As we emerge from the pandemic, advisors face a number of risks and opportunities.
Investors’ returns expectations, elevated during the pandemic, exceed advisors’ projected returns. This expectation gap, defined as the per cent difference between investors’ and advisors’ expectation of returns, was 120% in Canada and 161% in the U.S., based on Natixis Investment Managers’ 2021 investor report.
Looking only at investors’ long-term return expectations, Canadian investors expected 11.2% (above inflation), while U.S. investors sought 17.5%.
Some of this investor optimism is driven by the reopening of economies around the world in 2022, somewhat offset by macroeconomic and geopolitical events that are having an adverse impact on the global economy.
Investors have also grown to expect high-quality digital experiences after spending the last three years consuming products and services from the comfort of their homes. Product and service comparisons, likes and dislikes, and access to digital referrals, have given rise to personalized and customized consumer experiences and expectations. It is not surprising that investors have come to expect the same degree of personalization from their wealth providers.
Approximately 50% of millennial investors across 13 countries, who will be significant recipients of the pending $68-trillion intergenerational wealth transfer globally, indicated that a key consideration in choosing or switching advisors is digital capabilities, according to a 2021 Refinitiv poll.
The likelihood that investors will switch wealth providers also increases following major life events and transitions. According to Money Management Institute, over the three-year period leading into 2019, 33% of investors across a broad demographic spectrum switched firms, and another 33% planned to move firms in the subsequent three years. These switches occurred most often after major life events, with 61% of investors switching after career transitions, 43% after divorce or separation, and 39% after retiring, sending children to college or buying a home.
The post-Covid impact on these and other major life transitions indicates that investor transition risk may increase over the next few years.
While these risks may seem ominous, opportunity is the opposite side of the coin. Investor risk can turn into advisor opportunity when managed effectively. Advisors on the winning side of these trends will invest in technology to satisfy investors’ digital expectations and also free up time to build trust with current and prospective investors.
Digital expectations are increasing across all demographics and acutely for millennials and gen-X investors, who evaluate a firm’s digital capabilities as a primary factor when selecting an advisor. In fact, according to Refinitiv, more than 50% of these investors were willing to pay additional fees for these capabilities.
Technology is an important part of the hybrid advisor equation, because it enables the advisor to invest more time with investors who are facing a period of profound change, uncertainty and opportunity. According to a 2021 survey by Pew Research Center, about half of non-retired U.S. respondents said the economic impact of the coronavirus outbreak will make achieving their long-term financial goals harder.
As such, advisors who are available to guide investors, revise plans and map out new opportunities will be post-Covid winners.
David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the wealth management industry.