A lot has happened since May of 1995. Not only have I changed, but my clients have as well. Below are some of the ways in which they have changed over the past 20 years and a few guesses as to how things might change in the next 20.
Information at your fingertips. When I first started at Focus Financial I didn’t have a computer. It wasn’t that they weren’t available. I just couldn’t afford one. However, I wasn’t alone. You probably didn’t have a computer either – even if you could afford one. That soon changed however, and people went from getting their information from the business pages to having it delivered wirelessly to the palm of their hand via their smart phone 24/7.
The velocity and amount of information available today means that you always know (or have the ability to know) what the market – and the world — is doing every minute of the day, every day of the year. With YouTube, Google, podcasts, ebooks and more all in addition to the traditional media you had in the past, investors have never been more informed – or misinformed – than they are today.
You are much more knowledgeable. All that access to info makes for a much more knowledgeable investor. 20 years ago I met many of my first clients by offering basic financial education courses at various employers around town. We covered such topics as “what is a mutual fund”, “the time value of money” and “the power of tax deferral”, concepts that most of you take for granted today.
Today I speak and educate clients on topics like how to “Pay Less for College”, and “Savvy Social Security Strategies”. The need for education and information is still there, but it’s gone from basic financial education to much more detailed and sophisticated topics.
The shift from investment transactions to fee-based retirement planning. The entire industry was transaction and product-focused prior to the mid-1990’s. Now the focus is much more on client relationships, providing higher levels of service, and planning for important life-goals like college or retirement.
Managing client assets in today’s world means having access to a variety of investment options and strategies without a compensation bias. While investment or insurance products may sometimes be the tools we use to help clients reach their goals, it’s really more about servicing clients in an efficient way that always puts their best interests first. Sadly, the industry still has a long way to go in this regard.
Retirement is here and now. No longer a theoretical concept decades away, retirement now stares you in the face. If you are not retired already, you soon will be. Every day 10,000 people reach retirement age. In 1995, you worried about having enough money to last to the end of the month. Today, you worry if you have enough to last to the end of your life.
You have real money to lose. According to CNN Money and Fidelity Investments the average 401(k) balance topped $91,300 last year. But you are not average. Your retirement savings are likely to be some multiple of that. In fact, the older you are the more likely it is that your retirement account is quite a bit larger than that.
In 1995 it was one thing to invest in stocks and risk a 10% or even 20% market correction. After all, you didn’t have that much money to begin with and retirement was still decades away. Today, a market correction could reduce your retirement account balance by an amount that exceeds your income for an entire year or more. Diversifying assets, having retirement income from multiple sources, and managing risk means more than ever.
A look into the future
It’s been said that the only constant in life is change. Just as things have changed in the past 20 years you can be sure that they will continue to change over the next 20. Below are three trends that I think will continue to evolve.
Your standards will continue to rise. As investors become more knowledgeable and accumulate more assets, their standards for client service will increase as well. And they should. As you approach retirement there is more at stake. More money, more demands on your resources, less time to make up for mistakes.
The best financial advisors will continue to sharpen the saw, seek out new and innovative ways to meet their clients’ needs, and increase the quality of service they deliver. The constant challenge to improve and do better for clients is one of the things I like most about my business.
You will require a team. In 1995 a young financial generalist in a solo practice could make a go of it. Now you need a team of specialists. The financial advisory team of the future will include team members who specialize in regulatory compliance, client communications, social security and Medicare, technology, and retirement planning as well as tax, estate planning and insurance specialists. All this is in addition to managing your investments.
Your “financial advisor” will lead your advisory team, but he or she won’t be doing it alone. Just as every ship has a captain with a crew, your financial advisor will need to be part of a larger team to meet your needs. Many advisors, including myself, are already building their teams and taking steps to meet their clients’ future needs.
You will demand more personal interaction, not less. Index and exchange traded funds, robo-advisors, and 24/7 access to information will make it easier than ever to distance yourself from your advisor or even go it alone. While I hate to admit it, I realize that a certain percentage of people will do just that. However, that has always been the case.
Twenty years ago an established advisor might have worked with hundreds of clients. Even today, many advisors work with a large number of people. Recently, a colleague of mine confided that she is responsible for over 1,000 families at the bank where she works, and admits that she really can’t service them all. Fortunately that is becoming less true as advisors continue to focus on providing a higher level of service to a much more limited number of clients.
Yes, 20 years is a long time, but it’s just the beginning. The future will bring challenges and opportunities, and will reveal itself in ways we can’t even imagine. I look forward to being a part of it and really believe that our best days are still ahead.