Will Technology Make Traditional Financial Advising Obsolete?

By: JT Martin

The covid-19 pandemic caused many professions to adjust to remote work, and the wealth management industry was no exception. Most large advising firms had already begun the process of moving to a virtual business and the pandemic proved to be an accelerator in this process. For a business that relies on building advisor-client relationships and trust, the shift to building those relationships virtually provides a challenge especially when attracting new clients.

The fintech boom over the past two years have been exemplary of this shift of personal finances from being very disconnected from consumers to having information available to them at any time of any day. Virtual communication is now an essential aspect of all businesses but building face-to-face relationships with advisors is crucial to the wealth management business. This is because trusting an advisor with your own personal money is a big decision, and often clients would like to establish that trust in person and know the person they are entrusting their money with. However, according to CNBC, the “great wealth transfer” referring to Millennials beginning to make up the majority of the user market rather than Baby Boomers, and I believe that this transfer will also accompany a shift of how the wealth management business is structured. I, being a part of an even younger generation, think I can speak to the generational differences that will play into these changes.

The first difference that naturally comes to mind is comfort with technology, Millennials and the Gen Z’s have their livelihood on their phones, and now basically serve as their wallet as well since the creation of mobile payments. So, why would this trust in their technology stop when it comes to giving their money to be managed? They already do all their shopping through amazon, all of their networking through social media, and as of recently, all of their work from home. So, why would they then need to leave the comfort of their technology and meet the person who will manage their money? The answer is they may not. This is the generation of consumers that has become accustomed to platform like uber and Airbnb in which the customers rely on the company to place them with trustworthy people and generally have faith in the technology associated with that.

However, even though this next generation of wealth that will be managed is used to the speed and convenience technology has allowed them to be accustomed to, this doesn’t mean that the generation will not expect great service or products. In fact, Millennials and Gen Z’s expect a level of personalization and uniqueness in all aspects of their consumer experience. The competition for millennials’ business will be fierce among wealth management firms, and only time will truly tell what the recipe for success will be. In my opinion, I think large, established firms will be the most successful at gaining these younger clients due to their history of success and reputation compared to new players. These large firms will also have the resources to establish and refine the platform for the virtual relationship between client and advisor to take place on. By no means do I think that in-person client-advisor meetings will become obsolete, but I do believe we will see a much more informal and virtual dialogue being established between client and advisor in the coming years.

Another aspect that will influence this new generation of clients will be how well versed they are financially. Platforms like Robinhood have become extremely popular and accessible over the recent years and these trading platforms offering zero-commission trades has made it much easier and less costly for people to learn more about investing through hands on experience. This knowledge can lead to them being more averse to trusting others with their money, or possibly do more diligence when considering employing the help of an advisor. This stresses the importance of establishing a trustworthy representation the firm and advisors to the client especially through knowledge and results. With new fintechs being developed at a pace unlike ever before, wealth managers need to emphasize the personal side of the business they heavily rely on, because that will be the largest differentiators between wealth management firms and these new, nontraditional fintech investment firms.

In conclusion, the wealth management is at the beginning of a shift in its consumers. As the consumer base is made up more of millennials, their expectations will shape and change the business altogether. While I believe some of the opinions that I shared here make sense and could be possible, only time will tell exactly how new expectations and technology will shape how the next generation of wealth will be managed.

Works Cited

https://www.cnbc.com/2021/09/29/how-the-pandemic-changed-the-financial-advice-business.html