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[TEXT ON SCREEN]: Navigating client expectations
Mayank Goradia: The convergence of economic, demographic, and technological shifts has turned the wealth management industry upside down.These shifts will have major implications for financial advisors, who will need to adapt to the changing expectations of their clients to thrive and even survive in the turbulent times ahead. In this episode, we provide insights for financial advisors looking to both realign and digitally transform their practices to better serve their next generation client needs to stay relevant and grow their business.
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Mayank Goradia: I'm Mayank Goradia, head of integrated portfolio construction at Fidelity Investments. And I am on a quest, a quest to help advisors profitably grow their book through the art and science of portfolio construction. With expert insights and groundbreaking research, we'll embark on a journey where wisdom meets innovation and every choice counts. So join me on the search for the next great portfolio.
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[TEXT ON SCREEN]: The Search for the Next Great Portfolio
Anand Sekha: So one of the things that I think is from a growth perspective structurally that firms need to wake up to is go younger, especially Gen X. Now we have a huge opportunity to go after Gen X in their prime earning years. They need help too. They're navigating the complexities of aging parents. They're navigating their kids trying to launch their careers and get into the workforce. They're navigating both ends of it and more complicated than ever before. The last area is, how are you innovating? And I think the way to innovate and to think about innovating is to be present where they're present. And so are you on TikTok? Are you on social media? Are you perhaps engaging where they're looking for information and consuming information?
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[TEXT ON SCREEN]: Don’t miss the Great Wealth Transfer
Phil Orlando, CFA: Looking out over the next 20 years, we've got something in the order of about an $85 trillion wealth transfer. Advisors have to recognize that that's going to happen. So statistically, as this generational wealth transfer happens, the financial advisor runs the risk within the first year or two of losing that relationship because their client, the husband, has passed away and they've never bothered to really develop the relationship from the spouse's perspective or the adult children's perspective. I think they're at risk of losing 2/3 to 3/4 of those assets. And it's through no fault of the client. It's their own fault that they haven't looked more broadly at the needs and objectives of the family, as opposed to just the individual client.
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[TEXT ON SCREEN]: What’s important to next gen investors?
Dalton Gustafson: With that younger generation, they actually care more about having a plan and achieving goals. They actually care more about peace of mind. They actually care more, in some ways, while they may not have the money yet, but they care more in some ways about philanthropy and fulfillment and leaving a legacy. And so what we found is that population is actually more willing to pay for the advice that we're talking about. They've grown up willing to pay and subscribe, if you think about the different things that people subscribe to today And so we believe that that's a new business model for advisors and that younger generation is more willing to pay for and to subscribe to advice that you provide for them and help them with a plan to achieve what it is that they're looking to achieve. You got to create capacity, number one, first and foremost. And so creating that capacity, Fidelity, we've got tools to help segment your book of business. We have tools that will help you identify where maybe you're more or less profitable client base sits, or where you have more or less engagement with your client base. So step one is to really identify where you can free up that capacity. And then the second part I think is really doing your best as an advisor to connect with that younger generation on the things that they care about. And the things that they care most about is having a plan, sticking to the plan, and understanding where that plan takes them.
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[TEXT ON SCREEN]: How can advisors attract this next generation?
Phil Orlando, CFA: Well, the sort of advice I give them is a couple of fold. Number one, when you're having your periodic meeting, once a year, a couple of times a year with the client and the spouse, you've got to make sure that you're engaging the spouse and that you're addressing the spouse's needs as well. If your client is sort of getting on in years and getting close to retirement, getting close to putting together a will, generational wealth transfer, and there are adult children involved, it makes sense, in my opinion, to begin to develop a relationship with those adult children. Include them in a meeting. Meet them. Find out what their needs are. How much education do they have? What do they do for a living? What are their goals and dreams and ambitions? And begin to think of working with the family holistically, as opposed to just that client on a one-on-one basis. Now, the adult children today, millennials, Gen Xers, Gen Zers, et cetera, very educated, but have a very different method of communication. Whereas, with the OG client, if you will, having one or two meetings a year in person at a conference room table, going out for a restaurant meal, that may be perfectly fine. The younger children, the adult children have a very different means of communication. They may be very well educated, but don't have the confidence, the experience in the investment community. So they're looking for more of a partnership, looking to be taught, looking to be educated. And the method of communication is very different. While the original couple is more comfortable with a face-to-face meeting a couple of times a year, the kids may be much more interested in a digital experience, a social media kind of experience, where they're communicating back and forth on texts, or email, or Instagram, or whatever, and sharing information to help educate them on some of the things that they need to know at the appropriate time when they serve to inherit this wealth.
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[TEXT ON SCREEN]: Changing clients, changing investment needs.
