Currently, among affluent investors and high net worth individuals (HNWIs), 25% do not receive professional wealth management advice. Furthermore, among the 75% who do seek advice, another 25% rely on their retail bank as their primary advisor.

When asked why, 40% said that premium wealth services are too expensive, and 32% felt that advisors did not have their best interests at heart.

If you’re a financial advisor looking to build your business in 2020—especially if you’re trying to engage wealthy investors—these statistics are not good news.

And if you’ve sensed a shift in investor attitudes away from traditional premium wealth management services, then the findings of the CFA Institute/Scorpio Partnership survey, The Value of Premium Wealth Management, should not only confirm your suspicions but suggest what today’s investors want from you.

The bottom line is this: Any advisor expecting to serve up traditional premium services based solely on market performance as their value proposition won’t appeal to the new generation of investors.

A radical demographic wealth transfer is bringing a new generation of investors into the market. They’re educated, savvy, and even if not yet experienced, they’re equipped with their own agendas and definite expectations on everything from the customer experience to digital access to impact investing to outcomes. Investors are in charge, and they’re prepared to hold their advisors accountable.

The result is a seismic shift in how financial advisors need to approach this new generation.

“Welcome to the age of engagement,” says Bob Dannhauser, CFA and head of global private wealth management at the CFA Institute. “To succeed, advisors need to put their value proposition and professionalism front and center.”

And that’s where advisors designated Chartered Financial Analysts (CFA) may have a distinct advantage.

CFA Sets the Gold Standard for Financial Advisors…But It’s Not Enough

When the “Dean of Wall Street,” Benjamin Graham, first outlined his vision for a certification program for financial analysts back in the 1940s, he wanted investors to have confidence that their advisors met certain “minimum requirements on knowledge and professional competence.”

Those early plans have come a long way since the first CFA examinations—held in 1963 in the United States, Canada and London—when just 284 candidates tested for the designation. This past June 2019, a record-250,000 candidates worldwide sat for CFA exams at 348 centers in 95 markets around the world.

The CFA is still the recognized gold standard of achievement with candidates committing at least 300 study hours per level, knowing they have only about a 50/50 chance of passing. It’s estimated that only 30% of Level I candidates will ever make it to Level III.

And yet, for all this rigorous testing, the CFA Institute has a problem. It’s not enough for CFA charterholders to assume the mantle of responsibility for wealth management. It’s not enough to always put client interests first. It’s not enough to strive to create a better world for investors…

Not if those investors are unaware of what differentiates a CFA member from most garden-variety wealth advisors and financial services providers.

That’s why the CFA Institute is bringing value and professionalism to the forefront and asking investors, Does Your Wealth Manager Measure Up? It’s challenging investors to look to CFA for advisors that measure up to today’s client and societal expectations.

But first, a little background.

A Generational Shift Is Redefining Advisors’ Value Proposition

In the 1980s, wealth management began as an advisory service designed to enhance a bank’s relationship with high-value customers and provide private investors access to asset management services and premium investment products.

This one-stop resource for banking and investing needs positioned the financial professional as a private wealth manager who could increase the value of deposits. And all was well for about a decade.

But the boom years gave way to a steady string of economic crises, financial volatility and declining business and consumer confidence. If this wasn’t enough, investors weathered the savings and loan crisis, the Dot-Com crash and the World Trade Center terror attack in 2001.

Today, interest rates are low, wages are stagnated, and global and political unrest leaves many waiting for the other shoe to drop.

And yet, many traditional wealth managers—like one-trick ponies—are still trying to peddle their premium services for market performance.

Fast forward to 2016/2017. The CFA Institute surveyed investors and advisors to better understand what today’s investors and HNWIs want and identify the points of divergence and alignment between investors and advisors. Their study suggests several steps advisors can take to better address investors’ expectations.

TIP #1: Justify Services Based on Professional Expertise

While investment performance will always have a place in the skill set of the financial advisor, it is no longer enough. For the past 10 years, many investors have succeeded without the help of a financial advisor.

Who are these investors? Dannhauser divides them into three categories.

Group 1 – Solo Mavericks

The first group has the requisite skills and interest to meet most of its investing needs, which are not overly complex. They take investing as a serious hobby and don’t see enough value in retaining an advisor. The market supports them with a wealth of online tools for research and analysis as well as easy-to-select solutions that cover the market, such as index funds and Exchange-Traded Funds (ETFs).

Group 2 – Cutting Their Losses

A second group used to pay for run-of-the mill financial service providers—people who probably didn’t have much more training or expertise than the investors themselves. After years of unsatisfactory results, these investors decided to simply cut their losses and save the fees.

Group 3 – Need Professional Help

The third group of investors have managed okay during the Bull Market, when it’s been relatively easy to achieve good results. The problem is, they have yet to experience an economic down turn, let alone a serious financial crisis. When market conditions begin to change, expect this group to look for value in an advisor.

