Advisors were creating more financial plans heading into 2020. But the Covid-19 pandemic slowed that activity in the first half of this year, according to a new report, which also predicted a turnaround.
Over the past 12 months, more than 75% of advisors increased the number of financial plans they provided to clients. Some substantially boosted their output; 11% increased the number of plans by 10% or more, and more than a third improved their output between 5% and 10%, according to a new report by Aite Group, a research and advisory firm focused on financial services.
For decades, financial advisors have been slowly moving away from serving almost exclusively as investment managers and toward becoming more holistic service providers. But there is a lot of room for financial planning to expand further, as advisors become more efficient by leveraging technology and outsourcing other tasks, such as investment management (which most are ill-equipped to do).
Today, many advisors do some form of planning for at least part of their clientele. However, only 18% of advisors surveyed provide formal and written plans for all or most of their clients, and 34% of the group provide formal plans to less than one-quarter of clients.
“There are numerous reasons for low adoption of financial planning by financial advisors. They often claim that financial planning is time-consuming and difficult to scale, and that planning tools can be difficult to use and are not well-integrated into their workflow,” according to the report.
The report also points out: “Advisors often cite that planning tools are too sophisticated and complex for use with their average client, and clients are not asking for planning or they only need limited planning for a couple of key areas such as retirement planning.”
Covid-19 exacerbated the challenges advisors face in creating financial plans. The pandemic resulted in the fastest-ever bear market, millions were left jobless, and global economic turmoil ensued. Advisors were not only tending to nervous clients but their own businesses might have been strained.
As a result, the number of financial plans “is likely to be flat or decrease during the initial and peak periods of the COVID-19 crisis,” Aite’s report said, which was based in part on a survey on 400 advisors across wirehouses, independent broker-dealers, banks, insurance broker-dealers, and RIAs.
But the lull won’t likely last. Aite expects financial planning will increase as advisors begin reengaging clients in the latter half of 2020.
“The COVID-19 pandemic will accelerate the need for financial planning as current and prospective clients seek advice and advisors to assist in getting their financial household in order and their financial goals back on track,” the report said.
Many wealth managers — especially RIAs — now often lead with their financial planning expertise. The Aite report shows how far they still have to go.
Advisors don’t love financial planning software. While 51% of advisors surveyed said they were satisfied with theirs, only 9% were very satisfied, and 29% were neither satisfied nor dissatisfied. Before the pandemic, over half of advisors said financial planning technology met their needs but just 12% said it exceeded them. “Exceeding needs could signify that the advisors’ financial planning tool may be too sophisticated to use for their general client base,” Aite said.
Financial planning fees, hourly fees, or a subscription fee, were only used by 6% of advisors surveyed by Aite.
“The pandemic and associated financial crisis are having a dramatic impact on investors and advisors. Investors are grappling with disruptive investment portfolios and plans, and will be likely seeking more support and advice in the future as a result. In addition, advisors will need to change their practice to demonstrate value in order to retain current clients and attract new ones,” according to Aite.
