Amid sweeping technological advancements and shifting generational dynamics, financial advisors increasingly find themselves under pressure to prove their value to clients. Greater amounts of publicly available financial data, increasing numbers of tech-savvy customers harnessing AI, and an economy defined by high interest rates – in which investors can generate stable returns through conservative approaches – have made many clients question the need for external financial help.
However, the wealth management industry has not adjusted to these trends. Instead of seeking to redefine their value proposition, financial advisors have relied on the same established product sales mindset to appeal to potential clients.
While financial advisors have access to more innovative products than ever before, relying on these tools will not be enough to stave off the impending wave of automation. As AI’s ability to analyze data and produce complex financial models grows, financial advisors need to ask: how can I go above and beyond simply making product recommendations?
If financial advisors want to succeed in this new era of wealth management, they must change their mentality around personalization. Wealth management should be personal: financial advisors must understand that helping the client visualize the future is part of their role.
This uniquely human ability – which involves understanding a client’s full suite of goals, getting to know them on a deeper level, and customizing conversations around unique elements of their life – will allow them to drive business growth and stand out from both AI and product-focused peers.
A Goal-Oriented Approach to Customization
For years, the financial advisor industry’s value proposition involved selling complex financial products that were indistinguishable from one advisor to the other. Although these products have traditionally provided clients with a certain level of sophistication, they are now table stakes in the industry. Those who base their practice solely on recommending the latest product will be among the first to be replaced by technology.
To avoid the threat of AI, current financial advisors must adopt a different strategy than past generations. This means prioritizing the interpersonal side of the advisor-client relationship, including human interactions, interconnectivity of goals, and relating to clients on a personal level.
Most clients don’t think about their goals in terms of money, investments, or property. Instead, they are more likely to relate to their goals in terms of concrete objectives that directly impact their life. For example, working with a client to generate a few additional percentage points on their annual return will likely resonate less than planning around their desire to buy another house, pass on money to their kids, or increase their charitable giving.
This is why a personal approach is more than just understanding a single goal. Financial advisors must recognize how their clients’ goals are related to each other, what they think about, what they worry about, what keeps them up at night, what they want their legacy to be, and the milestones they want to reach on their wealth journey.
Only when a financial advisor understands the personal characteristics of their client can they design a product that matches their specific blend of risk and create a financial plan that covers complex scenarios.
Unlocking Personalization Through Client Conversations
For most financial advisors, the difference between a standard and a personalized approach is conversational.
Although many financial advisors are comfortable working with clients to create a typical financial plan – including allocating their money into different investment vehicles – this strategy is not unique. In the end, these advisors are simply selling someone else’s product.
To take the next step in their relationship, financial advisors must engage their clients in personal conversations that draw out their ideas around goals, concerns, and timelines. Despite the impact of consistent conversations, many advisors are hesitant to interact with their clients on this intimate level.
Take life expectancy as an example. When creating a financial plan, advisors often assume their client will live to 100, and fail to bring up the possibility that they may have to plan for an unforeseen accident or death.
While advances in technology may give younger people a chance to live longer than previous generations, assuming every client will live to 100 is not a responsible approach. Instead of broaching this difficult subject with clients, many financial advisors prefer not to bring it up at all – resulting in a strategy that is suitable for their client, but not tailored to their needs.
Financial advisors who omit these uncomfortable conversations from their practice may believe they aren’t hurting themselves in the long run. But these advisors are not factoring in the effects of generative AI, which is growing in its ability to communicate. If a client can have a more personal conversation with technology than a human being, they will eventually choose to interact with technology first.
Although AI is gaining ground, the good news is that it is still years away from matching the capabilities of humans in fostering connection through intimate discussions. As a result, financial advisors must use this advantage now to personalize their approach and further differentiate their offering.
Many topics in the news today serve as the seedbed for robust conversations around hyper-personalization. For example, financial advisors can bring up the topic of ESG with their clients to determine how their personal preferences can drive their investment. If someone does not want to be involved with the oil industry, they should have the power to omit oil from their portfolio.
While it’s so much easier just to put people in boxes and sell them products, taking the time to get to know them through conversation and collaboration will reap dividends for financial advisors and clients alike. The future of the industry is uncertain, but those who prioritize deeper relationships and a mindset around personalization will continue to thrive in this shifting economic landscape.