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Voice of the Advisor
AI, Marketing, and Goal-Based Planning:
4 Industry Trends for New (and Veteran) Financial Advisors
Key Takeaways:
- Modern client expectations are driving a focus on goal-based financial planning.
- Marketing is an unappreciated lever that financial advisors can pull to gain a competitive advantage.
- Seasoned and veteran advisors can learn from the new advisor’s holistic service, data-driven approach, and openness to AI.
- As advisors gain experience, they tend to look for support outside the home office – the right technology partner is key.
How do you compare with your peers? What can you learn from more (or less) experienced advisors? In our 2023 Voice of the Advisor study, we surveyed 650 advisors evenly distributed across firm types, then broke down the data further based on their level of experience:
- New: 1–5 years
- Seasoned: 6–15 years
- Veteran: 16+ years
Below are four opportunities we uncovered for new (and veteran) advisors who want to stay ahead of evolving industry trends.
Modern client expectations are driving a focus on goal-based financial planning.
New advisors (1–5 years of experience) and seasoned advisors (6–15 years) are spending significantly more time than veteran advisors (16+ years) on goal-based financial planning – defined in our survey as a “strategic approach that focuses on helping clients identify and achieve their specific life goals.”
Not only do they invest their time in goal-based financial planning, but they are also striving to improve in that area. 37% of new advisors and 39% of seasoned advisors indicated that they would like more help in goal-based financial planning.
Veteran advisors are the only group that doesn't include goal-based planning in their top 3 areas of focus.
Advisors who adopt goal-based financial planning are responding to a generational shift in mindset. From workplace culture to the proliferation of streaming services, today’s investors prioritize personalization and flexibility.
For example, newer investors are increasingly looking for a flexible fee approach, instead of paying a commission or adopting an assets under management (AUM) model. According to Kitces, the flexible fee approach opens advisors up to a wider client pool.
Increasingly, newer investors treat advisors like doctors – they’re looking for a diagnosis of their financial goals, or a prescription for their financial concerns. Advisors who focus on goal-based planning may be able to attract younger clients who don’t necessarily have large portfolios, but are looking to pay for financial advice.
Beyond fee structures, goal-based financial planning is also useful for achieving personalization at every stage of the investor lifecycle. In Morningstar’s recent Diversity and Risk study, we surveyed 400 investors and found that regardless of gender and race, people care deeply about personalization when it comes to working with a financial advisor.
Whether a client is focused on accumulation, retirement, or drawdown, goal-based financial planning can help advisors drill into their priorities for that stage of life. Morningstar’s recent webinar on Unraveling Deeper Goals in Goals-Based Investing showcased that when they’re first asked about goals, clients focused on items like college, retirement, and buying a house – but when presented with more options, they revealed underlying desires such as vacations and experiences.
Depending on the client, drawdown/retirement may be about travel, leaving a legacy, philanthropic aspirations, or some combination of them all. Software providers can help facilitate efficient goal-based client conversations, determine the risk profile for each goal, and customize recommendations as needed to optimize for each goal. With the emergence of new technologies like AI influencing how client communication is handled, now could be the time for advisory firms to evaluate their tech stacks.
Go Deeper
Read our report to explore how providing a positive psychology framework can unearth the goals that mean the most to your clients.
Marketing is an unappreciated lever that financial advisors can pull to gain a competitive advantage.
In our survey, advisors ranked marketing as one of the two areas where they’re spending the least time, even if they’re new to the business.
Advisors who are in their first five years are still building their book of business. As a result, their focus is developing relationships with prospects, and they lean heavily on the home office for portfolio strategy and due diligence. Despite this, new advisors indicate that they’re spending the least amount of time overall in marketing.
For some, it may be a budget issue, or perhaps they feel the marketing resources provided by their home office are sufficient. However, given the competitive landscape, advisors who are outsourcing their marketing efforts to the home office should invest in understanding whether the home office is meeting their needs.
Advisors indicate that marketing is one of the two areas where they’re spending the least time, even if they’re new to the business.
Regardless of experience level, advisors can gain traction by investing in marketing. We defined marketing as “various strategies and activities employed to promote services, build your brand, attract potential clients, as well as deepen relationships with existing clients through traditional or digital channels.” While this can include traditional activities such as networking and establishing relationships with COIs (Centers of Influence) who provide referrals, these activities are time intensive. Investing in digital or dollar-based marketing channels is an opportunity to test and learn what brings in new clients at scale with greater efficiency.
