The transactional advisor is becoming less and less useful.Nuthawut Somsuk/iStockPhoto / Getty Images
We’re living in a very different world than the one many of our financial systems were created to support.
When Old Age Security was introduced in 1927, average life expectancy in Canada was about 61 years old. In 2022, average life expectancy was 81.3 years of age. For the first time in history, up to five generations are alive at the same time.
Meanwhile, fewer working people have employer pension plans as compared with 50 years ago. Most developed nations are increasing their national pension start dates to 67 or older. And the responsibility to maintain financial stability is landing solidly in the hands of individuals and families – right when doing so has become so much more complex.
Innovative products continue to be introduced, as do new account types such as tax-free savings accounts and tax-free first home savings accounts designed to meet specific needs. Access to direct-to-consumer financial products – including investments, insurance, tax filing and even legal documents – has increased rapidly.
For some, this might suggest that advisors of all kinds are becoming less and less necessary. However, that’s not the case. The increasing complexity of financial decisions means people need strong advisors more than ever. Rather, what they need from advisors has changed.
The ‘relational’ advisor
Traditionally, financial advisors have provided access to products and knowledge. With advisors as gatekeepers, the transactional component of financial services was considered valuable.
In many cases, clients can complete those transactions and seek out knowledge on their own (with varying degrees of effectiveness). That means the transactional advisor is becoming less and less useful.
Clients have moved on from transactional relationships and are now demanding an advisor who is relational. But what exactly is a relational advisor?
A relational advisor builds connections and works to make their clients’ lives easier. They focus both on what’s happening right now and what the future may hold. They get to know their clients and understand what’s unique and important to each one as opposed to imposing their own ideas about what is “right.” They not only provide services, but also education and support; and they respect their clients’ autonomy to design the relationship and make decisions.
A relational advisor works collaboratively with the other experts on their clients’ team to create cohesive plans together. A great advisor steps back from trying to be the “quarterback” or the “trusted advisor” and focuses on knowing their own expertise well enough to support their clients, and their clients’ entire team, in the ways that work for the client.
It’s a significant change from what many advisors have been taught would make their businesses successful. Building fences around clients and being their primary source of knowledge has been the focus for many people building advisory practices. The idea that we could be collaborative instead, and work together without anxiety or fear that someone might take our place, is new and a bit daunting. But it’s necessary if we want to support clients in the ways they need.
That means, on top of our technical knowledge, building active listening skills, staying curious and finding ways to remove from the discussions our own psychological “noise” – all the competing thoughts we have about where the conversation is going, what to say next or even whether we should be picking up milk on the way home. It’s a vital skill set few advisors were taught in their commerce, licensing and designation programs.
The new clients
Based on demographics, the future is decidedly female. It’s also going to be (and is already, in many ways) culturally and racially diverse, as immigration fuels Canada’s population growth. The wealthiest people advisors are speaking with are going to look, sound and think differently.
They’re also likely to ask for a lot more.
As the shift in demographics and wealth occurs, new clients will be looking for advisors to be not only technically knowledgeable and transactionally capable, but also relational and client-focused. They’ll be looking for advisors to help them transform.
What does that mean?
The next generation of clients, including women in the baby boomer generation, is focused on creating meaningful lives. They want their advisors to help them design their lives, with technical and financial support built around and in service of those designs. That means advisors must be ready for discussions around meaning, to challenge narratives, to create psychological safety and remove judgment, and to join clients on their journey.
Importantly, advisors will need to ask, not tell. They’ll need to help, not solve. They’ll need to question everything and be open to answers they’ve never heard before. Advisors will need to transform how they show up so they can help clients create and support truly meaningful lives on their own terms.
It won’t be easy, but it’ll be worth it.
Julia Chung is co-founder and chief executive officer of Vancouver-based Spring Planning Inc. and chair of the Financial Planning Association of Canada.