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Wealth Management: Life After Lockdown: What is the future of financial advice after recovery from the COVID-19 pandemic?

May 15, 2020

NEPC's Dan Gimbel was featured in a Wealth Management article about the future of the wealth management industry and how it will change as a result of COVID-19. View the piece on Wealth Management's site.

On April 1, 1980, New York City transit workers went on strike, paralyzing the city and forcing commuters to find new ways of getting to work. Before the strike ended on April 11, urban commuting habits changed in ways that continue to this day.

One direct outgrowth of the transit strike? Today, in cities around the country, you’ll find professional women wearing sneakers and walking with shoulder bags carrying the shoes they will change into at the office. You’ll also find many people walking over the Brooklyn Bridge to Manhattan, a practice that was almost unheard of before the transit strike.

Forty years later, the subways are running, but the Brooklyn Bridge pedestrian lanes are congested every day with commuters. If habits so persistent can be cultivated in an event lasting a mere 11 days, what habits will be inspired by the COVID-19 lockdown, now months in duration and national in scope? Experts say it’s unlikely things will revert to the way they were before the pandemic. How will it permanently reengineer financial advisors’ practices of work, consumption, investing, travel and socializing?

Remote Work More Normalized
Before the pandemic, remote work was considered an employee benefit that usually required justification. Now it has become normalized. The physical relocation of millions of workers from central office buildings to home offices will likely restructure the way companies are managed and how teams are designed and coordinated.

First order impacts will see a shift from static organizational structures toward dynamic team formations. Second order effects may well transform the way entire cities are organized.

Just a few months ago, Dan Gimbel commuted five miles from his home in Ponte Vedra Beach, a suburb of Jacksonville, Fla., to a satellite office of NEPC, an employee-owned investment consulting firm with total assets over $1.1 trillion. Gimbel thought himself fortunate to have such a short commute.

“I thought I had it good,” says Gimbel. “But after a month of working from a well-appointed home office, I suspect I won’t be going back.” How many other professionals, now satisfied that they can work from home, will willingly venture back into their cars, often for long commutes, to expensive offices?

That’s just one change we can expect. There’s no going back from this pandemic; WealthManagement.com asked advisors and other finance professionals to predict how the world will be altered in ways big and small by the response to the COVID-19 pandemic.

Each of these predictions creates winners and losers. Giving up a physical location may be just one advisor’s decision but represents a thread in a larger tapestry that spells big changes for society, the environment and maybe the future of cities.

On one level, by eliminating his commute, Gimbel’s personal carbon footprint will go down. On a societal level, if enough people decide to work from home, traffic congestion eases, parking spots open up and the air everyone breathes is cleaner. Commercial buildings may become residences, further changing the character of urban areas. The chain of consequences can be significant.

Advisors won’t totally abandon central workplaces.

“People want to get back to some semblance of normal,” says Charles Reiling, CEO of Wilmington, Del.-based CoastalOne. “They want to get outside of their homes. Many will welcome returning to an office environment and interacting with colleagues and friends. They’ll want to go out for a nice meal and conversation in public. But we now know that physical offices are not required to run many businesses. They may still be preferable for a host of reasons, but they’re no longer a necessity, and they’re now an option to be cut when belt-tightening is needed.”

The Big Reset for Wealth Managers
The fallout from the COVID-19 pandemic creates the need for a new type of financial advisor who can integrate investment portfolios embracing client-facing automation, dynamic modeling and solutions that make risk more transparent. “Clients today care more about risk than reward; the pandemic turned a paradigm on its head,” says Constance Hubbell, founder and president of The Hubbel Group, a Quincy, Mass.-based boutique PR firm that represents a number of traditional and alternative asset managers.

Everyone agrees clients will demand more conservative portfolios, though few agree on what that looks like.

“The tools we use to define risk need development,” says Sonya Thadhani Mughal, chief operating officer and chief risk officer for Bailard in San Francisco.

Diversification became a boring conversation for many investors in the long bull market. “We see a need to get deep down into the core of how investors think about risk.” She believes that investors are now more willing than ever before to understand that in a diversified portfolio, the highs are not as high, but the lows are not as low.

