5 financial advisor trends to watch in 2024

December 20, 2023 4:22 PM

Before you know it, 2023 will be a thing of the past.

That means advisors looking to gain the competitive edge in the new year need to understand what trends will push the industry forward over the next 12 months.

This week, wealthtech company Envestnet released new research from its market intelligence team to identify the significant trends shaping the future of financial advice. The analysis highlights the evolving landscape of financial advisory services and the increasing role of technology in the sector.

"We sit at a unique vantage point for the 107,000 advisors who utilize our platform — clients that comprise every conceivable business model — each offering unique insights that drive innovation and enhancements to the Envestnet ecosystem," Rich Aneser, chief strategy officer for Envestnet, said in a statement. "We use the insights and enhancements to help wealth managers and our partners grow their business and deliver powerful, connected advice for their clients."

Chris Shutler, head of strategic development and market intelligence for Envestnet, said the wealth management market has long faced challenges with fragmented technology and inefficient workflows.

The new study shows that firms are now taking active steps to put those struggles to rest.

"Our research highlights key trends such as industry and tech stack consolidation and convergence, the shift toward more complete financial life management, the growth opportunity for advisors offering retirement plans and leveraging data and AI to provide personalized services," he said. "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."

Scroll down to see some of the key takeaways from the analysis and the five trends expected to play a major role in wealth management next year.

True technology integration

The Envestnet report highlights a significant demand among advisors for end-to-end technology platforms and improved integrations.

Considering that Kitces AdvisorTech notes the availability of more than 400 wealthtech solutions in the market, the need for better integration goes beyond single sign-on capabilities to deep connectivity between systems and software providers.

Even among their existing tech solutions, firms are looking to improve adoption and utilization rates to take full advantage of their investments.

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," Shutler said.

Evolution toward holistic advice

From an investment perspective, Envestnet says advisors have the potential to add more than 300 basis points in annual value for clients, particularly through tax efficiency and behavioral coaching.

The report points out that amid this ongoing evolution toward more holistic advice, the scope of advice is expanding and advisors increasingly need to add value beyond investments for their clients.

This includes adding value through estate planning, tax advice, loan and credit management, life insurance and health planning.

Retirement as a growth opportunity

The Envestnet study suggests that the retirement market presents an underappreciated growth opportunity for advisors.

Challenges in accessing workplace retirement plans for many small and medium-sized businesses, combined with regulatory tailwinds such as Secure 2.0 and technology innovations, are making it easier for advisors who aren't retirement experts to offer retirement solutions.

Employers are also increasingly looking to integrate financial wellness tools into their benefits packages as a competitive differentiator, yielding higher employee satisfaction, productivity and employee retention rates.

Looking ahead, Envestnet expects the workplace to prove a significant path on which advisors can attract new assets.

"Retirement investors who are better informed about their complete financial picture are in a strong position to make better decisions," Joe Smolen, senior vice president of core and institutional markets at Empower, said in a statement.

Envestnet recently partnered with Empower to launch Envestnet Retire Complete, which allows plan sponsors to optimize retirement saving and planning for participants.

Leveraging data and AI for personalization

The Envestnet research indicates a growing client demand for personalized services, achievable through data aggregation and next-best-action insights.

According to the survey, 60% of advisors see the potential for these types of insights to improve their business or advice to clients, but have yet to implement them. Of those firms that are leveraging AI-powered next-best-action insights, many are seeing not just enhanced efficiency but improved client interactions and service delivery.

This is particularly true when insights are integrated with CRMs and advisors are supported with alerts for advice opportunities across any range of wealth, lending or banking areas.

The importance of the trend is reinforced by Craig Iskowitz of Ezra Group, who shared his thoughts on how the industry will look five years from now. "AI-powered next best actions will disrupt the standard advisor workflow," Iskowitz said. "These systems will drive efficiency, productivity and sales results to unheard of levels."

Managed accounts as a preferred choice

The advice industry is witnessing a migration from commission-based to fee-based accounts.

Based on the report's analysis, 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 — specifically a UMA — may be in a client's best interest.

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.