Financial planning is continuing to evolve — are you?

PMG Intelligence has been researching Canada’s wealth and insurance market for 30 years. What we’ve learned reinforces the importance of financial advisors, and details how their role needs to evolve in a world of economic uncertainty and fragmented advice. That evolution is necessary because the needs and behaviours of today’s financial consumers continue to change.

Our research has identified seven key developments driving industry progress:

an increase in the perceived value of advice from financial professionals;
the quantified impact of advice factors when delivered;
the growing interest in receiving advice from a financial professional;
the lack of access to financial professionals;
the impact of digital advice;
the increasing role of social media; and
people prioritizing financial goals over a financial plan.

Successful advisors are adapting. They’re working with more clients who want help. They’re making sense of the various sources of advice that influence decision-making. And they’re connecting an individual’s set of financial goals to deliver a comprehensive financial plan.

They understand that financial advice is more highly valued today, but that it is changing. They also recognize that successful financial planning happens one goal at a time.

Financial advice is valued

Three in four Canadians believe advice from a financial professional or financial provider is valuable. This is the highest level we’ve ever recorded. The advice most valued includes investing, retirement planning and managing day-to-day finances.

Still, only three in 10 Canadians are financially healthy. Data confirms that this minority typically works with a financial advisor and has a financial plan. That suggests an advice gap for the other seven in 10.

This year’s update to our life-stage behavioural segmentation model shows, depending on age, the financial services industry can influence between 30% and 52% of a consumer’s financial success by delivering effective, targeted advice. Factors vary by age, but conversations about the use of insurance to build and protect wealth, how asset allocation impacts the value of investment, the importance of portfolio diversification and why you should set up short- and medium-term savings goals impact behaviour and result in greater wealth over time.

We track about 150 advice factors, to measure which have the greatest influence on financial outcomes. One example is the role of portfolio diversification and asset allocation on the impact of retirement savings given the increase in economic uncertainty that has emerged in the last few years.

People who receive all top-10 advice factors throughout their life typically have 5.2-times greater wealth than those who don’t receive any of these key advice factors. This also translates into greater trust, broader product ownership, a deeper relationship and a greater share of wallet for advisors.

Interest in advice from a financial professional happens as early as 20 and peaks between the ages of 30 and 34. Additionally, interest in advice begins to increase when someone has $50,000 in investments. The key challenge, however, is access to a financial professional.

Most financial professionals focus their time and attention on those with investable assets greater than $100,000. We have found that two in five investors under 40 have been told by their advisor and/or financial provider they are better suited for a digital solution, or that they don’t have enough assets. For investors between 40 and 50, it is one in four investors.

At a time when advice is valued more than ever, access to a financial professional is limited for many Canadians. The interest is there, and the value has been quantified.

Financial advisors need to be more open to working with investors. Particularly those who are younger and may not meet their minimum-asset threshold yet. The key is finding a way to identify high-potential clients.

Financial advice is changing

The growing interest and need for financial advice among younger Canadians is driving demand for digital advice, despite an interest in working with a financial professional. That will continue to grow as financial advisors and firms prioritize working with people who have wealth today over people who are building wealth for tomorrow.

Firms thinking digital financial consumers will transition to professional advice as their wealth builds and financial needs get more complex are taking a risk. Don’t be surprised if these folks choose to stick with the digital channel.

With the growth in digital advice, many advisors are now dealing with clients who want a hybrid model that brings together the strengths of professional and digital advice. Advisors need to support a blended approach that combines digital convenience with human touchpoints. The industry has referred to this in the past as an omni-channel experience. Currently though, personal and digital advice models tend to compete rather than collaborate.

Social media is also important, regardless of its credibility. Canadians turn to social media platforms for bite-sized financial tips. Younger generations are digital natives and prefer advice that feels relatable, accessible and free of jargon.

Financial influencers — or finfluencers — leverage storytelling, personal experience and viral content formats to simplify topics like budgeting, investing and debt repayment. Both financial professionals and regulators need to be mindful of this influence.

One goal at a time

We’re concerned that the industry’s advocacy of comprehensive financial planning may be solving the wrong problem. Our research reinforces that financial planning is not a priority for most. It is too obscure and counter to behavioural norms.

Investors care more about meeting goals. People embrace a plan if it helps them address a specific need. In other words, financial planning is a series of individual goals rather than a comprehensive exercise. They prefer to tackle financial planning step by step, building confidence one goal at a time.

People still want their financial advisor to think holistically. Advisors often follow their clients throughout their life, addressing each financial need as it arises. They connect these goals into a cohesive strategy. This clarifies the stewardship role of financial advisors to navigate wealth accumulation, tax optimization, retirement income and estate and legacy planning

A trusted relationship is paramount. Clients who have confidence in their advisor are more likely to see their goals as part of a larger plan — making decisions simpler, improving outcomes and increasing the advisor’s share of wallet.

Four calls to action:

Many investors don’t have wealth today, but they will tomorrow. Agreeing to help now connects you to them at a time when they are looking for help. Do not dismiss these clients without seeking to understand their potential. Waiting until they have financial resources may be too late.
People want access to a financial professional. It may look different today as people get more comfortable with investing and financial planning. But they still want help from a professional.
Digital advice and social media are changing how advice is consumed. Financial professionals need to provide guidance where their client and prospects are.
People understand financial goals, not financial plans. Advisors need to help clients focus, and achieve their financial goals, while demonstrating how they connect the dots to build a comprehensive plan they oversee and manage.