Clients will be advised to beef up allocations to their rainy-day or emergency funds as part of their overall financial plans, predicts Christopher Crawford, director of advisor relationships at Buffalo Funds in Mission, Kan.

“Going into this pandemic, given the strong bull market, many individuals and advisors weren’t as prepared as they should have been from a cash/fixed income position to insulate their clients’ portfolios from significant losses,” he says.

Just as after the 2008 bubble that crippled banks, the Federal Reserve upped the reserve requirement and imposed stress tests to ensure that banks were not overleveraged, Crawford predicts financial advisors will develop informal stress tests on behalf of their clients.

The goal of these tests is to give clients confidence that their portfolios better calibrate risks (such as pandemics) and identify how their portfolio will perform in varying risk scenarios. While these risk simulations often take place in an informal manner, Crawford expects advisors to make them more formal.

Because of the longest bull market in history, many investors found themselves further and further away from what their true risk tolerance was and, subsequently, were overallocated to equities.

“This is natural behavior as things continue to be bullish,” Crawford notes. “Moving forward, however, there is going to need to be a more disciplined approach to allocating to emergency accounts and rainy-day funds.” As part of this exercise, the average portfolio, regardless of the client’s age or risk tolerance, will feature more robust emergency funds filled with cash and more conservative fixed income vehicles such as T-Bills, TIPS, short duration municipal bonds and money market funds.

Look also for higher levels of client engagement, with greater activity across audio, video conferencing and online portals. Look for the pandemic to drive the evolution of online marketing strategies, with greater use of digital roadshows and video as a more efficient means to connect with clients and prospects. The reset will require advisors to balance such evolving high-tech solutions with “hightouch” advisory services.

The touchpoints advisors worked so hard to create will get less and less frequent, says Alvina Lo, chief wealth strategist at Wilmington Trust, Wilmington, Del. “That means that in the touchpoints that remain, advisors will have to dig for deeper connections by making them more relevant for clients.” For example, blanket emails or mailings won’t work anymore

Personalized experience is the key. Advisors who updated client plans once a year will be expected to update them more frequently.

“Wealth management is facing significant disruption on two fronts, and this will hold through in a post-COVID scenario in customer experience and digital transformation,” says Mike Lee, EY Global Wealth & Asset Management Leader.

“Understanding client demographics and expectations is essential. The goal is to deliver hyper-personalized services,” he said. The “in-person” element of advice, delivered through the financial advisor, becomes even more important. Clients require complex advice on the rebalancing of portfolios and frequent, bespoke asset allocation needs, recommendations on how to adapt to existing, and now more challenging, life events, as well as providing strategic guidance on navigating multifaceted and complex tax and estate planning.

Still, wealth managers have an opportunity to capitalize on a greater willingness of clients to engage with self-service technology.

“Advisors who see improved digital resources as an opportunity will embrace the transparency and access that financial apps and online resources provide,” says Ksenia Yudina, CEO of U-Nest, a mobile app that makes it easy for families to save for college. “Advisors who see financial apps and online resources as a threat will see their customer base age out. Failing to adapt to the preferences and expectations of millennials and future generations will see old-school wealth managers slowly lose influence, relevance and clients.”

“It’s at times like this that advisors are asked for more than just asset allocation,” says Matthew Schulte, head of financial planning at eMoney Advisor in Radnor, Pa. “Clients will expect advisors to spend more personal time with them, whether on phone or Zoom, working on personal goals and playing the role of educator. The pandemic forced client and advisors alike to get more comfortable working remotely. Remote consultations will become normalized.”

Consolidation in Wealth Management
Advisors will retire in greater numbers in the postpandemic period, predicts Bill Van Law, founder and CEO of the WVL Group in St. Petersburg, Fla.  “Many advisors have put off retirement and elected to ‘ride the wave’ of the rising revenues and profits of the bull market,” he says. With the abrupt end of the bull market and increased uncertainty in all financial sectors, Van Law expects to see a significant increase in the number of advisors leaving the industry.

