You may be familiar with the Pareto principle, which states that 80% of results come from 20% of one’s actions. Also called the 80/20 rule, the Pareto principle offers a model for advisors who want to make sure they’re spending time on the right things.
Which begs the question—how do you decide what to include in your 20%?
Given the rapid pace of change this past year, answering that question is a bit like playing a game of whack-a-mole. Between leading remote teams and getting a handle on virtual client communications, advisors are dealing with a lot more complexity and distraction than usual. It’s hard to prioritize when so many things feel like they are on fire.
There is still hope for finding your focus, though, and it comes from an unlikely source and perhaps is an area that you think is on fire. Industry fee compression, a challenge that predated the pandemic, is prompting many advisors to reassess how they spend their time and resources. Understanding what clients find valuable will not only help you justify your fee — it will allow you to identify and discard the tasks that no longer serve your practice so you can spend more time on the things that do.
Shrinking fees, changing opportunities
Even before the pandemic, advisors were feeling the crunch caused by declining fees at both the fund and firm levels.
“The advice industry has been talking about ‘fee compression’ ever since the automated advice platforms, or so-called robos, arrived on the scene seven years ago with their low-cost investment offerings,” says First Ascent Asset Management’s Scott MacKillop. “Fees have been falling or totally evaporating ever since.”
While ETF and mutual fund fees have led the charge, advisory fees have followed suit. A 2019 RIA in a Box survey found that the average RIA advisory fee was 0.96%, down from 0.99% in 2016. As MacKillop puts it, “The good old days of charging 1% solely for a portfolio of mutual funds are over.”
There are a few factors driving this downward pressure:
- Technology. The rise of robo-advisors has given fee-conscious investors alternative options, while ready access to online investment information and advice has diluted the advisor’s value.
- Regulation. The Department of Labor (DOL) fiduciary rule and Regulation Best Interest (Reg BI) have put the fee conversation front and center.
- Investors. Heightened transparency and awareness of the impact of investment fees has prompted some clients to question what they’re paying for.
- Products. Investors and advisors are increasingly choosing low-cost, lookalike index ETFs and mutual funds versus higher-cost actively managed strategies.
The upshot? Advisors who continue to do things the ‘old’ way will find it harder and harder to justify their fees, while advisors who adjust to this new reality will gain a competitive advantage.
Take portfolio management, for example. Investors used to pay advisors for expertise and research they couldn’t get elsewhere. Today, that information is abundantly available online. Even if your advice is differentiated, the products themselves have become largely commoditized and increasingly available to investors through lower-cost delivery methods (hello, robo).
That said, many investors — particularly in the high-net-worth category — still prefer to work with an advisor versus go it alone. In fact, a 2019 Wealth Management Survey found that U.S. HNW investors work with multiple wealth managers — about three on average.
As for the younger generations, while the majority of millennials have never received professional financial advice, nearly half say COVID-19 has increased their interest in obtaining it.
People still want to work with advisors, but what they want from advisors has changed. To help you prioritize your focus, here’s a look at three key activities that clients value in today’s world.
What clients want from advisors
Clients have always craved more face-to-face advisor time, often preferring in-person meetings to phone calls. And now, in a year defined by market volatility and social isolation, that desire for human connection with a trusted advisor has only grown.
While some advisors have been able to return to client meetings in the office or outside, many have embraced the benefits of video calls—specifically when it comes to getting in front of their clients on a more regular basis.
Whether it’s live or online, increased face-time with clients is a high-value place for advisors to focus their time. And not just to offer financial advice, but to help manage clients’ emotions and anxiety. According to a recent Vanguard study, emotional impact accounts for 41% of a client’s perceived value of their advisor’s services.
2. Behavioral coaching
In a world of rapidly commoditizing investment options, many advisors are shifting focus from the what to the how.
“Drafting a financial plan or investment strategy is not the major challenge for advisors,” says The Behavioral Finance Network founder Jay Mooreland, CFP, on the Kitces blog. “Rather, the challenge is finding ways to help the client adhere to the plan. (When) every market move and every news story can serve as a temptation for a client to abandon their plan, the effective application of behavioral finance can be a significant value to our clients.”
While the stock market has exceeded expectations throughout the pandemic, clients are still prone to irrational decision-making in times of uncertainty. Advisors who focus on coaching clients through the rough patches and keeping them on-track with their plans should see increased client engagement and, theoretically, better investment results.
Uncertainty has been the theme of 2020—particularly when it comes to people’s money. And one of the best ways to combat uncertainty is to have a good plan.
Maybe that’s why an April Nationwide Financial survey found that nearly half of respondents felt the pandemic made them realize they need financial and investment assistance, while nearly one-quarter reached out to a financial advisor for the first time.
Advisors who focus on robust financial planning — from retirement to tax strategies to estate planning and beyond — not only provide their clients with a valuable service, but also differentiate their practice in a sea of advisors offering similar investment strategies.
Where not to focus
In keeping with the Pareto principle, if you’re planning to shift your focus toward any of the above areas, you’ll probably need to take something else off your plate. This is where technology can help.
For example, a digital account solution can help you manage portfolios and administrative tasks easily and quickly, so that you have more time to spend on the things your clients care about.
SigFig’s CoPilot gives financial advisors access to our comprehensive suite of wealth management technology. CoPilot automates compliance processes such as annual reviews and changes to client risk profile and suitability. Automating many of these administrative tasks will help you focus on the personalized planning and advice that clients want, particularly right now.
The right tools can free up your time to build and deepen personal relationships with clients. And it is now, during a pandemic that forces us to be apart, that your clients need you to be present, human, and focused on them.