Undoubtedly, the wealth management business faces challenges. Chief among them are the talent gap, meaning there aren’t enough advisors entering the field to replace those that are retiring in the coming years and that retirement cliff is substantial.
Additionally, data suggest practices often face uphill battles in terms of retaining the heirs of deceased baby boomer clients. Fortunately, that’s a situation that can be addressed and it’s one that’s getting plenty of attention so advisors are aware of it and many are already taking proactive approaches.
Even when accounting for those factors, which certainly cannot be ignored, the broader, longer-ranging outlook for RIAs is compelling. In fact, current growth rates for both practice headcount and assets under management (AUM) are robust, confirming the demand is there for high-quality professional advice. Importantly, industry growth is being fueled by inorganic and organic catalysts.
Organic sparks include access to new asset classes/investment products, fee transparency and the great wealth transfer, among others. On the inorganic side of the ledger, inorganic growth is being powered by a wave of industry consolidation with bigger RIAs taking out their smaller rivals. That’s a trend to monitor because many advisors opt for sales of their practices as an efficient avenue to retirement.
RIAs Growing, So Are Client Demands
Another reason why the wealth management industry is growing is because today’s clients are increasingly savvy and with that comes more demands. That’s not a bad thing. Clients are right to expect top-flight service and advisors should want clients to hold that expectation. Advisors looking to meet and exceed those demands should remember one word: customization.
“RIAs are expanding, but client expectations for personalized financial service are also rising. Clients expect tailored investment strategies, tax planning, and consideration of their individual circumstances,” observers Goldman Sachs Asset Management (GSAM). “This creates an operational challenge for RIAs, who must deliver individualized service to a large number of clients. Unified managed accounts (UMA) streamline operational complexity by enabling RIAs to invest clients in personalized portfolios of mutual funds and ETFs to direct indexing and private market investments in a single account. ”
Another investment-specific point of emphasis for advisors is the intersection of customization and uncertainty. Clients are jittery about myriad factors, including but not limited to inflation, geopolitics and the health of Social Security. Advisors need to be responsive to those concerns by anticipating them and having the right products and strategies ready to go.
“In today's volatile markets, RIAs face the additional challenge of helping clients achieve their investment objectives while managing elevated uncertainty,” adds GSAM. “Diversification through alternative assets and buffered ETFs, along with hedging strategies like structured products, are becoming increasingly important tools. We believe access to institutional-quality investment solutions and comprehensive investment research has the potential to empower RIAs to make informed decisions and fulfill their fiduciary responsibilities. ”
Having the Right Tools Matters
For RIAs looking to facilitate more organic growth, the mission isn’t solely about investment returns. Increasing a practice’s embrace of technology can go a long way toward prospect conversion and client retention.
Put it this way: many of your competitors are already leveraging client relationship management and workflow automation tools to free up time to drum up new business and enhance connections with existing clients. Practices that ignore the technology memo are taking on unnecessary risk.
“Digital onboarding and e-signature platforms are streamlining the client acquisition process, and making it easier for advisors to easily complete sub docs for portfolios that include alternative funds,” concludes GSAM. “Meanwhile, we believe robust cybersecurity measures to safeguard sensitive client data are becoming increasingly important in today’s digital landscape. ”
