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PERSPECTIVE
Five growth strategies for creating a durable business
Amidst today’s headwinds to growth lie opportunities to build a future-ready business.
Even the most successful firms face headwinds to growth.
Those headwinds range from macro conditions in the economy to the political climate, and they can make managing the day-to-day challenging—and planning for the future daunting. Wealth management firms are also navigating the evolving regulatory environment, a competitive landscape comprised of increasingly larger and more sophisticated firms, and a challenging environment for hiring and retaining talent.
There has also been an explosion of innovative technology available to wealth management firms. These advancements have lowered the barrier to entry for products and services that were once reserved for niche segments. Pair this with investors expecting more than ever before from their advisor, in terms of services and investment returns, and the result is an increasingly competitive landscape where firms have a harder time differentiating themselves on the services they already provide.
With all of this in mind, growth can start to look like an uphill journey for many firms. Yet, against this challenging backdrop lies opportunity.
So, how can firms begin building durable, and growing businesses amidst these headwinds? It begins by recognizing that creating a durable business is a long-distance race, not a 100-meter dash, and that there are actions you can start taking now to invest in growth areas that will pay off later.
The following are five areas of focus for wealth management firms to consider for the long haul.
1 – Expand your customer horizons
The first of these focus areas is on the foundation of a firm’s business—the customer. It is easy to fall into patterns of behavior and to rely on the bread and butter that has served you well for decades. However, customer demographics, patterns of behavior, and needs are rapidly evolving resulting in an abundance of untapped potential. We believe that now is the time to engage with important segments of customers in meaningful ways, and that the niche segments of the past may be the core of your growth strategy for tomorrow.
Consider three customer segments that are growing influences within the wealth management industry:
The solo household
It might surprise you to hear that today, one in seven Americans lives alone.1 These solo dwellers include people delaying partnership, those choosing to remain single and live alone without roommates or family, as well as divorced or widowed adults who reside independently. Fidelity research revealed that many soloists take pleasure in solitude, value independence, crave control of their finances, and embrace their solo futures.2 Soloists face unique challenges, including lower retirement savings, higher expenses, and fewer employee benefits. With the number of soloists expected to rise, firms should consider anticipating how to tailor advice and life event planning to their distinctive needs.
1 in 7 Americans live alone
The next generation
A younger and more diverse group of customers is here. Gen Y (otherwise known as Millennials) and Gen Z now collectively represent 42% of the U.S. population, and millennials have surpassed baby boomers as the largest generation. This group is motivated to improve their financial situation, values professional advice—and is willing to pay for it. Even so, advisors have only reached out to 13% of clients’ children.3 Fidelity analysis shows that households in which the next generation is engaged generate 60% more of the revenues and 170% more of the profits of households without family engagement.4 In addition, we’ve found that firms with younger asset-weighted client ages had a 10x higher average organic growth rate than firms with an older asset-weighted client age. Ignoring this group could prove to be costly in the years to come.
Older clients contribute to slower organic growth
Women investors
McKinsey estimates that American women will control the majority of the $30 trillion in baby boomer financial assets by 2030.5 Despite this, and the fact that women represent half the U.S. population, they have historically been underserved by the financial advice industry. Fidelity’s latest investor research reveals that this disparity is still being felt today, with women reporting 25% fewer conversations and engagements with their advisors over the course of a year than men.6 Fewer interactions are likely a contributing factor to women’s reduced advisor satisfaction. Women are also less likely to provide referrals or want to consolidate their assets with their primary advisor. On top of this, women generally have a greater set of financial challenges to navigate due to the gender pay gap and time out of the workforce for caregiving. Ensuring that this group is satisfied with the service they receive will be crucial to retaining their business during this coming wealth transfer.
2 – Engage at scale
Fidelity’s RIA Benchmarking Study found that, across the board, firms of all sizes indicated “improving the firm’s marketing and business development efforts” as their top strategic growth initiative for 2022. Yet, when looking at the financial metrics, we see that firms are spending less than 2% of their revenue on these efforts.7 Contrast that with other industries where, according to the 2023 CMO Survey Highlights and Insights Report, marketing will comprise roughly 12.3% of a company’s total budget this year, and we see that wealth management firms may be significantly underinvested in this area.8
So, how can firms make up this lost ground while simultaneously setting themselves up for success in the future? One way to start is by committing or recommitting to a digital marketing strategy. We find that many firms are focused on optimizing their middle and back-office tech stack but may neglect the opportunities available to use technology in the front of the office to support marketing and business development.
