With the first quarter of the new year complete, predictions for the future of the financial services industry are being written. While the industry in general has seen steady growth in recent years, it also continues to face a number of challenges more complex than sales volumes or economic performance. Financial professionals can use these industry predictions to become more familiar with recent trends, driving business into new avenues and achieving growth in untapped sectors.
To get a feel for how things should fare in 2016, LIMRA surveyed industry leaders from a number of professions – including insurers, asset managers and banks – to gauge the health of the financial services market and what could be in store. Of the 10 different predictions offered, these 40 experts agreed on four of them, but identifying a unanimous verdict on the single biggest forecasted trend was difficult, according to LIMRA researchers. Two of the biggest challenges identified were how to align distribution to build upon market opportunities, and adapting to regulatory changes
When asked to come to a consensus on the biggest challenge facing the financial services industry, the primary issue concerned tackling distribution challenges. Specifically, leaders are curious how they can hire more sales representatives from diverse backgrounds, especially younger generations. Financial professionals are also especially curious on how those new sales leaders might attract and retain younger clients. Tapping into a younger talent pool is certainly a priority for many advising firms heading into 2016 as more of the current stock approach retirement age. According to a study from Cerulli, 43 percent of financial advisors in the U.S. are older than 55.
“To reverse this trend, it’s imperative to develop a value proposition that resonates with a younger generation of sales professionals,” LIMRA researchers wrote. “It is critical to engage today’s potential recruits in ways that make sense to them for example, via contemporary, mobile-friendly tools.”
Another common sticking point for forward-thinking financial professionals is how new regulations might impact business. Specifically, advising firms are closely following a proposal from the Department of Labor to require financial advisors to act as a fiduciary for their clients. This proposal could have a number of impacts on the financial services industry, many of which are not entirely clear at this time. According to LIMRA’s survey on the matter, 33 percent of respondents expected this proposal, if signed into law, to increase “costs due to significant changes to systems, processes, and oversight functions.” Another 23 percent believed this could cause a shift from commission-based compensation to a fee model. And 20 percent expected the rule to cause an increase in the popularity of “robo-advisors.” In short, grappling with new regulations will present several challenges to the financial services industry, of which none are certain.
Adapting legacy systems
Technology is a major driver of business success and growth, especially in the financial services industry. This sentiment is reflected in the results of the LIMRA survey, in which 7 out of 10 respondents said they planned to take “incremental steps” to update at least one outdated system in 2016. With interest rates remaining low for the foreseeable future, 2016 may be the best time to scout for inefficiencies in outdated hardware or software systems and update them.
One of the biggest trends in this arena is the use of predictive analytics, which has helped companies in a variety of industries solve complex problems and capitalize on growth opportunities. According to LIMRA, however, the life and health insurance industry has generally lagged behind others in this realm. As more companies shift into utilization of data analytics technology and strategies, many have seen measurable results. LIMRA reported 50 percent of financial professionals who use advanced analytics saw faster underwriting and issuing. About 25 percent even experienced higher profits and increased client satisfaction. Clearly, the financial services industry, and especially insurance professionals, could see real results from the use of advanced analytics.
Adapting to change is all about having the willingness to change. As a new year begins, financial professionals who can accurately predict and manage challenges will pull ahead.