The impact of COVID-19 on financial advisors’ relationships with investors.

(Photos: Shutterstock; compilation: Chris Nicholls/ALM)

While the profession has been resilient in the face of financial downturns and headwinds, the wealth management industry is in the midst of a shift that will define the way that advisors run their practice even after the pandemic fades. 

In this analysis, we take a deeper dive into two key trends that will shape the advisory profession in the years to come, including changes to the ways that consumers discover financial advisors and shifting preferences in how they receive financial advice. 

Transformation 

The advisory business is built on community. Most advisors’ clients live within driving distance; and business development efforts reflect this: networking events, seminars, centers of influence and even referral networks are predominantly local. 

While larger firms have found success in disintermediating advice and delivering portfolio management remotely, most advisors have stuck with what works: developing and strengthening local relationships. 

While many advisors have invested in their online and social media profiles, the bulk of financial advisors have typically focused on local, event-based marketing to grow their businesses. 

Advisors aren’t the only ones driving this trend. As recently as 2015, only 20% to 30% of investors were open to working with an advisor virtually. While the internet has disrupted many industries, the financial advice industry has been slow to adapt to changing times. 

As the coronavirus arrived in the United States in March 2020, advisors experienced what Microsoft CEO Satya Nandella referred to as “two years’ worth of digital transformation in two months.” 

Widely mandated lockdowns and self-enforced social distancing hurt advisors’ ability to grow their businesses through in-person channels. Travel limitations and fear of contagion meant that not only were some investors unable to meet in person, but fewer were willing to take the risk of doing so. 

Fortunately, most financial services companies were able to quickly transition to a remote-first model. Eight in 10 advisors surveyed by professional organization LIMRA reported being optimistic about their ability to service clients remotely during the pandemic.

While some advisors have returned to the office, few report a return to business as usual. And while some states have fully reopened, many people are still hesitant to leave their homes for non-essential activities. 

Though this may fluctuate as the pandemic continues, it’s likely that a significant portion of investors may hesitate to embrace traditional in-person advisor marketing, even if they’re able to do so. 

Searching for Advice 

For those looking to buy goods and services online, one destination consistently ranks highest for both research and initiating a purchase: Google.

Due to the nature of the relationship and the trust involved, financial advisor-client relationships have historically taken a different route. The activities that drive new business for advisors — community involvement, networking, developing centers of influence and local volunteering, as well as referrals — have historically begun offline.

Since consumers take more time to research and choose a financial advisor, they frequently visit seven or more sites to conduct research on financial services purchases. While online search hasn’t been the primary discovery channel for financial advisors, investors have still used the search engine to conduct due diligence on their potential advisor choices. 

The coronavirus turned that trend on its head. The virus’ emergence in the U.S. drove two major changes. First, most investors began to limit their social interactions, either due to fear of contagion or shelter-in-place restrictions. Second, global markets fell precipitously, and financial stress reached its highest point since the 2008 financial crisis. 

Investors responded as expected: those who had…