Will Financial Advisors Become Obsolete? (Future Outlook For Financial Advisors In 2024 And Beyond)
Will financial advisors go the way of the horse and buggy? In this post, we'll discuss if financial advisors will become obsolete, including:
The financial services industry is changing. The bad news is that some financial advisors -the ones who refuse to adapt and evolve - will get left behind. The good news is that change often brings tremendous opportunities to those who embrace it. For instance, in 2015, I remember hearing rumblings of how social media would become a powerhouse marketing strategy for financial advisors in the next few years. So, I began telling financial advisors how to get clients with LinkedIn, which has been one of the most successful client-getting approaches to date.
It’s critical for financial advisors to stay abreast of trends because they could get left behind… I remember telling financial advisors to integrate email marketing into their businesses and being mocked because, according to “experts!”, email was a dying medium. Today, according to McKinsey & Co., email is 40X more effective than Facebook and Twitter combined. Email also - according to Forrester - has a higher conversion rate than search engine optimization (SEO) and social media marketing… COMBINED. My Unique Vantage Point...I’m one of the few people in the world who has cultivated an audience of a wide variety of financial services professionals. Sure, there are other groups and companies out there, but they tend to cater to a specific type of advisor or charge so much money that they exclude new advisors and advisors looking to jumpstart their businesses. My business, on the other hand, has products ranging from as low as $50 all the way up to several thousand dollars. I am perhaps best known for my monthly paper-and-ink newsletter, which reaches financial advisors all over the globe. I also have a blog with gobs of articles and a weekly podcast called “Financial Advisor Marketing,” both available for free. This means I’ve seen a lot. I also am fortunate enough to be able to get knee-deep in advisors' problems and see where the industry is headed. So, I’d like to address the future outlook for financial advisors and answer the pressing question… “Will financial advisors become obsolete?” 🤔 Well, let’s see… It's Called PERSONAL Finance For A Reason!There’s not a day that goes by that I don’t have a deeper and more profound respect for the work financial advisors do for their clients. I am amazed at how much some advisors care for their clients and how far they’re willing to go to help people. THAT, my friend, can never be replaced. Still, I hear from financial advisors who worry that robo-advisors and the proliferation of free planning tools will hurt their businesses. And maybe they will, if the advisors have no value-add outside of a basic financial plan and/or money management. But that’s not why people hire financial advisors… People hire financial advisors to help them design a life. Anyone can hop online and buy a financial product. It’s also just as easy to get information about various financial topics. Clients and prospective clients are literally a few keystrokes and clicks away from learning anything they want about insurance, 401(k)s, IRAs, taxes, and more. A financial advisor’s job is to put the pieces together. Good financial advisors exist to coach their clients and shorten the learning curve involved with financial decisions. Imagine needing to access $50,000. You could:
I don’t know about you, but I value my time far too highly to waste it trying to figure everything out myself.
Your clients and potential clicks are a few clicks away from all the information their hearts desire, so you must offer something more... Today's financial advisory clients are more discerning than ever before. They don’t just seek advice; they demand solutions that are meticulously tailored to their unique life situations. The modern world offers a plethora of information at one’s fingertips, from personal finance YouTube channels to an array of financial blogs. However, what these platforms lack is the personalized application of that information to an individual’s financial scenario. This is where the true value of a financial advisor shines. The advent of robo-advisors and free financial planning tools might seem threatening at first glance, but I believe they could actually bolster the value of human advisors. These digital tools help to raise general financial literacy, making terms like "retirement planning," "tax-loss harvesting," and "asset allocation" more common in everyday conversations. Far from diminishing the need for financial advisors, this increased awareness is likely to amplify it. Just as WebMD didn’t render medical professionals redundant, these financial tools won’t render financial advisors obsolete. Instead, they serve to educate the public, heightening their understanding and appreciation for the nuanced, personalized advice that only a human advisor can provide. However, this evolving landscape means that financial advisors must adapt. Those who rely solely on showcasing their investment selection skills or market timing strategies may find themselves at a disadvantage. The modern client seeks comprehensive financial planning that encompasses all facets of their financial life, from saving and investing to estate planning and tax strategies. Consider the fundamental aspect of savings. In a world where over 20% of Americans lack a savings account and nearly 30% have no emergency fund, the advice to save more may seem rudimentary yet is profoundly necessary. Despite the allure of high returns or the allure of low fees, the most significant factor in retirement preparedness remains one's savings rate. Reports, such as the one from the Government Accountability Office, reveal a stark reality: the median retirement savings for Americans between the ages of 55 and 64 is a mere $107,000. In this context, the guidance of a financial advisor to prioritize saving and earning more becomes invaluable, far outweighing the fleeting satisfaction of boasting about low expense ratios on investments. While an article encouraging readers to “Start Saving More Money” may not have the clickbait appeal of “2020’s Hottest Mutual Funds, Ranked,” the former holds the key to true financial well-being. Numerous studies, including Vanguard’s Advisor’s Alpha, have shown that financial advisors can significantly boost their clients' after-tax returns, not through esoteric investment strategies, but through sound financial planning and decision-making. Understanding this, it becomes clear that a competent financial advisor doesn’t cost their clients money; rather, they provide a service that, when properly utilized, can enhance the client's financial position substantially. In essence, a good financial advisor doesn’t just guide clients through the complex world of finance; they empower them to make informed decisions that can lead to a more secure and prosperous future. ALSO READ: The Secret Behind Awesome Financial Advisor Value Propositions "Will Things Stay The Same?" Of Course Not...