In many ways, there has never been a better time to establish yourself as a financial advisor. After all, the demand for wealth management services and expert financial advice has never been higher, while there’s also a growing number of assets in which individuals can invest in.
Despite this, however, there are also immense challenges facing financial advisors in the current economic climate. This applies globally too, with various countries throughout the world (including Japan) currently thought to be hovering on the brink of a recession.
In this article, we’ll consider some of the key challenges facing financial advisors in 2020, while asking why they’re so problematic to overcome.
1. The Burden of Regulatory Compliance
This is arguably the biggest challenge in the world of financial advice and wealth management, with an estimated 80% of advisers saying that the burden of regulatory compliance is among their biggest hurdles as professionals.
A further 50% claim that this is their primary business challenge in the current climate, particularly at a time when legislative changes continue to impact on potential clients and even cost them money in the worst-case scenario.
Even on a fundamental level, financial advisers in the UK must keep themselves up to speed with the very latest policy and compliance announcements, in accordance with the Financial Conduct Authority (FCA) and the wider regulations set by the British government.
This can be extremely difficult at the best of times, but it’s even more challenging in a contracting economy where investors are becoming increasingly risk-averse.
2. Emotional Engagement and Management
While financial advisors are by their very definition rational and analytical in their thinking, it’s fair to say that some clients base their own input and decisions on emotion.
This is particularly prevalent in a difficult economic climate, as the value of certain assets can fluctuate wildly leaving clients prone to chasing unexpected losses or executing trades based on previous outcomes rather than fundamental or technical analysis.
As a result, advisors can struggle to relate to their clients on an emotional level and effectively maintain a viable working relationship, while explaining the potential ramifications of emotive investment decisions may also prove challenging.
If advisers are unable to communicate effectively, they may ultimately see their clients money and in the worst-case scenario could find themselves the victim of professional negligence claims.
3. Managing Client Expectations
On a similar note, it can be hard to manage client expectations in a strained economic climate, particularly if they’re largely oblivious to the status quo and are looking to achieve significant gains on their investment.
This translates into unrealistic and often unattainable objectives in the prevailing market conditions, and in this respect, advisors must develop an understanding of client psychology and the delicate art of communication.
More specifically, advisers must be able to develop a sense of trust with their clients and demonstrate how they can add value, while also keeping individuals focused on long-term objectives and the bigger investment picture.
Such things require time and effort, of course, but there’s no doubt that building a strong and clearly-defined relationship with clients makes it far easier to manage expectations over time.