In fact, when we spoke with advisors, only one-third said they felt they have excellent marketing and business development support from their firms.9 Shifting the focus to the front of the house opens up a multitude of possibilities when it comes to brand amplification or prospect-generation. And the good news is that investors want to engage with their advisors online. In fact, 65% of investors stated that they are more likely to consider working with a financial advisor that uses the latest technology, and 63% of investors want an advisor who is easily accessible through multiple channels such as text, chat, voice/video call, email, and social media.10
It might seem daunting to figure out where to begin with a digital marketing strategy, but a good place to start is to remember the Marketing Rule of 7. The idea behind this maxim is that a prospect needs, on average, seven interactions with a brand before they'll take action. When drafting your marketing strategy, think of channels or technologies that will scale with your firm to help get you in front of clients again and again—as well as help you personalize the approach for each prospect.
3 – Evolve your offering
Another key element to bringing in new clients and fueling growth is offering the products they are looking for. Across generations, investors are looking for fresh solutions that will satisfy their expectations for performance while matching their personal goals and preferences. New platforms for trading and investing, combined with lower minimums and fees, have fueled retail investors’ rising share of the U.S. equity market over the last decade accounting for 18% of total equity volume in 2023 (up from 10% in 2010).11 At the same time, advances in technology have contributed to innovation at both the product and portfolio levels, opening access to products that were once the exclusive reserve of large institutions.
Rising investor sophistication demands innovative solutions.
From alternative investments to direct indexing to digital assets—the tools are available
Personalization
82% of investors with advisors are interested in personalized products, and 62% are willing to pay more for customization.12
Values > ROI
55% of Gen YZ believe “that aligning my investments to my values is more important than getting maximum returns on my investments.”13
Digital Assets
56% of investors state: “I would expect my primary advisor to be able to report on my digital assets/cryptocurrencies, along with other investment vehicles as part of a comprehensive report.”14
When investors were asked why they would switch brokerage firms, the #1 answer was lower fees. But second to fees was access to more products and services.15 Consider the following to stay ahead of the curve and be primed to meet this rising demand:
Product education
Require education on these evolving asset classes, across your firm, even if your advisors aren’t bought in yet. When we meet with advisors, we hear that the biggest obstacles are misperceptions about minimums and fees, which can unnecessarily reduce adoption.
Intuitive experience
An intuitive experience accessing these products through one platform is key. If an advisor must go through multiple screens and programs, you have lost them. Make sure your systems are seamlessly working together.
Goal-based portfolio conversations
Evolve how your advisors approach portfolio conversations. The traditional absolute or benchmark relative returns will not suffice. Instead, advisors will need to explain the portfolio, and underlying investments, in context of the client’s personal goals and preferences.
4 – Prioritize talent
While Cerulli predicts advisor headcount to remain flat through 2026, the more looming issue is the 106,264 advisors expected to retire by 2031.16 How will you ensure your business is prepared for this coming tidal wave? Recruiting from new talent pools and spending time building a pipeline with universities will be important. However, equally as important is retaining your current advisors and helping them grow so that you’re not managing employee turnover on top of the looming retirements. To do this, you’ll need to both optimize their performance and satisfaction with your firm.
Nearly every study on financial advisors will say that compensation is the #1 lever for advisor satisfaction. It’s true, and throughout the pandemic that became even more important. However, Fidelity’s research reveals that several other factors play a critical role in the ultimate decision to switch firms, including the quality of the firm culture and its people, better opportunities to grow, and better work/life balance.17
Top 5 factors in ultimate decision to switch firms
22%
Compensation/earning potential/equity
15%
Quality of firm culture/the people
11%
Better opportunity to build or grow your business
9%
Better work/life balance and/or flexibility
9%
More control over business decisions
Gartner recently identified a new moment for employees following the Great Resignation. They call it: The Great Reflection. Employees are questioning whether they feel valued in their work or whether they are merely creating outcomes and values to benefit others. Fidelity created a framework to help identify these different levels of engagement called The Employee Empowerment Ladder.