“There are two options: adapt or die.” - Andy Grove Well, here we are. 😂 (By the way, if you’re interested in working remotely, read this article: How To Become A Virtual Financial Advisor) My point is that change can happen both quickly and slowly. An example of slow change is niche marketing within the financial services industry. I started beating the “have a niche” drum back in 2015. Sure, there were many advisors who already had niches but that was the first year where I started to see the idea get embraced by more people. The old way of hiring a financial advisor is based on geography. People would open their phone books (do those even exist anymore?) and search in the “F” section for “financial advisor”. Or they would ask a friend, who undoubtedly knew someone in the local area. The new way of hiring a financial advisor is based on specialization. It’s all about finding someone who can serve your specific needs. For example, I am primarily an income investor. I look for things that will give me a dependable cash payout. Oh, and before you email me saying I should be doing something different… don’t. I already take enough risk in my business. I don’t need any more in my investments, thank you. I found my financial advisor by looking for someone who specialized in income investing. Plain and simple. I found someone who matched my investment philosophy. I didn’t ask anyone for a referral… I didn’t interview multiple advisors… And I DIDN’T batter him with objectionswhen I finally found him. He was known for his specialty, he demonstrated his expertise, and he was willing to work with me. He had a niche and I was in that niche: it was a match made in money heaven. This is the way of the future, people. I can tell you, without any hesitation, the financial services industry is shifting to a niche-based model. We have already entered the “specialization wave” because more and more financial advisors are realizing how profitable it is to specialize. To be candid, this approach WILL become less effective in the future as thousands of financial advisors niche down. My aggressive estimate is that by the mid-2020s, niche marketing will be the new norm for the financial services industry and any advantage to be had will be gone. My conservative estimate is that we will at least be at the tipping point in the mid-2020s. However, we are in a gold rush right now. Any financial advisor who picks a niche and doubles down while there’s still time will be rewarded in the coming years. Such is the power of embracing change. 😎 Future Outlook For Financial Advisors...First of all, the profession is growing, not dying. According to the Bureau of Labor Statistics Occupational Outlook Handbook, employment of finance planners is expected to increase by 7% from 2018 to 2028. This is higher than the average for all occupations, which is only 5%. Plus, the demand for financial advice is increasing. A quick look at Google Trends shows that “financial advisor near me” has been increasing in demand for the past five years, with a spike in March 2020. Searches for the term “financial advisor” have also been increasing.
Demand for financial advice has been INCREASING, not decreasing... Financial advisors who serve millennials are positioned to do especially well in the coming decades. Baby Boomers (people born between 1944 and 1964) are expected to transfer $30 trillion in wealth to younger generations. In no prior time in American history has such a vast amount of wealth moved through the hands of generations. I’m also seeing more and more financial advisors embrace a monthly retainer model, where they charge a fixed dollar amount rather than a percentage of assets under management. Next generation clients may not have tons of investable assets, but they can have income and a willingness to pay for financial advice. A retainer model is a viable solution for advisors who want to serve this market. "But What About Those Darn Robo-Advisors?"I know, I know. Robo-advisors are coming to kill us all in our sleep. Yawn. 🙄 I’m not naive. Robo-advisors are kicking serious butt right now. As of March 2020, Betterment had more than 500,000 user accounts and $22 billion AUM. Wealthfront isn’t far behind, with $21 billion AUM and 400,000 user accounts. Robo-advisors are great for creating a portfolio, periodically rebalancing it, and managing it for tax savings. Plus, with the advent of artificial intelligence, it’s not far-fetched to imagine that a robo-advisor could learn someone’s investment objectives, risk tolerance, lifestyle changes, and more. Some advisors say that people who use robo-advisors are nothing but price-shoppers. I concede that this is at least partly true. There will always be a segment of the population who shops based on price. From what I’ve seen, the type of person who uses a robo-advisor would be a DIYer anyway, which is the type of person who wouldn’t have used a financial advisor in the first place. As with many things in life, whether or not to use a robo-advisor comes down to personal preference…
The Bottom Line...No, financial advisors will not become obsolete. They WILL have to change and evolve, but they’re here to stay. There will always be a place for client-focused financial advisors who work hard to add value to people’s lives. If that’s you, the future is bright. 😎 About The Author... Hey, I'm James Pollard. I'm the guy behind this website. I've dedicated my career to empowering financial advisors to unlock their full potential. With a passion for marketing and a knack for cutting through the noise, I provide actionable strategies and insights that help financial advisors build better businesses. I'm also the host of the popular Financial Advisor Marketing podcast. Beyond the mic, I'm constantly sharing my expertise through The James Pollard Inner Circle™ newsletter, which has grown to become one of the most successful communities in the financial advice space. Thanks for stopping by and diving into my world. If you'd like to connect with me on LinkedIn, here is where you can find me. |
FAQs
Will Financial Advisors Become Obsolete? (Future Outlook For Financial Advisors In 2024 And Beyond)? ›
The financial services industry is continuously evolving, leading to questions about what the future of financial advisors might look like. The good news is that the employment outlook for personal financial advisors appears bright, with an expected 15% growth rate through 2031.
