Five investor trends set to shape wealth management in 2023
Over the past few years, the wealth management industry has experienced rapid changes accelerated by but not exclusive to the COVID-19 pandemic, ushered in by the ongoing Great Wealth Transfer and the digitization of our daily lives.
Looking ahead to 2023 and beyond, we see five distinct but correlated trends in investor behavior emerging:
More people are looking for financial advice.
According to a College for Financial Planning survey, 71% of advisors have increased their client base since the pandemic started, indicating a high confidence level in professional financial guidance. This growth could be due, in part, to the success of investors working with advisors during periods of market volatility. As a result, they’re less likely to panic and are, the survey results communicated, mainly on track to retire on time despite market movement.
It’s worth noting that the wave of new clients seeking financial advice includes a more significant portion of millennials and Generation Z.
Direct brokerage accounts are increasing in popularity.
Along with those seeking professional financial guidance are those interested in exploring trading on their own. According to the Animal Spirits podcast, 25 million new direct brokerage accounts have been opened since 2020 thanks to trading apps like Robinhood.
Direct brokerage accounts are appealing because of their lower fees and commissions, as well as the ability to invest without going through a third party, an expectation largely created through the convenience and ongoing proliferation of Amazon, Netflix, DoorDash and Uber: Applications that allow us to access exactly what we want at the click of a button. Leveraging direct brokerage accounts also affords investors complete control over their investments, including what and when to buy and sell.
Direct indexing is reaching the mainstream.
Perhaps related to the uptick in investing interest is the demand for direct indexing strategies from mass affluent investors. Once reserved for ultra-high-net-worth investors through separately managed accounts (SMAs) due to its tedious nature, direct indexing replicates an index of securities by purchasing the underlying equities instead of an ETF or mutual fund.
The strategy enables greater customization than can be achieved with the aforementioned ETFs or mutual funds, and it also can help to minimize taxes, an attractive characteristic considering the market volatility experienced over the past few years.
Personalization is a key consideration for clients.
With the move toward greater customization of portfolios and investment options via direct indexing, it shouldn’t be surprising that clients also value a personalized experience from their financial advisor. According to MIT research, clients are looking for financial guidance from advisors who understand them and their unique situations on a deep level, which enables them to customize investment recommendations to individual client needs and preferences.
Women represent the next phase of growth in wealth management.
In the next three to five years, a McKinsey report indicates that an unprecedented amount of financial assets will shift into the hands of women, reaching $30 trillion by 2030. This shift represents both a challenge and an opportunity for advisors, considering that 70% of women switch their financial representation within a year of their spouse’s death.
What do advisors need to know about these five trends?
There’s an apparent demand from investors for highly personalized advice and a degree of independence when managing investments. As a result, a hybrid model that blends human guidance and digital components is becoming the fastest-growing segment in our industry.
Advisors also need to be aware of and prepare for the opportunity to serve previously underrepresented groups, namely, women and younger investors. As wealth continues to change hands, it will be imperative for advisors who wish to remain competitive to ensure that their service model and marketing messaging caters to the needs of these groups.
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