In the realm of financial advisory, data reigns supreme. Making assumptions about the demographics of the clients you serve, such as their ages, genders, or nationalities, can be a costly oversight. Incorporating this crucial information into your software arsenal has the power to unlock a treasure trove of insights through reports and graphs, enabling you to understand the true narrative of your clientele. Often, your practice excels in specific areas, and having this demographic data can help you focus your efforts where they yield the most significant impact.
Just as people have diverse preferences, some merely want to know the time while others are keen to delve into the inner workings of the clock. Adapting your team to mirror the diversity of your market can prove incredibly advantageous.
Change is undeniably afoot in the wealth management industry, particularly regarding the professionals it recruits. The newcomers to this field arrive through a multitude of diverse pathways, challenging the traditional mold.
Reflecting on the industry’s history, it’s clear that it has been predominantly male, seasoned, and skewed towards an older demographic, with a significant portion of professionals aged 65 or older and a predominant Caucasian makeup. This pattern persists, despite a noteworthy rise in Hispanic and African American advisors in recent years.
However, as technology continues to democratize investing and financial planning, and a wave of younger clients enters the arena, the financial landscape is undergoing a seismic shift. This transformation necessitates a corresponding evolution in advisory firms.
Research from McKinsey underscores the imperative for firms as they navigate the next decade: “To thrive in this dynamic environment, firms must prioritize growth, adopt an innovation mindset, and be prepared to reallocate resources rapidly in response to the changing context.”
In essence, wealth management firms, regardless of their size, must recognize the urgency of diversifying their workforces to remain relevant and responsive in a rapidly changing industry.
New Clients are Knocking on the Door
As wealth management clientele becomes more diverse, a homogenous workforce won’t resonate or create as many growth opportunities. Baby Boomers and older generations have retired in waves over the past decade, ushering in a new generation of younger, more diverse clients.
If you’ve been in this business for a couple decades, this next generation will inherit a significant portion of the wealth you helped grow and protect all of those years. Every year, next generation investors under the age of 40 years old will inherit more than $540 billion. By 2045, that group of younger advisors will control three-quarters of all wealth.
But this new generation won’t just be younger. Women control more household assets than ever before and their share of wallet is growing. African American, Hispanic and other minority households have also increased their wealth significantly more than the general population in recent years, creating more opportunities for diversifying wealth management services.
And just like those that came before them, these new clients are seeking out advisors with whom they can relate. One study found that 23% of Gen Z and millennials (clients under age 40) consider the race, ethnicity and gender of a financial advisor important, compared to just 10% of Generation X and baby boomers (clients age 41-75).
To connect with new clients, firms need employees who reflect them and can build empathy and connections through shared experiences and backgrounds.
Diverse Backgrounds to Meet Changing Client Needs
Aside from new clients, there is a change in what clients expect and prefer in their advisor relationship. Firms with a diverse workforce that can meet these new and unique demands can create a competitive advantage.
Clients increasingly use technology to communicate with advisors, research potential accounts, and monitor their investments. Younger, digital native advisors and back-office staff can help build technology-based relationships and services, such as seamless app experiences, instant payments, and omnichannel support.
As client needs change, being able to provide niche services can be a powerful marketing tool. When given a choice between a generic advisor and someone who specializes in their exact life stage, neighborhood, demographic, or job industry, clients are more likely to choose someone who can offer hyper-personalized service and understands their unique situation and financial goals. In this sense, having a diverse workforce gives a firm plenty of opportunities to expand into new niches and draw in specialized clients.
Clients Seeking Full-Service Firms
As new clients enter the industry and the world at large changes, so do clients’ expectations in how they interact with their advisors and the services firms provide.
Modern clients want a personalized experience from an advisor who knows them and can meet their needs. That means fewer one-size-fits-all recommendations and more time building relationships and providing personal communication and service. That push towards personalization demands a new skillset from advisors, focusing on softer skills and relationship-building.
Similarly, clients are moving toward not just financial advising but integrated advising into all areas of their lives. Instead of working with multiple professional firms, clients want to have a one-stop shop for all their needs. McKinsey predicts that “advisers will gradually shed their role as investment managers and become more like integrated life/wealth coaches who advise clients on investments, banking, healthcare, protection, taxes, estate, and financial wellness needs more broadly.”
Many firms are responding to this need by adding employees with legal, banking, healthcare, and life coaching backgrounds to provide a more well-rounded experience to clients. Diversifying the skillset and background of employees allows wealth management firms to offer a broader range of services tailored to a wider clientele. The wealth management world is changing, and firms need to change alongside it with a diverse workforce.
Vice President of Operations, Docupace
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