What is the long term outlook for financial advisors? ›The Bureau of Labor Statistics has projected that 42,000 new financial advisor jobs would be added between 2022 and 2032. That will increase the total number of positions 13% over the decade from 227,600 in 2022 to 369,600 in 2032.
Will financial advisors exist in the future? ›And the wide scope of technology tools supporting advisors to shift into providing more client-centric services makes this new era in the future of financial advice possible! The changing patterns in how financial advice is delivered can be compared to the similar trends seen in the evolution of medicine.
Will financial advisors become extinct? ›The Bottom Line… No, financial advisors will not become obsolete. They WILL have to change and evolve, but they're here to stay. There will always be a place for client-focused financial advisors who work hard to add value to people's lives.
Will financial advisors be replaced by AI? ›It's unlikely that AI will replace financial advisors and financial planners. Investment is still a human activity, driven by emotion and uncertainty, which means that there are no “right” answers that a computer can solve.
Are financial advisors declining? ›Nearly 40 percent of financial advisors plan to retire in the next 10 years, and overall advisor headcount growth is starting to decline. As a result, an opportunity could be at hand for younger advisors.
Are financial advisors struggling? ›There is no comfort in the numbers:
The retention rate is low: By the fifth year, only 15-16% of advisors will still be in business. Over 90% of financial advisors in the industry do not last three years. Putting it simply: 9 advisors out of 10 would fail!
These days, people don't just need help mixing ETFs into a portfolio—they also have to make hard choices about savings, insurance and debt management, among other things. But while AI can do some things as well as a financial adviser, and sometimes can even perform better, it can't replace human advisers.
Are financial planners becoming obsolete? ›Even though digital tools have replaced finance professional for retail services, they remain crucial for managing large and complex portfolios. Employee sentiment regarding business outlook and career opportunities has improved over time for both engineers and financial advisors at financial service institutions.
Do we really need a financial advisor? ›A financial advisor is worth paying for if they provide help you need, whether because you don't have the time or financial acumen or you simply don't want to deal with your finances. An advisor may be especially valuable if you have complicated finances that would benefit from professional help.
Why financial advisors are quitting? ›
Lack of work ethic. It takes a lot of hard work and discipline to break into a career as a financial advisor. While many are willing to work hard for a period of time, fewer are willing and able to maintain the high-level work ethic required to survive and thrive as a successful advisor.
What is the survival rate of financial advisors? ›80-90% of financial advisors fail and close their firm within the first three years of business. This means only 10-20% of financial advisors are ultimately successful.
Can financial advisors get in trouble? ›An unscrupulous advisor or broker could engage in a high volume of transactions simply to generate commissions for themselves. This practice is known as churning, and while this may not seem like outright theft, it's illegal.
Is there a future for financial advisor? ›The future of financial advisory lies in the ability to build and maintain loyalty not just with the current generation of clients, but with their successors as well. This requires a shift in both mindset and practice as advisors begin embracing a more comprehensive approach to client engagement.
Will CPAS be replaced by AI? ›The biggest misconception is that AI will replace accountants and auditors. It will not replace us but elevate us to the higher level of thinking and service. Basically, it takes away the mundane repetitive tasks that we never really wanted to do in the first place.
Will Portfolio Manager be replaced by AI? ›It is true that a lot of work in portfolio management can be taken over by AI, but I don't think that AI will replace portfolio managers at all. In fact, the fund management industry has been using algorithms for decades to determine valuations of markets and securities.
What are the long term goals of a financial advisor? ›These might include setting benchmarks for assets under management (AUM), increasing commission-based earnings, or achieving specific performance metrics. Such goals not only demonstrate your value to the organization but also help in measuring your personal success and financial acumen.
What is the future outlook for financial managers? ›Job Outlook
Employment of financial managers is projected to grow 16 percent from 2022 to 2032, much faster than the average for all occupations. About 69,600 openings for financial managers are projected each year, on average, over the decade.
The field is also growing at a steady pace. The BLS projects employment for financial and investment analysts to grow by 8% from 2022 to 2032, which is faster than the average projected growth for all jobs. This amounts to about 29,000 new financial analyst jobs by 2032.
Why do so many financial advisors quit? ›Lack of work ethic. It takes a lot of hard work and discipline to break into a career as a financial advisor. While many are willing to work hard for a period of time, fewer are willing and able to maintain the high-level work ethic required to survive and thrive as a successful advisor.
