No matter how much changes in financial markets, volatility is a constant companion. We’ve seen markets rise and fall over the past few weeks and months, and between cracks in the labor market, the expected return of interest rate cuts, geopolitical tension, and the upcoming U.S. Presidential election, we can expect more of the same.
For financial advisors, market downturns can pose huge challenges, especially when it comes to Assets Under Management (AUM), where declines can have a direct impact on advisors’ income. Not only do the values of portfolios decline, but clients may panic and withdraw their investments, exacerbating the decline in AUM.
For instance, during the 2008 financial crisis, the global AUM fell by approximately 17%. More recently, a similar trend emerged during the COVID-19 pandemic, with significant market volatility causing a temporary dip in AUM for many advisors.
When markets are fluctuating or even declining, it is important to focus on growth and retention strategies, a strategy that is increasingly being supported by advancements in artificial intelligence (AI).
A Refocusing on Fundamentals
In stable or growing markets, financial advisors might not feel the urgency to innovate their growth and retention strategies – after all, growth is happening naturally. However, during downturns, the pressure to maintain client trust and attract new business intensifies.
Advisors must focus on personalized client engagement, proactive communication, and robust financial planning to navigate these turbulent times. According to a study by Cerulli Associates, 45% of advisors identified client retention as their top priority during market downturns.
The Role of AI in Supporting Financial Advisors
Artificial intelligence is emerging as a powerful tool to help financial advisors enhance their growth and retention strategies, especially during periods of market volatility. Here are several ways AI can make a significant impact:
- Client Retention Signals: AI can analyze a variety of data points such as client engagement, transaction patterns, and communication frequency to identify early warning signs that a client may be at risk of leaving. By flagging these signals, AI enables advisors to take proactive steps to re-engage at-risk clients, such as personalized outreach or offering tailored solutions to address their concerns. According to a study by Deloitte, firms utilizing AI for client retention reported a 15-20% increase in retention rates, highlighting the effectiveness of AI in identifying and mitigating client churn.
- Supporting Organic Growth: AI empowers advisors to accelerate organic growth by identifying new opportunities within existing client relationships. By leveraging AI to pinpoint cross-selling and up-selling opportunities, advisors can increase net new assets and expand their business even during challenging market conditions.
- Efficiency and Productivity: By automating routine tasks, AI allows advisors to focus more on strategic planning and client relationships, ultimately driving business growth. This focus on high-value activities not only enhances productivity but also contributes to long-term client retention and satisfaction.
- Enhanced Client Communication: AI-driven chatbots and virtual assistants can provide clients with real-time updates and personalized advice, ensuring they feel supported and informed during volatile periods. This consistent engagement helps maintain trust and keeps clients invested during uncertain times.
- Predictive Analytics: AI can analyze vast amounts of data to predict market trends and client behavior, enabling advisors to make more informed decisions and offer proactive advice. By identifying at-risk clients early, advisors can take steps to retain them, reducing the likelihood of asset withdrawals.
- Portfolio Management: AI algorithms can optimize portfolio management by continuously monitoring market conditions and adjusting asset allocations to mitigate risks and capitalize on opportunities. This not only helps protect assets under management but also demonstrates value to clients, fostering long-term retention.
- Client Personalization: Machine learning can help advisors create highly personalized financial plans based on individual client goals, risk tolerance, and financial situations. By aligning recommendations closely with client needs, advisors can improve satisfaction and loyalty, leading to increased wallet share and client retention.
Defending Market Share and Seeking Opportunity
Market volatility is an inevitable aspect of the financial landscape, but it also presents an opportunity for financial advisors to innovate and strengthen their client relationships. By leveraging AI, advisors can enhance their growth and retention strategies, ensuring they remain resilient in the face of market downturns.
By adopting these advanced technologies, financial advisors can not only weather the storms of market volatility but also navigate themselves towards sustainable growth and client satisfaction in the future.
To learn more about the role of AI and how TIFIN AG can help you grow, email us at ag@tifinag.com.