Four Challenges Facing Financial Advisors

Four Challenges Facing Financial Advisors

The American College of Financial Services
April 8, 2016

Being a financial advisor is a bit like being on a constantly-shifting sea. Sometimes, you are riding the highest crests ... and sometimes, you are the first to know things are about to crash. No matter where you are on these waves, everyone from clients to fellow professionals look to you for answers, and it's important not to let the following challenges keep you from rising back to the top of the surf.


1: Being inflexible

Sometimes, financial advisors face a rather unique problem: They spend their formative professional years developing in a robust market. This means that when things do become difficult, the advisor may suffer from "The Cam Newton Effect", letting stress compound much more quickly because they are so accustomed to success. The challenge for advisors, then, is to always be prepared for a change of financial fortunes: This not only better prepares them to handle the market when it becomes more volatile, but it will help them assuage the fears of their understandably frightened clients.

2: Finding the right clients

For financial advisors who are new or simply struggling, it is tempting to view every interested person as a potential client. However, that's a rookie mistake that may lead to wasted time, such as a business loan specialist actively courting someone interested in startup loans — someone who is not likely to be eligible for a loan for a while. The time spent courting this client could have been better spent courting clients who meet multiple loan prerequisites. One of the ways financial advisors can ensure they’re targeting the right clients is to approach prospects that are more likely to become clients. You would want to identify which prospects are qualified prospects - individuals that require or value your products or services, possess the necessary funds to purchase said product or service, and can be approached on a favorable basis. These are the people actually capable of and interested in becoming a lucrative client for a financial advisor.

3: Understanding the big picture

When facing a volatile market, even experts in financial planning are prone to making the same mistake that clients often do: Trying to rationalize what is happening with a limited set of data. Veteran financial planners understand that markets are actually rational over a longer period — say, 10 to 15 years — but very irrational in short-term. As such, advisors need to stress the importance of long-term investment. This helps them navigate investors around these brief and chaotic storms into a longer-term, calmer view, which not only lets advisors make sense of the world for clients, but helps shepherd them into a longer-term business relationship.

4: Not understanding generational shifts

Chances are, veteran financial advisors have become very accustomed to advising baby boomers regarding their investments, insurance, and other major financial aspects. However, there's an increasingly prominent group of investors that seems to mystify many advisors: millennials. Millennials have big plans for the future, but relatively limited earning power compared to Generation X who has stronger earning power, but is pessimistic because of what they lost in the last recession. Each group has quite different priorities from the baby boomers who are on the cusp of retirement. A truly adept financial advisor, then, must be able to skillfully navigate between the different world views, experiences, and priorities of each group. It's important to not write off any single group — ignoring millennials because of their lower earning power is to turn your back on some amazing long-term financial opportunities, for instance.