“Advisors need to be prepared to unequivocally demonstrate their value,” says Dannhauser. “Ideally they need to do this before the market shifts so they can help this third group hold on to their gains.”

This is where the depth and breadth of training can help CFA charterholders make a strong value proposition: They have the expertise to read current market conditions as well as look ahead and prepare for what’s coming next.

TIP #2: Satisfy the Increasing Preference for Digital Access

It’s not surprising that younger (largely millennial) investors are comfortable with digital and actually seek alternatives to traditional face-to-face consultation. In fact, 40% have a preference for digital. “And while that number is still less than half,” says Dannhauser, “their message is coming in loud and clear.”

Wealth managers that want to appeal to the next generation (as well as a growing number of older investors) will provide greater digital access.

According to the CFA Institute study, 62% of investors expect their advisors to integrate digital technologies into the client experience… even now. And among clients under the age of 35 the percentage is already 71%.

Clearly CFA charterholders are better prepared to hold the value proposition on digital access. They expect that within the next five years digital access will be important to roughly three-quarters of all clients. Non-CFA wealth managers, on the other hand, estimated that digital would have an impact on less than half of all clients.

Firms will need to reach out and attract new clients using digital marketing, social media, mobile apps and online resources. To meet customer experience expectations, digital access must be available 24/7 offering tools and advice when the investor wants them.

TIP #3: Understand What Drives Next-Generation Investors

As financial advisors are choosing to focus on the affluent investor and HNW space, they need to be prepared for new challenges. The new generation of investors hold some ideas that run 180 degrees opposite conventional investing wisdom.

For example, there is a strong desire among younger investors to put their money where their conscious is. One way is by using ESG (Environmental, Social and Governance) criteria to make sustainable investment choices, choose socially responsible companies and support companies doing their part to lower carbon emissions.

Advisors, admittedly, have been behind the curve on this. They need to come up to speed quickly if they are going to bring value to their younger clients. Successful advisors need to learn to listen to investors then use their training and expertise to interpret the message and act in their clients’ best interest.

As one CFA charterholder explained for the study: “The firms that will succeed in the future are the firms that will look beyond their competitors, and look at other industries as well. What are they doing right for clients? What makes them stand out?”

TIP #4: Define Value as It Relates to Each and Every Customer

When CFA-designated advisors were asked about the future of advisor-investor relationships, they were overwhelmingly optimistic—even in the face of high costs and tight profit margins.

CFA charterholders view the wealth shift as an opportunity to re-engage by differentiating their value proposition from that of the competition. And they are embracing investors’ desire for a broader, more inclusive relationship.

“On the surface,” says Dannhauser, “the findings were a little counterintuitive and surprising in that CFA practitioners who have a reputation for having a very deep expertise in investing, have embraced the role of becoming a trusted advisor on any number of aspects of their clients’ financial lives. Whereas, non-CFA practitioners were focused on being reliable financial professionals.”

In fact, more than 95% of CFA charterholders are confident they have the breadth of expertise to serve as trusted financial advisors. In this more holistic role, their contributions range from helping entrepreneurs value a business or identify sources of capital to representing clients in talks with tax teams, estate planners or a legal team building a philanthropic strategy.

To compete, non-CFA wealth advisors will need to expand their value proposition beyond traditional market performance tactics and providing what amounts to transactional services—which may be too limiting for today’s investors.

“Given the CFA’s capacity to make a very, very deep dive into capital markets and investing, we were surprised to at just how receptive these advisors are to serve in a broader role. Still, there is a lot of decision-making that gets done in the money that isn’t purely financial at the end of the day. And someone with a deep financial background can be effective in helping in many areas of a client’s life.”

Future Preparation Starts Today

While the above tips provide some insight into what investors are looking for and what advisors need to offer, they are only a launching point. Advisors can expect to be challenged at every turn by the next generation. Whether that becomes an opportunity or a concern will be up to each individual advisor and how fully he or she embraces lifelong learning and adapting.

In addition to the requisite continuing education, advisors must remain receptive of mind and spirit—whether that means listening to new ideas or exploring new market sectors or becoming highly tech savvy and introducing new services that might currently seem outside the advisor’s purview.

Ultimately, much of an advisor’s performance metric will be measured in terms of client engagement and the advisor’s capacity to be proactive—whether in offering investment recommendations or other financial services.

Finally, while advisors need to remain flexible and receptive in mind and spirit, the investment firms and organizations that hire advisors can help by providing a strong culture within the workplace—one that enhances the employee experience. It will carry over to the client experience.

As to whether the CFA designation—along with the attendant experience and expertise—is worth the training, fully 96% of CFA charterholders said yes. They believe the qualification has broadened their expertise. Likewise, 90% of Millennial investors are expected to give greater credence to advisors who can articulate their professionalism and differentiate their value proposition.

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