The retirement market presents an “underappreciated” growth opportunity for advisors who are not necessarily retirement specialists, according to a new study that looks at key trends shaping the future of financial advice in 2024.
Drawn from research published by Envestnet’s Market Intelligence Team, including an analysis of market data, third-party research, as well as an Envestnet survey fielded earlier this year, the study (Trends to Watch in 2024) highlights the evolving landscape of financial advisory services and the increasing role of technology in the sector.
One significant trend to watch is that Envestnet expects the workplace to be a significant path for advisors to attract new assets. In fact, challenges in accessing workplace retirement plans for many small- and mid-sized businesses (SMBs), combined with regulatory tailwinds such as the SECURE 2.0 Act, and technology innovations are making it easier for non-retirement-expert advisors to offer retirement solutions, the report suggests.
In further maintaining that retirement is a top opportunity, the report observes that U.S. retirement market assets have increased 50% since 2015; that the #1 reason for the gap in retirement coverage is access to a workplace retirement plan; and that nearly $40 trillion is invested in retirement savings, but only 53% of U.S. workers have access to an employer-sponsored retirement plan. What’s more, employers are increasingly looking to integrate financial wellness tools into their benefits packages as a competitive differentiator, providing yet another opportunity.
“Retirement investors who are better informed about their complete financial picture are in a strong position to make better decisions,” said Joe Smolen, Senior Vice President of Core and Institutional Markets at Empower.
In fact, Envestnet and Empower recently announced a collaboration where financial advisors can now offer retirement plan sponsors access to a cost-effective, streamlined plan solution with fiduciary and investment support. The solution—Envestnet Retire Complete—combines Envestnet’s fiduciary guidance and investment due diligence with Empower’s personalized communications and investments to help more employers provide competitive 401(k) plans.
“Together we have designed a state-of-the-art experience that allows plan sponsors to optimize retirement saving and planning for participants, while maintaining the flexibility to design features that work best for their organizations,” added Smolen.
End-to-End Tech Integration
The study also highlights a significant demand among advisors for end-to-end technology platforms and improved integrations—which Envestnet notes is important to consider given the availability of more than 400 wealth-tech solutions reported in the market.
According to the findings, 61% of advisors want an all-in-one bundled financial technology software, platform or solution. This need extends beyond single sign-on capabilities to deep connectivity between systems and software providers.
Further, even among their existing tech solutions, firms are looking to improve adoption and utilization rates to take full advantage of their investments, the study notes. Some of the top areas noted in the survey as critical to the advisor experience included the integration of client engagement tools and improvement of custody workflows.
“Increasingly, we’ve seen more of our clients looking to consolidate and streamline the technology and solutions their advisors utilize, to provide a more unified experience for customers and make it easier for them to do business,” said Chris Shutler, Head of Strategic Development and Market Intelligence for Envestnet.
Leveraging Data and AI
Envestnet’s research also indicates a growing client demand for personalized services, achievable through data aggregation and next-best-action insights. According to the survey, most advisors (60%) see the potential for these types of insights to improve their business and advice to clients but have yet to implement them.
Of those firms who are leveraging AI-powered next-best-action insights, many are seeing not just enhanced efficiency but improved client interactions and service delivery such as when insights are integrated with their CRMs and advisors are supported with alerts for advice opportunities across any range of wealth, lending, or banking areas.
For instance, the machine learning models that power Envestnet’s Insights Engine offer more than 100 different types of data-driven insights for advisors, curated daily. This technology learns patterns from data and highlights certain sets of patterns to human experts who then decide how to act on these highlights.
The study further suggests that advice will become more holistic and intelligently connected, which is particularly important, given that 62% of U.S. investors prefer or already use one single financial provider.
From an investment perspective, advisors have the potential to add 300+ basis points in annual value for clients, particularly through tax-efficiency and behavioral coaching, the study notes. To that end, it points out that amid this ongoing evolution towards more holistic advice, the scope of advice is expanding, and advisors increasingly need to add value beyond investments for their clients—such as through estate planning, tax advice, loan and credit management, life insurance, and health planning.
The advice industry apparently is also witnessing a migration from commission-based to fee-based accounts. According to the study, managed account assets have seen double-digit growth across all distribution channels. Use of data, technology and the insights generated can help advisors determine and demonstrate that a managed account, and specifically a UMA, may be in a client’s best interest, the firm notes.
Within this segment, Envestnet expects UMAs to remain the fastest growth area of managed accounts as they allow multiple investment vehicles to be combined into a single account for a unified view and customized client solutions.
“The wealth management market has long faced challenges with fragmented technology and inefficient workflows,” explained Chris Shutler, Head of Strategic Development and Market Intelligence for Envestnet. “Our research highlights key trends such as industry and tech stack consolidation and convergence, the shift towards more complete financial life management, the growth opportunity for advisors offering retirement plans, and leveraging data and AI to provide personalized services. To not only improve service delivery but also stay competitive, it’s crucial for firms and advisors to keep pace with these developments, addressing challenges through a holistic, integrated platform.”