According to Kitces’ Research Study On Advisor Marketing, advisors can look at client acquisition cost (CAC) to measure the effectiveness of their marketing strategies. While activities such as COIs and networking are far more popular, from a CAC perspective, activities such as SEO and paid web listings are far more profitable.
Another way advisors can invest in digital marketing channels is by building their personal brand through an active social media presence. According to Putnam Investments’ Social Advisor Study, “During the COVID-19 pandemic, 74% of U.S. financial advisors who used social media for business initiated new relationships or onboarded new clients.”
Tactics and channels aside, successful marketing relies on understanding today’s investors – their preferences, needs, and trends. Advisors can educate themselves about evolving investor trends, then take advantage of digital marketing channels to efficiently reach future clients.
Go Deeper
Tailor your marketing strategy to today’s investors. We surveyed 2000 investors to bring you their latest behaviors, needs, and preferences.
Seasoned and veteran advisors can learn from the new advisor’s holistic service, data-driven approach, and openness to AI.
Our survey indicates that new advisors have several strengths. For example, they offer more services – including retirement planning, tax planning, and real estate planning – than seasoned and veteran advisors.
New advisors are offering a greater number of services than their more experienced counterparts.
Not only that, but they are also planning to continue increasing their services further, on par with the veterans in the business. Our survey also shows that client adoption is there, suggesting that the holistic service that new advisors provide can be a competitive advantage for them.
New advisors also leverage more data-driven approaches to asset allocation, compared to their more experienced peers. Our survey showed that they consider factors such as fundamental analysis and risk modeling significantly more than seasoned or veteran advisors.
We interviewed 758 investors in 2022, and one conclusion was that focusing on risk modeling can also be an advantage for advisors interested in attracting investors who are currently leveraging online resources rather than partnering with financial professionals. Advisors who integrate risk modeling capabilities into their practice may make significant headway in winning the trust of this group of potential clients.
Another modern trend that new advisors are adopting is the use of AI. Though artificial intelligence was not broadly used by the advisors in this study, new advisors used AI (ChatGPT, BloombergGPT, Finchat.io, Mo from Morningstar, and IndexGPT) more often than their experienced counterparts.
According to Kitces, AI can “help [advisors] increase their productivity by streamlining more of the middle and back office tasks and processes.” AI use cases for advisors include scaling client communications, crafting emails related to pressing topics, note-taking, and summarizing lengthy texts.
As investor preferences and expectations change, seasoned and experienced advisors must adjust accordingly to keep pace, and to stay competitive during wealth transfers. Providing multiple services, demonstrating their data-driven approach, and adopting new technologies may help them increase their wallet share and attract new clients.
Go Deeper
Learn how a 30-minute interactive goal-based investment plan with your clients can get you to the next level of personalization with our on-demand webinar.
As advisors gain experience, they look for support outside the home office – the right technology partner is key.
As their practices mature, there’s a shift in who advisors look to for support. New advisors rely on the home office, but as advisors gain experience, they start looking for help elsewhere. Part of this shift is that seasoned or veteran advisors are more likely to deviate from home office recommendations. But across the board, as advisors gain experience, they become interested in expanding to more specialized or tailored resources coming from asset managers, specialists, and software providers.
As advisors gain experience, they look for support in different areas, and from sources outside the home office.
Veteran advisors have an existing book of business, so they are often trying to get a larger wallet share from their clients. Some high-net-worth clients use multiple advisors and most tend to need more sophisticated portfolios, so the right technology partner can help advisors differentiate themselves from the competition. Software providers can give advisors the holistic view they need for better recommendation across asset classes and investment vehicles.
Another aspect to consider is generational wealth transfer. The turnover rate of advisors during generational wealth transfer is 70%. Adopting technology that supports personalization at scale can help veteran advisors retain clients and engage with prospects.
Go Deeper
Watch our on-demand webinar to learn how to use technology to derive reliable and actionable data around client preferences.
Advisors of all experience levels share the same goal: serving their clients. But financial innovation, digital connectivity, and market access are reshaping the landscape of investment opportunities and financial planning. Build a modern advisory practice with Morningstar’s insights and solutions for the Evolving Investor.