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Risk-First Decade: 6 Things We Know are Changing in Wealth Management

Learn the full story behind financial advice entering the Risk-First Decade — watch CEO Aaron Klein’s Fearless Week 2020 Keynote Address.

If you thought you knew risk before, 2020 changed everything. Eight months into the year, and six months into COVID-19 quarantine, the world was still asking the same question: “When will all this turbulence end?”


But whether it’s the 2020 coronavirus pandemic, the 2008 recession, or the dot-com bubble burst, no one knows the answer to that question for certain. And in fact, making predictions for global economies and pandemic cures seems a little fruitless. 


We certainly aren’t trying to get into the predictions business at Nitrogen.


What we can do, however, is identify key ways that financial advice is changing as we head into the future as a result of this year’s insanity.


Before we can look into the future and identify six ways 2020 has changed the future of financial advice though, we have to look back and see where the advice profession has been over the last four decades to understand how we got to where we are now.


Let’s take a brief trip down memory lane.

Financial Advice Through the Decades

The past doesn’t predict the future, but it does give us important context about how we’ve come to arrive where we are today.

The 1980s
The early 80s brought the invention of the 401(k), a grinding 15-year bear market came to an end, and Wall Street was booming.

Selecting a broker for investors was all about performance. The broker promise came down to a simple “I’m the best at picking stocks, and my mutual fund is better than anyone else because of it.”

The theme of the 80s for investing was summed up by the infamous Gordon Gekko quote: “Greed is good.”

The 1990s
The 90s proved that most of those mutual funds weren’t all that great (or different) and investors started off the decade in a slump.

Americans got hooked on cable news with the end of the Cold War and Middle Eastern conflict, and how those issues would affect that 401(k) they started in the 80s.

As all that news (and political scandals) swirled, it created a recipe for a drug we still haven’t gotten away from today.

The 90s became the decade of Tabloids.

The 2000s
We got past Y2K unscathed, so this decade began with heightened expectations.

The dot-com bubble and 9/11 had investors asking: “What should I really expect from an advisor?”

The 2000s marked the rise of financial planning as a new value differentiator. We also saw consumer technology that created the dynamic of liquid expectations—where the experience of using Netflix seeps over into the expectations an investor has of how to work with their bank or advisor.

The 2010s
This decade kicked off with movies like Inside Job, Chasing Madoff, The Big Short, and the Wolf of Wall Street.

Investors were confused about the differences between an advisor, broker, or even hedge fund manager. On top of that confusion, the few bad apples got all the attention—but at the same time, the financial industry took new steps to toss them out of the orchard. 

The 2010s became the decade of Best Interests.

The best interest dynamic shaped how and why we started Nitrogen in this decade. We believed that if advisors could give clients a way to understand and react to risk appropriately, it would help their clients understand how their advisor was truly on their side.

This little history lesson takes us to the third wave of advice. The first wave was a focus on returns, and the second wave tied focus to long-term planning.

The third wave was all about empowering advisors to help clients understand risk in an appropriate way. A correct framework for reacting to risk is the right way to transform a fearful investor who makes bad decisions, into a fearless investor who makes great decisions.

But our timeline doesn’t stop there…we still have this year to contend with.

The 2020s: Entering the Risk-First Decade

This year is when the third wave crashed onto the shore. We’re officially in the decade of risk.

It feels like everything has changed, but one of the biggest is how advisors build trust with their clients.

Back in the 80s and 90s, and even afterwards, advisors spent time creating the impression of credibility with fancy offices and a perfectly-framed family photo.

These days, advisors simply need a fake Zoom background. The veneer of authenticity has been peeled back to reveal who is and isn’t truly authentic.

Clients don’t want perception—they want data. They need to see bulletproof methodology that demonstrates a rigorous process that gives them the best chance at safety in an uncertain world.

The way clients perceive risk has changed at a fundamental level—and it’s not going back. 

This has always been a risk-first movement, and now we’ve entered a risk-first decade.

The question advisors have to ask themselves is this: “How do you keep clients fearless during a risk-first decade?”

How 2020 Will Change the Future of Financial Advice

We’re not even through the year, and already 2020 has dramatically altered the future of financial advice. There are six big things we’ve learned that lay the foundation for how advice has changed in the 2020s.


1. Risk Alignment is a Necessity

“Because at this point, not having risk alignment on your desk in 2020 is like not having a computer on your desk in 2000.”

