How advisors must evolve to meet the needs of the next generation

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Surviving the financial advice industry’s ongoing seismic shift will require advisors to adopt a new identity. Several of them, in fact.

In particular, financial advisors will need to establish creative new ways of prospecting for clients, experts say, as an increasing number of baby boomers enter retirement and trigger the decumulation phase of their wealth plans. Successfully attracting, ideally, younger clients may also depend on advisors’ willingness to embrace an entirely new and substantially broadened definition of their role.

“The traditional value proposition for an advisor is fading and the role itself is changing,” says George Hartman, president and chief executive officer of Market Logics Inc. in Toronto, who coaches advisors on practice management matters such as succession planning.

He says an advisor must be a combination of a counsellor, coach and cheerleader for their clients today.

“It’s becoming the type of role in which clients will look differently at the relationship than they did before,” he says. “Clients are very much still looking for trusted advice, it just might no longer be around the questions of which stock, mutual fund and [exchange-traded fund] to buy.”

Rather, the type of questions receive are likely to be around the appropriate use of money, in which lifestyle questions play a larger role, he adds.

As far as John Cucchiella, president of SMEx Advisory in Toronto, is concerned, the role of the advisor must be expanded even further to remain relevant and for its value to be sustained.

“I would want advisors to be at the focal point of decisions clients make on nearly everything,” says Mr. Cucchiella, who previously held senior leadership roles at top wealth management firms.

“They want to buy a car? Great, [the advisor] connects them with a dealer they have a relationship with. The client has knee problems? There’s somebody in the advisors’ rolodex who can help with that. It really doesn’t matter what decision is being made, the advisor has to be the central point of contact.”

Advisors who remain focused on portfolio management and providing clients with a solid investment plan, “are the ones who are going to be struggling,” Mr. Cucchiella says.

Many advisors are already anticipating the change. In July, the CFA Institute published its latest “The Future of Work in Investment Management” report that included input from more than 11,000 investment professionals around the world.

More than one in three survey participants (37 per cent) said they believe the role they currently perform will be “substantially different” in five to 10 years.

People are also joining the financial advice industry from an increasingly diverse set of educational backgrounds, the CFA Institute survey found, reflecting the growing complexity of the advisor’s role.

In 1990, almost half of all candidates (45 per cent) looking to obtain the chartered financial analyst (CFA) designation came from a finance-related university program, while just one in 10 (11 per cent) came from a science, technology, engineering and/or math (STEM) program. By 2022, the proportion of CFA candidates with a finance-related background had fallen to 38 per cent, while those coming from a STEM program had grown to 14 per cent.

“As the industry becomes more complex, investment firms are seeking more diverse backgrounds and a wider knowledge base from which investment expertise can be developed,” the CFA Institute report said.

The challenge of wearing different ‘hats’

Despite that widespread awareness, Shaun Hauser, founder and chief executive officer of Wellington-Altus Financial Inc. in Winnipeg, says the challenge facing advisors looking to keep up with the pace of change remains immense.

“Our industry is struggling to make that migration, but I hope they get it right because the number of hats wealth advisors wear is so much greater today,” Mr. Hauser says. “Advisors today are part psychologists, part business advisors, part motivational speakers, and part therapists.”

All those different hats are necessary, he says, as they shift their prospecting focus increasingly away from boomers toward their millennial children.

“My fear is the inheriting generation, which will be the recipients of intergenerational wealth transfers, are the folks who actually need advice more than the folks transferring the money,” Mr. Hauser says.

Millennials, some data suggest, are aware of that need and are willing to pay to have it fulfilled. A report published in August by Boston-based research firm Cerulli Associates showed a majority of millennials (59 per cent) identify as advice seekers, meaning they want more financial advice than they currently receive and see good advice as being worthy of compensation.

Yet, their goals, Mr. Cucchiella says, are different from the goals of their parents. And that makes becoming what he calls the “everything advisor” all the more critical.

“In the transition to the next generation, those clients might be struggling to buy a house and will ask their advisor for help on what they can do, and the advisors who can step in and help navigate major life decisions are the ones who are going to succeed,” Mr. Cucchiella says.

“They have to be the consigliere of the entire family on all of those kinds of decisions because, then, that relationship – forget the assets – becomes incredibly sticky.”

This article is part two of Globe Advisor’s three-part series on the Future of Financial Advice. The final installment on how advisor compensation structures are expected to change as more clients enter the decumulation phase of their investment plans will be published the week of Sept. 26.

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