Edward Jones shuttered all 15,000 retail locations in the wake of the pandemic. The consensus is that maybe half will re-open. “Edward Jones will have to rethink their model,” Schulte says. “There’s a certain segment of the population, skewing older, that will want to sit across the table from advisors. But I believe they will rethink the retail store model and ensure that there’s a mix between those who now prefer digital engagement to face-to-face conversations,” he says.

For the advisors that survive the consolidation, those that embrace holistic wealth management—incorporating tax planning, estate planning, philanthropic planning and other services—will fare much better than those who focus on asset management alone. “Successful advisors will need to make the shift toward value-add financial planning, if they have not already, or risk obsolescence,” says Dan J. Rinzema, chief client officer at Greenleaf Trust in Kalamazoo, Mich.

For one thing, advisors will be called on to help clients with increased “tax volatility” in the future. The bill for the stimulus and subsidies that added liquidity during the crisis will come due post-crisis, forcing taxes to increase from historically low levels. The tax increases are inevitable and will impact income taxes, estate taxes and capital gains taxes. “Tax-aware financial planning and portfolio management advice inevitably becomes more valuable in such an environment,” Rinzema says.

The Day-to-Day Experience of Work
“As the crisis unfolds, people will find that their workdays follow a very different cadence,” says Jeffrey T. Polzer, the UPS Foundation professor of human resource management at Harvard Business School. “Normal work activities will get disrupted and then blended with your personal life. This is a good time to take stock of your priorities and rethink your patterns of collaboration. Before this crisis, you may have felt overloaded with too many meetings and relentless emails, making it seem like you never had time to do your actual work.

The shift to working from home, despite all its inherent challenges, can also be an opportunity to reflect on your priorities and design your new schedule to accomplish them.”

Communication becomes paramount during periods of crisis. Constance Hubbell, president of The Hubbell Group, finds herself focusing intense energy on communicating with employees, customers and stakeholders. It’s critical, she says, for advisors to be visible, “overcommunicate” and constantly reinforce the values they provide. “Just because you are working remotely doesn’t mean you can’t be visible,” Hubbell says. Moreover, the hypercommunication dictated by the pandemic may become the new normal.

Workplaces will see significant changes, including new seating arrangements for physical distancing and the favoring of building surfaces that discourage the spread of germs. New technology could provide access to offices and elevators without employees having to touch a handle or press a button. Elevators will be limited not by total weight b ut by number of passengers.

Returning workers. can expect stepped-up cleaning and a reinforcement of social distancing. Physical screening will inspect not just for weapons but for fever. Hand sanitizer stands will be positioned in building lobbies, and visitors will be expected to use them. It’s almost a given that social norms will evolve to require handwashing when people enter a public building. It will be as expected that visitors to a home wash their hands as surely as they wipe their feet. Both public buildings and, eventually, residences will be retrofitted to provide convenient handwashing facilities to visitors.

Small Disruptions, Lasting Impacts
The coronavirus pandemic will shape our lives and the global financial markets for years to come. Small disruptions open the doors to redefined norms leading to societal shifts with lasting impacts. Personal habits have already changed. Does anyone think society will soon go back to the casual handwashing routines we considered normal a few months ago?

When was the last time you shook a stranger’s hand in customary greeting? At what point will you not be skeptical of accepting a stranger’s hand when it is offered? Many experts believe the pandemic will make handshakes a thing of the past. “We don’t need to shake hands,” says Dr. Anthony Fauci, the nation’s top infectious disease expert and key expert on the president’s COVID-19 task force. “We’ve got to break that custom because, as a matter of fact, [the handshake] is really one of the major ways that you can transmit a respiratory-borne illness.”

We will evolve another gesture of greeting, a gesture that presumably can be extended virtually on a Zoom videoconference.

The COVID-19 crisis, and society’s response to it, has created a lot of uncertainty that will take years to sort out. We can call this process the Big Reset. Crises like the pandemic operate to accelerate trends that were already at work. The trend to remote work supported by videoconferencing technology has been normalized to such an extent that no one believes everyone now working from home will automatically start commuting again when the lockdown is lifted.

Topics: Press, Press Coverage

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