Over the past couple of decades, the financial services industry has seen some major changes. Online trading has become mainstream, and the introduction of robo-advisors has threatened real-life financial advisors.
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So, what does the future hold for financial advisory services? According to the Bureau of Labor Statistics, the financial advisor industry is expected to grow by 17% through 2033. However, even with this expected growth, change is likely in 2025 and beyond. And it should be no secret that the biggest factor is artificial intelligence (AI) and technology as a whole.
Keep reading as we explore what you could expect from financial advisory services in 2025 and beyond.
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Just a couple of years ago, AI was this new buzzword that had everyone talking. Now, it’s become a big piece of how businesses and individuals can streamline tasks. For example, AI virtual assistants and chatbots have made customer service a 24/7 possibility. It helps farmers be able to make data-driven decisions on how they water or fertilize their crops, and self-driving tractors have the ability to increase productivity.
AI is also beginning to play an important role in the financial industry. It helps spot fraud, improves credit scoring, and can also help with financial planning. AI tools use sophisticated algorithms to predict market trends, understand an individual’s risk tolerance, and be able to use that to provide investment advice.
Does this mean AI is going to take jobs away from financial advisors? Probably not. Instead, it’s going to be a tool that can help financial advisors become even better at what they’re doing. It will allow them to provide even better advice to their clients, regardless of whether they’re high net worth or a customer with a smaller portfolio.
Most people work with a financial advisor because they like working with a real person. Someone who is knowledgeable and can help their clients make smart choices that improve their financial situation. AI will only help make them better.
“As clients become more tech-savvy, financial advisors will need to adopt new technologies that enhance efficiency and provide personalized advice at scale,” said Blake Whitten, financial advisor at Whitten Retirement Solutions. “This shift may involve the use of robo-advisors for routine tasks, freeing up human advisors to focus on complex financial planning and relationship-building.”
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Over the next 20 years, $84 trillion is reportedly expected to change hands in what’s being termed the “great wealth transfer.” As wealth is being transferred from baby boomers to Gen X, millennials and Gen Z, so are the prospective clients of financial advisors.
So, what does this mean for financial advisors? It means you need to start thinking about the future. What might have been desirable for your current clients may no longer be a priority for younger generations. Now is the time to start planning for this transfer of wealth. Continue working with your clients to address their current needs, but invite their children into the conversation. By including them, you can begin building a sense of trust that goes a long way in retaining their business.
“Millennials and Gen Z want someone they can relate to and who understands their life experiences and financial challenges they are experiencing now,” said Alex Choi, CEO at FinanceHQ. “They want someone they can have a real conversation with.”
Choi continued, “Prior generations, millennials and Gen Z tend to prioritize experiences, invest in sustainable sectors and in technology-driven solutions. They have a plethora of options available to them and are savvy enough to navigate different platforms to find the best advisor that meets their needs.”
President Biden’s retirement security rule will take effect later this month. This rule requires any advisor who works with retirement products like 401(k) plans, qualified rollover plans, and even annuities to follow strict fiduciary guidelines. While any financial advisor with a CFP designation must act as a fiduciary, this law will mostly affect insurance agents who also offer retirement products.
Additionally, because this is a presidential election year, 2025 could see changes to the country’s tax code. Vice President Harris has proposed an increase in both income tax brackets and an increased tax on capital gains. These changes could impact how financial advisors work with clients to maximize investment returns.
“With potential updates to fiduciary standards and an increased focus on transparency and fees, advisors may need to adjust their business models to comply with stricter regulations,” said Whitten. “Additionally, changes in the tax code could alter strategies for wealth management, estate planning, and retirement savings, requiring advisors to stay informed and proactive in their approach. These shifts will likely make it more important than ever for advisors to stay agile and continuously educate themselves to provide the best possible service to their clients.”
With so much changing within the industry, financial advisors must find ways to adapt to meet their clients’ needs. However, with technological advancements, specifically AI, financial advisors can utilize these changes to positively impact their clients and provide a better relationship.
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This article originally appeared on GOBankingRates.com: The Future of Financial Advisory Services: What To Expect in 2025