2. Advice Should Be Communicated Simply

The second thing we’ve learned is that we have to deliver sophisticated advice with simplicity and clarity in our language.

Language is a beautiful thing, and it’s constantly evolving. Some of the first evidence of early language we see is in cave drawings — intuitive symbolism that often doesn’t take much to decode.

Those cave drawings aren’t so unlike the first language of teenagers today which is, of course, emoji. We see these everywhere now and I’m convinced we humans have come full circle and are right back to the days of cave drawings! The power of emojis is that they’re simple, they cut through the noise, and we all know what they mean. 

Since we launchd Nitrogen, it’s been beautiful to watch how advisors bridge the financial language barrier by taking the depth of their expertise and intelligence, and rolling it into an illustration that clients immediately grasp, understand and are able to implement.

It might sound counterintuitive, but when clients need the greatest level of sophistication in your work, that’s when they need the greatest level of simplicity in your communication to make it stick.

3. Bulletproof Methodology Matters

When you’re on the hook to analyze the risk of over a quarter million stocks, ETFs, mutual funds, SMA third party money managers, individual corporate, government, and municipal bonds, non-traded alternatives, annuities, REITs, and more…and then…you’re on the hook for calculating how those roll up into accounts and portfolios, you’d better be sure you’re building on a foundation of bulletproof methodology.

In an unpredictable year like 2020, it’s good to be in the business of MATH, and not the business of predictions and assumptions. That’s why everything you see in Nitrogen is based on real data.

The 95% Historical Range™ illustrates the “normal” historical behavior for your client’s portfolio, but we all know there’s 5% of the risk that nobody can quantify.

When advisors want to set expectations for what a 5% probability event could look like, they head to Stress Tests to put things in perspective, or they create a custom Scenario. You’ll notice that the 2008 stress test for almost any portfolio will exceed the downside number in the 95% Historical Range, because 2008 is the essence of a 5% probability event.

The key is that we’re analyzing the data through a full market cycle. Preferred stocks are boring, unless you include dramatically bad markets. “Oh, but that was a financial crisis! Things will be different next time!” It turns out that things weren’t different next time, and we’re proud to choose objectivity over subjective opinion.

4. Connections are Forever Changed

The fourth thing we’ve learned is that the way we connect with each other will never quite be the same.

The disruption caused by the pandemic this year has forced advisors to get creative. But it also accelerated a trend already happening—the number of people working from home at least once per week grew over the last decade by 400%, and some surveys show as many as 74% of companies plan to shift some employees to more remote work even after the pandemic ends.

The way that advisors use Nitrogen to connect with clients has changed too. The number of meetings held through Nitrogen Meetings tripled between February and April of this year—and the trend hasn’t decreased.

With no software to install, it’s a great way to accommodate less tech-oriented clients who want to meet with you virtually and visually engage with their portfolio.

We’ve also seen advisors increasingly use Check-ins to get a quick gauge of how clients feel about the markets. It’s another way that digital connection is changing the way advisors can choose to proactively connect.

Strengthening and increasing connection with clients is also bolstered by bulletproof methodology—the sentiment we’ve seen shows that while clients weren’t as confident in the financial climate overall, they remain fearless in their own financial plans precisely because their advisor has shown them the science behind their Risk Number®.

5. Best Interest is Always the Best Decision

6. Decision Fatigue is Real

We know that a risk alignment solution is table stakes now. We know that we need to cut through the noise and communicate to clients with simplicity and clarity. We know that methodology matters. We know that the way we connect with others has changed forever, and we know the best interest era is here to stay.

And that brings us to our sixth point.

We need to focus on the decisions that count. The average human makes 35,000 decisions a day. Long before Zoom fatigue, we all had decision fatigue.

Research shows that the amount of decisions we make has a degrading effect on the quality of our decisions over time. It’s why grocery stores put sweets by the cash register. You’re mentally exhausted from comparing prices for an hour—of course you’ll reward yourself with a sweet treat.

It’s also why judges become less likely to grant parole throughout the course of a day. They’re exhausted from making decisions.

The best leaders try to limit their decision-making to only the most important decisions, so they can avoid decision fatigue.

We want to help advisors focus their time on the decisions that drive, demonstrate, and prove the incredible value they create. 

Ready to hear more? Watch CEO Aaron Klein’s Fearless Week 2020 Keynote Address.

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