The Future of Financial Advisors is Bright .. For Those Who Adapt

January 13, 2022 Oak Street Funding

Future of RIAs

Anyone wondering about the future of financial advisors needs only examine how the RIA industry adapted to the challenges created by the pandemic to see a model of what appears to be ahead. A profession based deeply on personal connections and one-to-one approaches that had been creeping toward increased dependence on technology suddenly went all in as in-person meetings became impossible.

The transition may have been bumpy for some RIA firms (and their clients). Still, the financial advisors who found ways to work through the issues demonstrated the resiliency and agility the future of financial advisors will require.

More connected, but more virtual

Many in the RIA industry have been reluctant to move toward technology-rich solutions because they assumed those approaches would take the personal touch out of relationships. However, the move to digital channels and virtual advice makes it easier for RIA firms to tailor what they offer to their clients' specific needs. 

Today's client has unprecedented access to their investment accounts, along with powerful tools offering insight into the performance of their portfolios. As a result, there's less need for RIAs to become the interpreter explaining to clients what all those percentages and ratios mean.

Although that may create anxiety among those RIAs who feel devalued by such a switch, savvy advisors recognize that not focusing on all those explanations and statistics allows them to shift to more of a strategic approach. 

Less transactional, more strategic

In other words, the RIA's role is becoming less transactional as clients are becoming more able to drive their own trades and manage the contents of their portfolios. Robo-advisor technology will handle a larger share of the mechanical aspects of managing client accounts so that advisors can concentrate on strategic issues.

The technology may also allow advisors to make services such as comprehensive financial planning and asset management affordable for clients, thereby encouraging more clients to avail themselves of those services.

While many RIAs see their client service role and digital solutions as either-or approaches, the model for success is a hybrid of digitally delivered data-driven information and professional advice. Advisors who become adept at working in both arenas are more likely to thrive.

In addition, technology can help advisors spot patterns and predict major investment-related events in their clients' lives, so they can be ready with the right advice exactly when clients are ready to hear it.

Dramatic demographic changes

The long-anticipated massive wealth transfer is underway as trillions of dollars pass from members of the Baby Boom generation to their Gen X and Millennial children. Unfortunately, for some advisors, that transfer will come with a loss of AUM, as the new asset owners may not see value in using the people their parents trusted.

Because younger individuals lack the number of assets their parents have, many RIAs haven't pursued those client relationships all that aggressively. However, with the transfers underway, advisors can't afford to ignore the people who could become their most prominent clients in short order.

Therefore, RIAs who develop relationships with their current clients' children and grandchildren will be more likely to retain those assets. To connect with the younger generations, a digital advisor approach is essential.

Deepen understanding of client needs

Successfully doing that means developing a deeper understanding of their objectives, as well as their needs and fears. For example, today's younger workers can expect to live longer than their parents, but it may be harder for them to accumulate retirement assets with more frequent job changes and a distrust of the investment markets.

Younger workers are also grappling with other financial challenges. For example, many don't see homeownership as a viable goal, especially when a substantial share of their income goes toward paying off student loan debt.

Those already in their 30s have lived through two recessions and are understandably anxious about investing. The more RIAs do to develop a solid understanding of this market, the better able they'll be to capture this business.

Digital-first mindset

A key strategy in capturing this group of clients is an effective digital and social media presence. When they need a financial advisor, their search is likely to begin on Google™, not by asking friends and relatives. They're accustomed to turning to digital sources for everything from banking to medical care, so it's logical for them to pursue a similar strategy for financial advice.

That doesn't mean they don't want to work with advisors. As noted earlier, the most successful RIA firms will be those who effectively combine digital resources with personal advice. RIAs would also be wise to pay attention to these clients' values, as social responsibility is at the center of many of their important decisions.

Find a niche

One strategy that has been successful for many RIAs is pursuing a niche strategy. Instead of acquiring clients from any background, a niche strategy involves focusing on much smaller market segments, such as teachers, divorced women, or suburban parents. By becoming specialized in particular niches, advisors can develop a deeper level of expertise. In addition, niche firms attract referrals of similarly situated prospective clients.

Funding to support the future of financial advisors

No matter what strategy you select to prepare for this changing marketplace, you may find yourself with a need for additional working capital. Unfortunately, many RIAs incorrectly assume the best source for funding is bankers in their community.

However, by nature, bankers are more comfortable with tangible collateral-based financing rather than providing working capital supported by an advisor's future revenue growth. 

An alternative for RIAs is specialty lenders accustomed to working with the unique aspects of the financial advisory industry. Such lenders understand how a business like yours operates and are familiar with the nature of your income streams so that they can approach the underwriting with realistic expectations and an appreciation for inherent risks.

As a result, a growing number of RIA owners are turning to specialty lenders like Oak Street Funding®, who are accustomed to providing capital to companies like yours by tapping into future income.

Disclaimer: Please note, Oak Street Funding does not provide legal or tax advice. This blog is for informational purposes only. It is not a statement of fact or recommendation, does not constitute an offer for a loan, professional or legal or tax advice or legal opinion and should not be used as a substitute for obtaining valuation services or professional, legal or tax advice.

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