The future of wealth management: Know what to expect

By: Stacy Orff-Whitfield

Imagine if Amazon and Google became major players in the wealth management business. They could leverage their enormous customer data advantage to target investors with highly tailored offers based on their purchasing or search histories.

This is not as far-fetched as it seems. In the Wealth Management in 2021 webinar, Bing Waldert, managing director of US research at Cerulli Associates, explores four disruptive, converging trends shaping the industry’s future:

  1. Demographics: In today’s full-service wealth management industry, the advisor talent pool and the investor client base are shrinking. Advisors are exiting the business faster than they can be replaced and firms are still trying to understand how to serve the next generation.
  2. Retirement regulation: Regulations intended to protect small investors keep assets locked up in employer-sponsored defined benefit plans. This threatens the low end of the industry by diminishing the value of advisors.
  3. Digitization: Firms must continue to automate to gain scale and drive efficiency.
    (e.g. robo-advisors cost-effectively attract and serve less profitable clients).
  4. Innovation in asset management: New product concepts often start at the institutional level then make their way to the retail level. Advisors are already applying a broader mix of asset classes and strategies in their clients’ portfolios.

In response to these trends, the full-service wealth management industry is contracting, says Waldert. The future will see fewer, more productive advisors serving fewer, wealthier clients. The industry is already dominated by firms of $500 million or more in AUM that control most investable assets and tend to attract new advisor talent.

Meanwhile, the direct-to-consumer channel captures a bigger share of assets every year, notably among up-and-coming investors. As the largest record keepers of 401(k) accounts, direct-to-consumer firms enjoy a data advantage that enables them to efficiently market to customers. This fuels speculation that data-powered, non-traditional players like Amazon could enter the market.

Wealth managers must strategically harness the rapid advancement of technology and the explosion of data. However, technology will not completely displace human judgement. Clients continue to rely on advisors to talk them through emotionally charged life decisions, not just investment choices. As long as emotions run high, there will always be the need for the human element, stresses Waldert.

Watch the full webinar to learn more.