What Financial Advisors Need to Know About the Gig Economy
The gig economy isn’t just a buzz word. It’s a booming industry that’s taking off at lightning speed. While the term itself might bring to mind Uber drivers and Task Rabbit, this is only a small side of the story.
The “gig economy” refers to anyone working as a contractor, whether they’re working on Upwork in their spare time or they juggle multiple clients as a full-time freelancer. Since the definition is so broad, there’s up to 75 million people currently working in the gig economy in some capacity, and this number is only going to rise. In this guide, we’ll explore everything financial advisors need to know about the gig economy for the new decade.
The Gig economy by the numbers
Why is the gig economy suddenly attracting so much attention? With more and more professionals leaving the 9-5 behind, this is one of the most up-and-coming ways to work today. New and experienced workers are redefining their work/life balance, and this means it’s time for financial advisors to adapt accordingly.
Here’s a glimpse at freelancing by the numbers in 2019:
- 28% of American workers freelance full-time
- Freelancers, on average, make more money than 70% of all types of U.S. professionals
- Skilled services (programming, business, and marketing) make up 45% of freelance work
- 40% of millennials have done freelance work
The gig economy is becoming a popular choice for retirees, part-time workers, and younger professionals. These workers need a different set of assistance when it comes to taxes, financial planning, and wealth management.
A new type of financial advising client
The main takeaway of the rising gig economy is that there’s a new wave of financial advising clients. For advisors hoping to branch into new market opportunities, freelancers and gig workers offer a ton of potential.
It’s more likely than ever that financial advisors will meet clients who are independent workers. These individuals have unique needs compared to traditional advisory clients. They don’t have employer benefits, and that they’re on their own when it comes to tasks like retirement and wealth planning.
While workers in years past would have turned to their company for guidance, this is no longer possible in the gig economy. Advisors have new shoes to fill, and this is a great opportunity to reach a unique group of prospects.
Since freelancers function as business owners, many need help with additional planning related to their specific practice. Activities like cash flow management, business structure, and record-keeping all are essentials when working as a contractor. For advisors willing to understand these needs and offer additional services, this could be a lucrative opportunity to grow.
freelancing and regulatory changes
In many ways, the gig economy is the Wild West of employment. There are few government laws, protections, or unions in place to ensure these workers aren’t taken advantage of. Many states are taking action to protect freelancers, such as California’s new AB5 regulation.
Unfortunately, these freelancing laws aren’t perfect. There’s been a lot of public extensive backlash against California’s newly enacted law, and many contracted workers are caught in the mix. The more financial advisors can stay educated about these regulatory changes and requirements, the better prepared they’ll be to serve their clients amidst shifting regulations.
How financial advisors can serve freelancers
What are specific ways financial advisors can assist freelancing clients? Aside from covering the most pressing topics that are shared with traditional clients, there are other ways to play a large role in a contractor’s success.
- Set clear retirement goals
- Create a long-term spending plan when income is often inconsistent
- Demystify insurance and taxes
- Set financial goals
- Navigate changing regulations
The Future of advising freelancers
While this new wave of contractor clients might raise a few initial challenges for financial advisors, it’s also an opportunity to cast a wider net. As the number of gig workers in the U.S. and abroad continues to rise, it’s time for wealth and financial planning leaders to take action.
Part of marketing your practice is identifying underserved communities. In the next few years, more and more advisors will jump to assist freelancers with these services above.