep in mind that difficult financial conditions will come up again and again,” Johnstone explained. “Firms need to be able to consistently deliver value to their clients even when their investments aren’t growing at their expected rates. By making plans today and creating a proper business strategy to navigate times of uncertainty, firms can continue to prosper regardless of the future challenges they may face.”
Adrian offers four tips to help firms continue to thrive during difficult times.
One: Up Your Digital Game
Creating a positive client experience is an immediate major differentiator for any organization.
“A 2018 PwC survey found that consumers would pay up to 16% more for services if the provider delivered a high-quality, hands-on customer experience,” shared Johnstone. “However, that same report revealed that many organizations miss the mark in this area: 64% of respondents felt that these experiences lacked a personal or human element.”
Advisors have to find the sweet spot between human and digital, automated at scale and personalized. One tip offered by Johstone is the continued use of video-based platforms to allow more face-to-face communications.
Two: Address Volatility
When the going gets tough, clients have a tendency to overreact. They might want to sell off large amounts of stock, convert liquid assets to cash and make other extreme adjustments to their financial plan. Financial advisors need to be the voice of reason that prevents people from veering off course with their long-term investment or retirement strategy and doing something they’ll regret later. By providing both expert guidance and personal support, firms can help clients through difficult economic situations and build a stronger relationship with them.
Three: Grow Your Value Prop
A business leader’s first instinct during uncertainty may be to fall back on what they already know, said Johnstone, but it’s just as important to look for opportunities to expand service offerings. That’s especially true because downturns impinge on most firms’ abilities to grow revenue through client investments.
How can you deliver real value to your clients if their investments aren’t growing at an acceptable rate – or worse, have actually lost money? The answer is providing services that promise long-term returns regardless of how today’s markets perform.
Unfortunately, institutional processes may prevent innovative advisors from pivoting towards new approaches and services— but Johnstone urges advisory firms to be flexible and receptive to new technology.
Four: Take Advantage of Tech
To start with, firms can leverage the technology and data they already have in place to provide better advice to their clients and to communicate more effectively with their clients—unfortunately, data is often distributed between and siloed within different platforms and technology.
To really unlock the power of their data, firms need to bring data into one place where it can be easily viewed and used. Then, business management solutions can be integrated with other platforms within the firms, making it easy to centralize and condense information.
As a result, “Advisors are in a better position to offer sound financial guidance when all of that information is relatively available,” said Johnstone. “They can see where markets are headed and what moves clients should make to respond to shifting economic conditions and protect their long-term investments.”
Platforms like Practifi can also remove much of the administrative work that often takes up a sizable portion of an advisor’s day, opening up more time to focus on the client experience.
Centralized data can be used to power automation, which then boosts organizational efficiency and removes bottlenecks that slow businesses down. So time-consuming administrative tasks like onboarding new accounts or updating customer relationship management systems can be automated to add more client-facing time to the advisor’s day.
As an added bonus, automation also reduces human errors that require a lot of time and energy to go back and fix, like not-in-good-order responses.
Seizing the Opportunity
The post-pandemic reality is a tough one for financial services firms, but it is not without opportunity. Record amounts of assets are still in motion, with the largest generation to date fueling ever-larger waves of retirees and a historic generational wealth transfer to Gen X and Millennials in progress. At the same time, the demographics of the wealth management business itself are driving a wave of consolidation and deal-making.
“It’s easy to feel overwhelmed by anxiety during uncertain times, but firms should use these moments as opportunities to reconsider how they run at a basic level,” said Johnstone. “In many cases, crises bring long-standing issues to the surface and force organizations to face systemic problems they have managed to ignore. Weathering the storm is good; coming out the other side stronger than ever is even better.”
So, while firms have to address market volatility and pivot to new digital ways of doing business, they also have fantastic opportunities to grow and evolve. Even as the costs of doing business are increasing and revenues are pressured by the markets, successful firms are finding ways to expand their services, broaden their client base and attract and retain a new generation of wealth.