Culture, Communication, and the Next Generation of Investors
When robo-advisors and the commoditization of investment management were first introduced a few years ago, many established financial professionals believed only a small minority of investors would opt for a purely technological investing experience. But recent reports appear to be rejecting this theory. One study has estimated that robo-advisors will manage $2 trillion by 2020, and that the fastest growth will be among assets that already are invested (Epperson et al. 2015). Indeed, it appears that the growth in the adoption of robo-advisors will occur among early adopters as well as investors who have existing accounts and existing relationships with financial advisors.
For veteran advisors, robo-advisors create a raft of concerns because of their extreme discounting, ease of use, low minimums, and comprehensive planning capabilities, all without ever having to meet someone face to face.
Other recent reports, however, dispel the myth that millennials prefer not to meet face to face with colleagues and professionals: “The responses of Millennials to the question of what channels of communication they preferred were surprising and run counter to much of what has been put forth in trade periodicals. Their most preferred channel is face-to-face followed by e-mail and texting” (Fenich et al. 2012).
Yet this group also represents the majority of robo-advisor early adopters. Therefore it seems clear that advisors are not connecting with the next generation of investors effectively.
The reasons many in the next generation of wealth resist meeting financial advisors in person are worth examining for advisors who want to succeed in the future. This article deconstructs several of the obstacles facing advisors as they try to connect with post-boomer clients. It presents a brief analysis of the financial-industry culture with a discussion about ways financial professionals communicate in an attempt to help advisors overcome certain challenges.
Be the Change You Wish to See in the World
Mahatma Gandhi’s words are a helpful reminder that change begins within. In order for advisors to approach an issue that affects the entire group, advisors must be aware of their own history and biases. Advisors must know where they come from in order to understand where they are now, and how their profession must evolve to thrive in the future. The following provides a brief reflective retrospective.
The stockbroker. Advisors who began careers more than two decades ago began as stockbrokers. Back then the concept of a financial advisor was not customary; the focus of the business was transactional, and so was the interaction with every customer. In this era brokers were selling products to customers who could not buy those products on their own. Brokers were giving customers access, information, and pricing. A broker’s ability to understand each product, describe what it was, and make it available to customers was all that was required to succeed in the business. This method of communication was, at that time, completely sufficient for normal business interaction with each customer. If advisors established their businesses during this era, this style of communication is a part of their culture, their language, and their identity.
The financial advisor in the ivory tower. Several years later brokers were renamed financial advisors. Titles changed and so did clients’ expectations. Instead of calling for quick trades, posting trades in black books, and plotting technical charts, advisors were expected to meet face to face with people, talk about plans, discuss long-term strategies, and provide results. The relationship between the financial professional and the customer changed, and so did the required skills, tools, and language. But despite an enormous shift in the daily tasks and conversations between clients and advisors, there was never adequate education or training on how to shift methods of communication. Most clients got used to taking an advisor’s word for it and so long as the advisor sounded smart, advisors were trusted. This dynamic allowed advisors to believe that the single most important trait for winning and keeping clients was to sound smart.
Madoff and Google. Lately advisors find themselves in a completely new era. They are still called financial advisors, but the term does not fit the profession. With criminals such as Bernie Madoff and headlines about identity theft and credit-card fraud, few investors remain content with taking an advisor’s word for it. Indeed, people are more fearful than ever of losing their hard-earned assets to a person who sounds smart. Many post-boomer investors completely distrust financial professionals and the Wall Street establishment. It is not unusual for people to google data points in an advisor’s presentation as the advisor is presenting. Building credibility and trust with investors no longer happens just by sounding smart, especially because so much information is widely available on the Internet.
Business in the digital world. As the relationship and dynamics between financial professionals and their clients evolved from transactional to consultative, so did the methods and pace of communication. Within a few years, advisors went from sending very important proposals, confirmations, and material through the mail to being expected to more rapidly respond via e-mail, or, depending on the nature of the conversation, via text. With the capability of personal devices, advisors must compete with automated communications and other services available around the clock. For example, a robo-advisor is open 24 hours of the day. However, advisors should fear not. Even though the pendulum has swung quickly in the direction of fast-paced automated communication, arguably so has the desire for authentic interpersonal relationships.
As advisors recognize the value of the human connection they can offer, they must also take into account the obstacles they face. To build trust, lead with authenticity, and support the interpersonal relationship established through the consultative process, advisors must first fully look inward, reflect on their history and traditions, and be aware of the culture they’ve been associated with. Acknowledging that no two advisors have had the same history or path, the following sections are meant to broadly address a few key components of communication that most advisors may find useful as they approach conversations with the next generation of investors.
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Noel Pacarro Brown CIMA®, CPWA®, is a financial advisor with the Global Wealth Management Division of Morgan Stanley. She earned a BA with honors from Brown University and a Masters in Teaching from Pacific University. Contact her at [email protected].
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