This optimist likes what 2024 promises for financial advisors

I’m just a cockeyed optimist¹ when it comes to financial advisors’ prospects for 2024.

And that’s not because I believe the S&P 500 and the NASDAQ are up as I write this, and inflation is somewhat tamed. 

No, it’s because leaders I talk to daily agree with me on how the confluence of digital and human advice keeps improving and will be a dynamic duo in the future. Together, they deliver better outcomes for investors, more assets and increased revenue opportunities for advisors and firms.

Specifically, five trends I believe have come into focus in 2023 and promise an exciting and profitable 2024 in my opinion: 

1. The use of model portfolios is growing and will continue to increase exponentially.
2. Workplace-based financial advice is in demand and will increasingly sync with wealth management.
3. Tech platform development prioritizes tax-smart, household-level management.
4. Investors crave security in their retirement income planning.
5. AI will make advisors’ jobs faster and easier, not outdated.

Let me explain.

Model portfolios are on the rise

Financial advisors used to get referrals based on their canny stock, bond and mutual fund recommendations. Those were the days of ads like, “When E.F. Hutton talks, people listen.”

That’s history. Today’s investors know institutions achieve better returns. They want those, too.

Model portfolios allow advisors to provide institutional-quality advice and personalize those portfolios to suit their clients’ risk tolerance, time horizon, goals and tax brackets – Cerulli Associates projects model assets to grow to more than double to $10 trillion in five years. 

Investors want to be treated like the endowment chiefs at Harvard and the University of Texas. They want their portfolios customized and managed to minimize taxes and maximize returns.

Practically everyone’s an investor in the workplace

Chip Roame, founder and managing partner of Tiburon Strategic Advisors, has his binoculars trained on the horizon full-time. He says, “The workplace is where advisors should focus in their search for new assets and efforts to win a larger share of wallets among existing clients.”

Morgan Stanley’s exiting CEO, James Gorman, said earlier this year that he expects the workplace to be the firm’s largest source of net new assets in the next ten years.  

Many factors contribute to the workplace as ground zero in financial advice. Employers use their benefits packages to attract and retain talent. Up-and-coming employees want a share of their employer’s equity as the best way to accumulate wealth.

If you manage assets for clients with investments in workplace plans – including those with former employers – I’m sure you ask about those assets as part of the financial planning process. 

Then, ask if they could use some financial “Marie Kondo-ing” to ensure their multiple tax-qualified and non-qualified accounts are appropriately coordinated to maximize tax alpha.

Great advances are happening in tech platforms

My company, LifeYield, works with many established leaders. In my opinion, they all share a commitment to offering tech-enabled advice that maximizes client returns through the power of tax alpha and household wealth management. Their tech stacks need to be oriented to help investors with their most urgent concerns, like:

• How do I invest long-term to prevent taxes from dragging down my returns?
• How should I coordinate my household’s accounts to maximize returns and minimize taxes?
• What moves do I need to make to increase my chances of enjoying a secure retirement by limiting tax drag on my savings and investments?

Matt Belnap, associate director of research at Cerulli Associates, talked to me about how firms were moving to household-level, tax-smart wealth management: Slowly but with intention.

“The entire managed accounts ecosystem has sprung up around account-level management,” Matt said. “So, stepping up to household-level management is a challenge. But it's a complete reframing of the advisor-client relationship, as well, and something I think will be important for these advisors as they look to differentiate their practices going forward.” 

Investors are seeking security blankets

The see-saw of the markets in the past few years has schooled investors in some facts of life: Stocks don’t always climb to the sky. Bonds are subject to swings beyond our control.

Annuity companies are seizing an opportunity in my opinion. Products like income annuities and registered-index income annuities (RILAs) attract investors because I believe they feel like the one protected income source they know and take for granted – Social Security. Higher interest rates have also made annuities more attractive.

Annuity sales have boomed in 2023, and some predict that popularity will be durable for years. Their manufacturers have heeded consumer insights, developed appealing, easier-to-understand products, improved their marketing and wholesaling and widened distribution.

Technology platforms like FIDx, DPL Financial Partners and Halo Investing are supporting annuity and protected income offerings in a big way by expanding the universe of advisors who use them with clients. 

(You can hear more from Rich Romano of FIDx, Joanna Kanakis from Halo and David Lau of DPL on my podcast.)

AI is here to help you, not replace you

By now, it’s a universal habit to ask Alexa or Siri a question before typing in a Google search. Artificial intelligence (AI) is here. Its dominance will only grow. But Alexa and Siri won’t sit with your clients over coffee.

The co-founder of Milemarker and general partner in Mammoth Technology, Jud Mackrill, predicts AI will eclipse the hours financial advisors spend researching investments and crunching and analyzing data. 

He said AI will give advisors time to expand their markets and services and increase their value to clients.

Market research confirms that people like talking to a human advisor. But they will also go to many other places for information and advice. 

A Hearts & Wallets report said investors are multi-sourcing where they go for financial information and advice. Between 2012 and 2022, the use of financial advisors went up by ten percentage points (from 63% in 2012 to 73% in 2022). Online resources jumped 22 points, from 38% to 60%.²

I bet those numbers will change dramatically in the next few years.

“We have a lot more questions (about AI) than answers at this moment. But the change is going to happen, and it’s going to be fast, and it’s going to be exciting,” said Chad Virgin, managing director of Allianz Life Ventures. “I believe it’s going to deliver better outcomes for clients.”

To hear more from some of the most brilliant people in our industry, subscribe to my podcast, WealthTech on Deck, available at lifeyield.com/podcasts.

1. From “South Pacific” by Rogers and Hammerstein. 
2. Hearts & Wallets. (2023, May 17) Investment Decisions Today: Financial Professionals Most Influential, Reliance on Online, Employer Resources, Statements Up [Press release]. https://www.heartsandwallets.com/docs/press/press_release_2023_5_17_Influences_on_Investment_Decisions2.pdf