During a webinar on Tuesday, Michael Kitces, head of planning strategy at Buckingham Wealth Partners, discussed industry trends that he said are reshaping financial advice.
At the center of it all is technology, which he argued is once again driving significant changes in the business model of financial advisors.
But he pointed out that technology disrupting financial advisor business models is not a new phenomenon. Rather, it's something that, like the fear of robo-advisors a few years ago, has happened repeatedly over the past several decades, forcing advisors to either adapt and move up the value chain or risk being left behind.
He predicted these trends will accelerate as Gen Xers and millennials become the primary market for financial planning services and the main demographic of financial planners themselves.
Here are four industry trends that Kitces said are reshaping financial advice and are pushing advisors to increasingly focus on improving the client experience:
1. New Technology
Technology played a key role in the success of Charles Schwab, Kitces said, noting the entrepreneur from Northern California, near Silicon Valley, "decided that he would start using these newfangled things that have come out called computers to see if he could use technology to disrupt the human financial advisor of the era."
In the process, Schwab pioneered the discount stock brokerage industry in the 1970s.
During the late 1970s and early 1980s, there was a "gigantic boom of tech startups whose sole mission was to use computers to disrupt the human financial advisor of the era, and the computers won," Kitces said. "The cost to execute a stock trade ultimately fell by 90% in 20 years. This is why all the stockbrokers went away — they were actually disrupted by the rise of technology."
"The interesting phenomenon is that, while technology actually did disrupt the financial advisor business model, it didn't actually disrupt the financial advisor," Kitces said. "We're still here. We just evolved."
New technologies are having a similar effect on the sector, but the best advisors continue to make the transition successfully, he said.
2. The Great Convergence
The growth of tech is "leading to a great convergence of industry channels," Kitces said, noting that traditional advisors aren't really being threatened by robo-advisors.
