As 2022 comes to a close, we pause to reflect on the past year and prepare for the year ahead. This year has presented advisors with many challenges and opportunities. The industry has grown tremendously, thanks largely to the improved business acumen of advisors and the increasing demand for financial advice. The new year will also bring its own unique blend of opportunities and challenges. Advisors who are aware of and plan for these challenges and opportunities will outperform their peers and place their practice on the right trajectory to move ahead when good times return.

Challenges Facing Advisors in 2023 

Many of the challenges that have plagued advisors over the last two years will continue into 2023. Navigating economic and political turmoil for clients and the practice, filling critical gaps in the team roster, and managing practice equity and revenue in the face of market fluctuations are the three most notable challenges that will persist into the coming year.   

Economic and Political Turmoil 

Many of the pundits expect the political climate to remain an issue, even with mid-term elections behind us. This is because there is still significant political divide on key issues, including those of economic importance. Additionally, many economists are forecasting a recession in the next 6-12 months. Recession fears, potential layoffs, and market fluctuations will be a focus of concern for clients, who will in turn look to their advisors for guidance.  

Staffing Shortages 

Talent shortages that have plagued all sectors of the economy are expected to continue into the new year. Many people who left the job market during the pandemic have not returned to the labor pool. Some employees who left or changed jobs during the great migration have returned to their previous employers, but many companies with job openings are still struggling to fill positions, especially for skilled staff. At the same time, staff who have continued to work full time over the past several years are experiencing burnout and fatigue. Waves of covid, flu, and other virus outbreaks have also impacted staffing levels throughout the cold and flu season, which will continue into April. This has made staffing unpredictable for advisors who are trying to ensure a continuous delivery of an exceptional client experience. 

Market Impact on Practice Equity and Revenue  

Fluctuating markets have impacted advisory practice revenues and values over the past year. A potential recession and more market fluctuations are expected to have continued impact on advisory practice financials. These fluctuations will make it difficult to accurately predict cash flow and may impact the timing of equity events such as practice sales. Buyers and sellers have already started adjusting to mitigate risk and the impact of market fluctuations on practice value, but they may need to continue to adjust and look for creative deal term structures that spread risk between both parties. Advisors looking to grow or manage practice value and revenues will need to find ways to insulate their practice to the effects of market turbulence.  

Opportunities For Advisors in 2023 

Despite the many challenges facing advisors, there are a number of opportunities ripe for the picking. The demand for financial advice remains high and is expected to grow. This coupled with smart business practices will allow advisors to create scale and improve efficiencies, which will help drive revenue and greater profits.  

 Outsourcing to Achieve Scale and Scope 

Advisors can circumvent staffing issues and expand their scope of services by leveraging outsourcing. This approach allows advisors to scale up production, especially in terms of client meeting prep and financial planning, without incurring the costs and overhead of an internal staff person. It also allows advisors to tap into the expertise of a team of specialists while keeping the advisor’s focus on maintaining the client relationship and generating new business.   

Organic Growth  

As mentioned earlier, demand for financial advice has skyrocketed over the last two years. Clients are willing to pay for financial planning and are looking to build a deep and long-term relationship with a trusted advisor. Advisors who invest in client acquisition strategies and marketing will see a positive impact. Especially since this is an area often overlooked or underdeveloped, any investment in this area will yield results.  

Centers of Influence, such as lawyers and CPAs, are also coming to view financial advisors as a critical component of their client service toolbox. Pressure from industry professional organizations and a shift from billable hours to value based services has many COIs looking to build strong partnerships with financial advisors. Advisors who can articulate client value and actively work to build relationships with COIs in their area will have another strong avenue for organic growth in their practice.  

Enhanced Performance Through Technology 

The pandemic forced many firms to quickly adopt several technologies. These technologies provide advisors with a tremendous opportunity to increase operational performance and client engagement. Many technologies have built in capabilities to automate key administrative functions as well as many client touchpoints. By automating certain tasks, advisors and staff are freed up to focus on more important aspects of the client relationship. Client portals and digital meeting tools also provide clients with greater visibility into their financial portfolio and more convenient ways to interact with their financial advisor between in-person meetings. This leads to higher client satisfaction and loyalty.  

Improved Financial Management 

Economic pressure, though painful at times, also serves as a catalyst for improving financial management. Advisors can take the opportunity to learn about the key drivers of practice value in order to assess practice operations and eliminate inefficiencies and waste. Stronger financial management leads to higher profits and better cash flow. This can free up much needed capital for critical investments, such as in marketing initiatives to drive client acquisitions, incentivizing rainmakers, or in strategic practice acquisitions 

Advisors who learn about and plan for the challenges and opportunities that lie ahead are more likely to weather the uncertainty that the future can bring. Much can change over the coming year. Keeping an eye to the future while managing today will help advisors protect their practice and position it for growth over time.   

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About the Author: Ben Thelen

Ben Thelen serves as Vice President for Key Management Group. As a former financial advisor, Ben brings an intimate knowledge of the inner workings of a financial practice together with sound practice management principles. He uses this knowledge to hep advisors identify key gaps and opportunities, design practice management systems, and implement solutions to help advisors improve client experience, practice efficiency, and drive growth.

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