Mayank Goradia: What role does product innovation or investment innovation have in this? You spoke a little bit about [INAUDIBLE]. You spoke a little bit about custom models. Do they all intertwine at some point?
Krista Scalzo: In theory they all intertwine. Now, not every product will be the right fit for every client. Alts, alternatives are a great example of that. Not every client fits the limited partnership private placement mold. But there are places in which every client can expand beyond mutual funds, which is, again, goes back decades, which when advisors were only using mutual funds. But there are other ways to expand. Sometimes it's less cost. Sometimes it's efficiency. Sometimes it's getting access to different parts of the market, whether it's through SMAs, or direct indexing, or ETFs, or mutual funds that still play a role. There is an opportunity to add diversification in a way that is more forward looking than the old way we used to do it, which is just a general 60/40 stock, bonds, allocation mix, because those correlations just don't hold true anymore. There is a place for multiple products inside of a client's portfolio. And it's our job as asset managers to not just keep bringing new products to the forefront because it's a new product and we could sell it. That's not the purpose. The purpose is it should solve, it should it should provide a solution to a need that your clients have. And along the way, advisors will collaborate with firms who do that best, who bring them products that are meaningful and worthwhile and actually serve a role in a portfolio, as opposed to just bringing another product out in order to sell more to someone.
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[TEXT ON SCREEN]: How can cryptocurrency support today’s portfolios?
Matthew Horne: I think a lot of advisors were getting asked, can you include this in my portfolio? But also, they'd have clients who say, hey, I now have $5 million sitting off in this platform over here in this wallet. What do I do with it? And they really can't advise on it easily because digital assets really up until recently I'd say were very difficult to integrate into an advisor's workflow. A lot of it was sort of just ignore it. I don't want to deal with this. I don't believe it's an asset class. And that was probably around 2017 most advisors would just say, that's great. It's not an asset class. I really don't want to touch it. In the years that ensued, a lot more advisors, I think, put a forward thinking hat on. And they got more open to including this potentially as an asset class. And I think that's where we're at today is you have a front edge of adoption from advisors, still very small, I'd argue, but they're looking at this holistically vis a vis other assets, probably placing it in their alternatives type bucket. And they are considering it for the right client.
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[TEXT ON SCREEN]: How does an advisor get up to speed on crypto?
Matthew Horne: I would start with Bitcoin. Bitcoin was really the first mainstream digital asset as we know it today. It has a very distinct and specific use case I'd argue versus the rest. There's over 20,000 digital assets out there now, the majority of which have little to no utility. So I think it's important to focus in on the ones that matter and have shown the ability, ability to sustain over time. Here at Fidelity, we only offer clients exposure to Bitcoin or Ethereum. I would start with Bitcoin, understand the use case, understand what drives value. And then once you understand Bitcoin, I'd argue move on to Ethereum because that's a much different protocol with a different use case. Bitcoin, I would argue, is trying to be a store of value akin to a digital gold. Ethereum is more of a programmable protocol, where it's trying to run decentralized applications on top of it. And there is value being transferred constantly throughout that protocol. So there is a different way of looking at that from a value creation standpoint from Bitcoin. So my point, I guess, is that not every blockchain is built the same. Not every digital asset is built the same. Each one, just like stocks and bonds, we do fundamental research on. I think some of these merit some fundamental approaches to it to understand what's going on.
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[TEXT ON SCREEN]: How can advisors meet evolving portfolio construction needs?
Dalton Gustafson: By transitioning their practice, it means that they've become more efficient in their practice so that they can free up time and capacity. And in doing so, that will allow them to do the things that you're talking about, which is to bring in new clients and how do you attract new clients. And so whether it's helping advisors with portfolio construction needs, where we actually can help them be more efficient in managing their portfolios, whether it's providing an outsourced portfolio for them with model portfolios, whether it's off-the-shelf target allocation models, or where we have the ability to help advisors customize model portfolios for their book of business, those are ways that can free up time and capacity so that those advisors can go probably do more of what they like to do, which is really be out meeting clients, meeting potential clients, and really talking about what it is that they can help clients achieve if they came and worked with them in their practice.
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Mayank Goradia: Based on inputs from today's professionals, we have framed three calls to action to help financial advisors adapt to the new realities facing the industry as they look ahead to its future and their own. One, consider diversifying the demographics of your book. As we prepare for the great wealth transfer from the older, silent generation and aging baby boomers to younger Gen X, millennial, and Gen Z. Two, seek to boost your wealth management productivity and discipline through the use of portfolio construction tools or outsourced model portfolios. And three, consider collaborating with a trusted third-party expert with specialized resources to help you meet increasing client expectations. Thank you for tuning in to today's episode. Until next time, keep evolving and stay ahead.
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