Wealth Management
April 14, 2023

2020 year in review: 3 lasting impacts on the wealth management industry

2020 year in review: 3 lasting impacts on the wealth management industry

It’s not an understatement to categorize 2020 as one of the most unpredictable, crazy years in modern history.

The wealth management industry was not immune to experiencing some major changes as a result of some of the unpredictable events in 2020. The abrupt circumstances brought on by COVID-19, the \election, and extreme volatility in the capital markets have all presented long-term impacts on the advisory business. Let’s take a look at three events that happened in 2020 and their long-term impact on the industry.

1. Rollercoaster market performance

It’s no secret that clients want more real-time, human interaction with their advisors when markets get messy - and boy, was this year messy and unpredictable. The S&P started the year above 3,200, entered a bear market in the spring and is now on track to close higher than it was in January.

Traditionally clients had the option of meeting with advisors to discuss their fears over volatility.  However, 2020 presented an incredible challenge to advisors who wanted to help their clients navigate the tremendous volatility. Social distancing rules limited face-to-face interactions between advisors and their clients. As a result, advisors were forced to engage with clients remotely and digitally. Did this ultimately change whether clients relied on advisors to assuage their fears over extreme market fluctuations?

Fortunately for advisors - and probably to the surprise of a few people -  it didn’t seem to matter to clients; all they want is a competent advisor that they can engage with virtually or physically. While roboadvisors and self-directed investment accounts have been gaining popularity, ultimately clients will want to talk to someone - virtually or in-person when the markets crash. Smart advisors will use this as a selling point when trying to prospect and onboard new clients. Roboadvisors won’t be able to advise clients and hold their hands when things get rocky.

The data shows that clients have more confidence in personal advisors over machines. (Insert a statistic)

2. Social distancing

What did RIAs and wealth managers do when the stay-at-home orders came down? They turned to technology to continue to do business and minimize the disruptions.

Even the most adamant technology-hating advisors and wealth managers had to make some concessions this year and admit that technology can and should be a differentiator. Firms and clients of all generations who were initially skeptical of new technology have had no choice in this crisis but to move forward and adopt modern tools and platforms. Technology is here to stay, and it’s going to continue helping advisors improve their business and remain competitive.

There is a need to integrate technology for almost all firm processes. This goes from the client onboarding, with tools such as video conferencing, all the way to digital trading, data analysis, client communications and reporting.

RIA firms should reprioritize and accelerate the role of digital technologies within their practice. By leveraging technology as a competitive advantage, it will help them win and retain clients, while also focusing on differentiation which requires substantial investment and development.

3. Election

Leading up to and even after the election, clients worried about the uncertainty. Each presidential candidates’ position on certain issues was unclear, and no one knows what will happen with the pandemic going forward and how federal and state policies will affect their livelihoods..

As a result, many RIA firm owners found it necessary to expand their service offerings and become a one-stop shop to help clients navigate the uncertainty and assuage their fears. This year has only heightened clients’ financial worries, making the value of professional advice and expertise clearer and more urgent to them. Holistic approaches (i.e., solutions for a broad set of financial needs including retirement, debt, spending, insurance, tax planning, estate planning, etc.,) can provide a better experience for clients, particularly during periods of uncertainty while at the same time providing a deeper, long-lasting relationship for wealth managers.

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