At the most basic level, a firm should offer competitive compensation, a pleasant work environment, and tools and resources to help employees perform their job. But, for many employees, that’s not enough. Offering career development opportunities, mentoring, and recognition—and empowering them to lead work that they care about—can instill greater satisfaction at work and more loyalty to their firm.
Another way to motivate employees is to actively engage with diversity and inclusion. Research from Fidelity shows that a focus on advisor diversity can positively affect firm growth, advisor compensation, and advisor satisfaction. D&I can also aid in connecting with next-gen clients who are the most diverse generations to date and value diversity and inclusion—nearly 40% saying that they prefer to work with a financial advisor with “similar life experiences.”18
Ultimately, the goal is to help employees become evangelists for the firm, which means their needs of being challenged and inspired at work have been met and that they believe in the firm’s direction and purpose. Then, they can become your biggest advocates.
Here are some questions to reflect on:
- Do my employees value my firm’s mission and embrace it as their own?
- Do we have an inclusive and welcoming culture where employees can be their true selves?
- Do my employees feel that they have strong mentoring, training, and career growth opportunities?
- Are they able to contribute in individual ways toward the overall success of the firm?
5 – Put your data to work
Each of the focus areas we’ve discussed: pursuing new groups of customers, digital marketing, assembling your product mix, and empowering your talent—become become even more compelling when data is used to fuel these efforts. Data can be powerful, but for those who are trying to make the most of their data, they know the blessing and the curse of the gold-mine they’re sitting on. So, before doing anything else, the first step is to ask, “Where is our data?”
If your data is scattered, it's difficult to harness it. Consolidating data and keeping it organized could unlock vast potential for firms. And, where things really start to get exciting, is when we look into how data and AI can be used in the front of the house to help power growth.
There are already opportunities available today for advisors to leverage AI to help increase productivity. Consider anomaly detection, where advisors can be alerted to unusual client money movements and changes in purchasing behavior. Or predictive modeling, where firms could predict the likelihood of investor attrition across an advisors’ book of business. Then, think about how we have gotten accustomed to being shown personalized content online. Firms are beginning to use similar machine learning algorithms to serve up best-fit thought leadership content to visitors to their websites.
What might be next? When we think about the progress being made with generative AI and capabilities like Chat GPT, opportunities to make the complex simple for both advisors and clients begin to emerge. Picture a virtual assistant that could make time intensive tasks simpler for the advisor by offering a starting point for content creation or summarizing client meeting notes and providing key takeaways and next steps afterwards. There is so much that can be done with data, but the guiding light should be to focus on use cases that will deliver value to your users and firm.
Conclusion
There’s no silver bullet to creating long-term growth, but there are opportunities to invest in today that can help to build a strong foundation for the future. It is evident that niche clients of the past are growing into noteworthy segments of their own. Creating a plan on how to engage with them and how to meet their evolving needs will lay the groundwork for attracting these investors before it’s too late.
This preparation will require thoughtful mindset shifts – like transitioning from analog to digital marketing efforts to meet investors where they’re at. Or, recognizing that investors want access to innovative products and assembling your product mix to meet this growing demand.
It will also require a focus on attracting and retaining talent to weather the projected retirement wave. Attracting new customer segments or adjusting product mixes won’t do much good if there isn’t a supply of advisors to meet investor demand. Focusing on making employees feel valued, empowered, and inspired will not only help retain current employees, but will also help to attract talent from outside the firm.
Finally, keep in mind that each of these focus areas can be enhanced through data. Chat GPT is the latest innovation shaking up industries and it certainly won’t be the last. Staying on top of the latest technological advances, with the goal to deliver more value to clients, will help firms continue to transform their business for the long-haul.
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1 FCAT analysis of U.S. Census data.
