By Dan Sachar
The “personal CFO” model has long been a familiar client service framework, in which the financial advisor serves as the hub for multiple aspects of a client’s financial life, working with experts on issues from taxes to estate planning, in addition to providing investment or retirement planning guidance.
It's a concept that has gained widespread traction because it addresses the growing complexity of clients’ financial needs as seen over the past several decades. It also reflects how investment management on its own has become an increasingly commoditized service in a crowded space.
As clients’ needs have continued to evolve, however, it has become clear that the personal CFO concept must also evolve, or risk fading into irrelevance, with two key trends driving the future of this approach to wealth management:
First, clients’ financial priorities—especially those of younger clients—have become more varied and broader in scope than they have ever been before, and investors have different hurdles to overcome than in decades past. While only an advisor’s larger clients may have needed a personal CFO 10 years ago, today’s mass affluent clients and others are facing a new mix of financial complexity that can benefit from the approach too.
Second, the fintech space has exploded with technology and apps that can help address many new pain points for clients, such as paying down student loans, reducing credit card debt and managing taxes as a freelancer. While technology has created more options, it has also created an ecosystem of overwhelming choice, and that’s an opportunity for advisors to “curate” the right mix of solutions and integrate them seamlessly into their practices.
Here is a closer look at what each of these trends will mean for advisors in the coming years:
- The rise of the "gig economy" escalates the importance of the personal CFO approach. Within the next several years, functioning as an effective personal CFO will mean understanding that clients’ financial concerns extend to areas where advisors may not have traditionally provided service.
The changing nature of work, for example, means that today’s investors are more likely to be part of the "gig economy" than were prior generations. As such, they tend not to have the benefit of a payroll department to help with income taxes or a human resources office to manage retirement benefits. And those that do hold steady jobs jump ship more frequently, so their savings tend to be socked away in more accounts. Advisors who can provide a tailored suite of services for such clients will be well-positioned to grow.
- Higher student debt loads for millennials introduce new levels of complexity to financial advice for this generation. While clients of all ages lead more complex financial lives than previous generations, this trend is most pronounced with millennial investors. They tend to shoulder significantly heavier student debt loads than previous generations did, and as such are more intently seeking solutions to ease the burden or help them manage it better. Advisors who can help with such issues by, for example, enabling employers to offer debt-payoff solutions that operate similarly to automatic contributions to a 401(k) plan can position themselves to build relationships with high-earning millennials early in their careers.
In the aggregate, today’s clients face a serious challenge in balancing competing financial priorities in a cohesive, holistic way. They’re looking for someone to help them get their financial house in order and do it as conveniently and transparently as possible.
- The ideal personal CFO will combine financial advice with in-depth technology guidance. Today’s clients need advisors’ financial expertise, but they also need a knowledgeable guide to help them navigate a complex landscape of technology solutions. The personal CFO model of the near future will increasingly involve curating the technology-enabled tools these clients need to make sense of their financial lives and then integrating them seamlessly into a holistic suite of services.
Such emerging technology tools go far beyond DIY planning websites that help clients budget, save and invest. Sophisticated solutions are emerging to help members of the gig economy track and pay taxes with greater confidence and reduced stress; streamline the investing process by combining savings and investment accounts; and help environmentally and socially conscious clients take a more focused approach to impact investing.
For advisors to execute on the demands of clients today—and not just the young ones—they must stay abreast of what technologies are in the pipeline or available in the market. It’s incumbent on advisors to maintain a growth mindset vis-à-vis evolving the suite of services they offer clients.
We find ourselves at a moment when clients’ financial pain points are broadening and shifting, and the ways in which they want to be served increasingly revolve around sophisticated approaches to technology-driven solutions. Both factors are driving the evolution of the “personal CFO” model, and more than ever, advisors’ ability to help manage the complexity of clients’ financial lives holds value. The better advisors are at staying ahead of these changes, the better they’ll be at serving clients, now and in the future.
Dan Sachar is vice president for enterprise innovation at Ladenburg Thalmann Financial Services Inc. (www.ladenburg.com) and head of the Ladenburg Innovation Lab.