By all accounts, 2020 was a year of disruption for households, businesses and entire industries. Working parents juggled kids at home and shared office space with their partners, while many small and established businesses had to reinvent themselves entirely to survive.
As a profession, financial planners have helped clients adapt to these changes and, in the process, faced major disruptions as well.
In my (mostly remote) conversations with financial planning leaders over the past year, it’s become clear that some of the trends that emerged in 2020—adapting to client needs, advancing diversity and inclusion as well as answering the growing demand for financial advice among first-time investors—are here to stay and will strengthen the profession.
The World as We Knew It Changed, but the Core Tenants of the Advisor and Investor Relationship Stayed the Same
As with so many other businesses, the pandemic and ensuing acceleration of remote work forced all financial firms, from big broker/dealers to smaller RIAs, to adapt their styles and business practices to support their financial professionals and clients.
Long considered a business built on in-person, face-to-face meetings with clients, firms now need to provide their advisors with tools to adapt to a virtual face-to-face meeting environment. During the pandemic period, it will be important to maintain and even increase client engagement.
Firms that had invested in technology saw those investments pay off. Digitizing essential paperwork and other compliance best-practices helped ensure a seamless transition for their employees and allowed them to focus on what matters: the relationships with their clients. Firms behind the curve had to quickly adopt such programs.
For some advisors, the remote meetings and interactive tools that facilitated these inquiries have helped forge deeper client relationship, allowing for more frequent meetings and more personal interactions. As a result, we’re likely to see an increase in digital client engagement long after COVID-19 subsides. According to a survey conducted over the pandemic by Natixis, 54% of financial professionals cited frequent communication as a critical factor in successfully growing client relationships. In addition, this survey notes that 43% of financial planners as cited proactive outreach during notable market events is critical to success and client retention.
True Change to Create a Diverse and Inclusive Profession Takes Time
Racial, ethnic and gender diversity are crucial to the sustainability of the financial planning profession. Our industry has taken steps, both last year and in years past, to create a diverse and inclusive profession, but the events of 2020 have galvanized support for racial justice and equality.
The death of George Floyd this past June spurred a renewed civil rights equality movement, with individuals and organizations across the country committing to programs intended to create environments with more diversity and inclusion. While these commitments are important steps, they are just the beginning. True change takes years.
In the financial planning profession, we have a long way to go, but we’re beginning to see some of the green shoots of our commitments. The Center for Financial Planning, has focused its efforts on creating a more diverse and sustainable financial planning profession. As a result, there has been incremental progress toward our goal—4.16% of all CFP professionals are People of Color. In 2020, Black CFP professionals grew by 10%, and Hispanic CFP professionals grew by 13.9%. Additionally, the number of diverse CFP professionals reached 3,688 Black and Hispanic CFP professionals following the September 2020 CFP certification exam.
We have also been encouraged by the great support and efforts by financial firms that we have collaborated with over the past few years to help in this effort.
A Perfect Storm of Market Volatility and Increased First-Time Investor Engagement Will Likely Persist
It’s become clear that market volatility and deeper economic troubles have kept Americans on edge, generating emotional and financial stress. According to an April pulse survey of CFP® professionals, 78% of CFP® professionals reported seeing an increase in client inquiries over the past 30 days, with 34% reporting an increase in inquiries from prospective clients.
This trend hasn’t abated in the months since the dark days of April. In a large-scale study conducted by Hearts & Mind Strategies in the days after the presidential election, more than half of Americans (54%) experienced high or very high levels of stress. More than one in three individuals (34%) described their personal economic situation as worse than four years ago, a nine-point increase from March 2020.
The rise in anxiety from the pandemic coincided with a dramatic increase in first-time investors. Bloomberg Intelligence reports that due to savings accounts paying very little, and people finding extra time while working from home, amateur investors who’ve gotten a taste of shares are becoming a permanent feature of the stock market. In fact, Bloomberg Intelligence reports that more than 50% of Robinhood’s new customers in 2020 say they are first-time investors, and more than 20% of stock trades have been made by retail investors.
With a new class of people looking to leverage their assets in investments—many of them for the first time—there’s a growing need for professional financial advice, especially given the market volatility over the past few months. As this demographic continues to gain exposure to the markets and its uncertainty, they’ll be looking for the security that comes from working with a financial planner.
2020 was quite a journey. Rather than a “return to normal,” financial planners and wealth management firms have embraced the challenges of the past year.
With any luck, by this time next year, financial advisors will all be able to enjoy face-to-face conversations with our colleagues and clients. But I believe that the lessons learned during the pandemic will remain.
During the year ahead, I fully expect financial professionals to find new ways to leverage technology, increase diversity and serve the needs of first-time investors.
This will be a lasting change – for the better.
Kevin R. Keller is the CEO of the CFP Board.