2 FCAT: “A Family of One: The Ascendance of Solo Households,” March 2023.
3 Fidelity Investments, Client Insights Tool data.
4 Fidelity analysis of 1,501 on-platform custody firms.
5 Excerpted from “Women as the next wave of growth in U.S. wealth management,” July 2020, McKinsey & Company, www.mckinsey.com. Copyright (c) 2023 McKinsey & Company. All rights reserved. Reprinted by permission.
6 Fidelity Investments, 2022 Investor Insights Study.
7 Fidelity Investments, 2022 RIA Benchmarking Study.
8 The 2023 CMO Survey Highlights and Insights Report.
9 Fidelity Investments, 2021 Digital Advisor Communities Survey.
10 Fidelity Investments, 2022 Investor Insights Study.
11 Bloomberg Finance, L.P.
12 Enhancing Investors’ Trust: 2022 CFA Institute Investor Trust Study.
13 Fidelity Investments, 2022 Investor Insights Study.
14 Ibid.
15 Ibid.
16 The Cerulli Report | U.S. Advisor Metrics 2022.
17 Fidelity Investments, 2023 Advisor Movement Sentiment Study.
18 Fidelity Investments, 2022 Investor Insights Study.
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The 2023 Fidelity Advisor Movement Study was conducted in two phases; a qualitative portion consisting of 15 one-on-one videoconference interviews with advisors who had recently switched firms or were considering doing so, as well as a quantitative portion via an online blind survey (Fidelity not identified) that was fielded between April 10 and April 26, 2023. Participants included 1,530 advisors who manage or advise upon client assets either individually or as a team, and work primarily with individual investors. Advisor firm types included a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs, and national brokerage firms (commonly referred to as wirehouses), with findings weighted to reflect industry composition. The study was conducted by an independent firm not affiliated with Fidelity Investments. The 2022 Fidelity Investor Insights Study was conducted during the period August 8 through September 2, 2022. It surveyed a total of 2,490 investors, including 673 millionaires and 1,520 investors with advisors. The study was conducted via an online survey, with the sample provided by Brookmark, a third-party firm not affiliated with Fidelity. Respondents were screened for a minimum level of $50K in investable assets (excluding retirement assets and primary residence), with additional quotas by age and affluence levels. The data included in this piece is from investors who self-identified as either "Man" or "Woman" for the purpose of helping us understand their needs, goals, and preferences.
The 2022 Fidelity RIA Benchmarking Study. The study was conducted from July 19 through September 9, 2022, and it was administered by an independent third-party research firm not affiliated with Fidelity. Fidelity was identified as the study sponsor. A total of 219 RIA firms participated in the study. The results may not be representative of the experiences of all firms or indicative of future success.
The 2021 Fidelity Financial Digital Advisor Community Survey. The study was an online blind survey (Fidelity not identified) and was fielded during the period November 11 and November 22, 2021. Participants included 408 advisors who manage or advise upon client assets either individually or as a team, and work primarily with individual investors. Advisor firm types included a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, RIAs, and national brokerage firms (commonly referred to as wirehouses), with findings weighted to reflect industry composition. The study was conducted by an independent firm not affiliated with Fidelity Investments.
Fidelity Client Insight Tool is a client engagement and aggregation of 90+ firms and over 125K lines of data presented by households. Data was collected from 2019 to June 2023 by the Fidelity Practice Management & Consulting team. The Client Insight Tool should not be construed as advice of any kind. The information contained in, and the data generated are hypothetical in nature, for informational purposes only, and may not reflect your particular situation. The projections are based on assumptions described herein. Fidelity does not confirm the accuracy of the data in this example. You should conduct your own analysis, review, and due diligence based on your specific actions. You are responsible for evaluating your own practice and making appropriate decisions for your firm. Those decisions may be based on these and other factors you deem relevant. This example is not meant to be exhaustive of all possible options you may consider. Fidelity is not responsible for your action or inaction as a results of this service. The data used to generate these illustrations and the illustrations themselves are intended to provide you with a general idea of what you may expect in each future scenario. The reports use data provided by third-party vendors in the situations and the accuracy of timeliness of that data cannot be guaranteed. Results may vary with each use and over time.
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