Switching doesn’t always mean leaving

Three key reasons have emerged to explain why many advisors and firms are not achieving the level of growth they’ve enjoyed historically. We see a fundamental shift in how customers want to understand how their portfolio is managed. New fintech competitors have gained traction. And clients are more likely to listen to new advisor or provider offers.

Advisors often assume that if a client hasn’t left them, it’s because they continue to value the relationship. Increasingly, that’s not the case.

New research from PMG Intelligence reports that your clients are more likely to add a new advisor or financial provider relationship than they are likely to leave you. Advisors who don’t proactively consider why their clients might entertain a new offer are putting their practice at risk.

PMG has been tracking switch behaviour for years. It is mostly observed in younger investors wanting financial advice and their expectations not being met. For a long time, inertia worked in advisors’ favour. But clients are no longer complacent.

There are three trends driving your clients to accept new offers.

1. Clients are more financially engaged

PMG’s research on Millennials and Gen Z investors show over 70% of these young adults are more engaged with their finances. They talk with partners, parents and friends. Greater than 75% under 40 want to learn more about finances.

Young investors are engaging earlier in their financial journeys, moving from savers to investors with a shorter sales cycle and a strong appetite for information than previous generations.

They are becoming more sophisticated and market aware, showing greater comfort with market-based products (i.e., stocks, ETFs, mutual funds and crypto). They are also more likely to share recommendations with others, reflecting their active engagement and influence.

Young investors more frequently report saving for a down payment on a home, long-term medical care expenses and education costs. They’re more likely than previous generations of young people to want to leave a legacy or set up their family financially, to start a business and invest in real estate.

There is an emerging opportunity as couples come together. But we know that, for the most part, finances and investments aren’t immediately combined. More often couples manage money both separately and together. There’s my money, your money and our money.

Financial relationships are typically established by age 38, but they are more fluid among those under 40 (adding, switching, evaluating, etc.).

PMG has reported growing digital activity and robo-adoption across all investors. Most do at least some financial activity online. Digital engagement is strongest among investors under 45.

A hybrid model is emerging with next-generation investors expecting seamless, digital tools with real-time insights. But they still value human expertise for complex decisions.

2. Onboarding is easier

Two in five young investors having switched their provider and/or advisor relationship. Investors with at least $100,000 are twice as likely to add an advisor relationship or provider versus switching. This grows to three-times more likely if the client has $500,000 or more in investable assets.

For those who switched or added, the top reasons they state include problems with customer service, high fees, not feeling valued and a lack of convenience. In the past, these issues wouldn’t always trigger a change. They do more often now.

More than ever before, it’s easy for competitors to engage your clients and for your clients to access financial information. The old days, when investors deferred to their advisor, are behind us.

At the same time, digital technology has transformed the onboarding process — making it faster and simpler. Client experience expectations are higher, and its importance has risen accordingly. Trust and fees are also important.

Trust is often overlooked. Having a healthy relationship means that investors believe you have expertise and are acting in their best interest. It is built based on activity and driven by regular, meaningful contact. It involves a sense of purpose, like achieving a financial goal or managing a financial plan. Trust will keep clients from entertaining new offers.

3. Long-term client value is ignored

Two in five of those 30–39 and one in four of those 40–49 have been told they would be better suited for a digital offering or told they don’t have enough assets to qualify as a client. The rationale is profitability, of course.

This is short-sighted. Further, it is based on overly simplistic analysis. Advisors and providers use investable assets as the key determining factor on whether to work with a prospect. What is missing from the analysis are things like savings habits, debt management, income potential and investment knowledge. These are the fundamental building blocks that can be used to predict the long-term potential of younger investors who may not have the investable assets today.

This is where fintechs are gaining their market foothold — acquiring younger investors. They are thinking about the long-term potential of customers. If you believe in waiting until a prospect has assets, you risk being too late.

Advisors and providers need to rethink client profitability and their service model. There are many young investors who have the potential to build meaningful wealth over time. With advances in data modelling, behavioural segmentation and predictive analytics, find the tools that can uncover the diamonds in the rough.

Once you’ve expanded the opportunity set for working with customers, focus your service model on building trust with these investors. Communicate regularly. And demonstrate care and authentic interest in achieving the plan or financial goals.

All of this requires advisors to rethink their role. You’re a financial coach, not a financial consultant. As engagement increases, investors want a partner to help them make financial decisions, not a consultant directing financial decisions.

Investors are being inundated with messaging, ideas and advice. The use of social media and the impact of finfluencers is an opportunity for you to reposition your value proposition to help investors make sense of a complicated world.

Think differently about prospects. Act like a financial coach. And build trust with genuine engagement. Those three steps will protect your practice, no matter who comes calling.