Key trends in wealth management and what TAMPs should be doing about it

The wealth management industry has gone through major changes in the past few years.

The amount of investable wealth among U.S. households has increased tremendously over the past few years and will be changing hands with wealth passed over to millennial. Over the next 25 years, Cerulli has estimated that $31 trillion will be passed on to Generation X households, while $22 trillion will be passed on to Millennials [1].  With two diverse trends – growing wealth in the hands of a younger demographic and aging investors primarily the baby boomers having complex financial goals ranging from retirement planning to long term medical care, the demand for financial advisors has also grown simultaneously. Independent financial advisors have continued to grow in terms of revenue and assets under management. The trend should continue as advisors can enjoy the flexibility and opportunity for higher income with fewer cuts to wirehouses and broker dealers. The major drawback of going independent is the lack of support for back office and administrative operations. This is where turnkey asset management providers come into the picture to help provide advisors the necessary support.

TAMPs have been helping advisors focus their attention on client needs while taking over back office and administrative support activities, including client onboarding, asset transfers, trade execution, portfolio management, trust accounting, proposal generation, and performance reporting.

Trends impacting advisors and TAMPs:

1. Financial advisers are experiencing an increase in demand by young professionals. These are the HENRYs (High earners not rich yet) segment with lower range assets but would like to start investing and are looking for financial guidance to keep them on the right track towards their long-term goals. [5]
2. “One of the biggest challenges facing investment advisory firms today is disintermediation. People can invest by themselves rather than hiring an investment professional to manage their money”. Advisors need to provide clients with an experience which is custom for their needs, shows value add and helps them invest strategically.
3. Technology is redefining the advisor-client experience in multiple ways. Clients now want to have access to their portfolios and performance instantly which means advisors need to share on-demand requests with a low turnaround time.
4. Clients expect personalized and custom services suitable to their individual risk profile and future goals. While tech savvy investors look for sophisticated digital systems, they also see value in the attention and financial experience of advisors to help them build a smart investment portfolio. As a result, advisors’ expectations are increasingly focused on technology & better investment management
5. ‘Holistic financial planning,’ which goes beyond client set up and onboarding, changing investment strategy basis new life events, addressing multiple life goals are essential for advisor success. Advisors are therefore, looking for digital platforms which will enable them to service these needs. For example, a portfolio simulation which will help clients design different investment scenarios and view the impact of those changes on their goals can be hugely beneficial for advisors.

Strategy to address market trends:

1. Reimagining the client experience: To meet client expectations of personal and customized investment strategy, TAMPs need to provide advisors with digital solutions enabling them to walk clients through risk analysis, goal setup and investment strategy definition in a simple yet effective manner. Two technology offerings are key to successfully optimize the client experience – investor portal and smart portfolio generation platform. Clients value access to their portfolio and look for information beyond quarterly performance reports. An investor portal providing a 360 degree of the client accounts, progress towards goals, investment strategies and performance has become a basic requirement for many clients and therefore, advisors. A sophisticated portfolio selection tool which will recommend investment strategies basis the clients’ stage of life, their goals, major events such as receiving inheritance, retirement, marriage and their attitude towards risk and market changes will enable advisors to provide a hybrid model with a smart platform and human touch
2. Optimize advisor performance: The key success metric for TAMPs is growth in AUM, which is dependent on the success of advisors and their ability to acquire new clients and retain existing ones. Advisor performance analytics is therefore gaining traction and becoming increasingly relevant. Firms must leverage data analytics to derive insights from best performing advisors and provide the next best action to help them better collaborate with clients. To retain and bring in new advisors, TAMPs should review advisor experience metrics, assess CSAT wr.t. technology & operations services and continue to improve the experience through simplified back office processes and technology solutions.
3. Drive profitability through efficient operations: While technology platforms enable advisors to grow, efficient back office support is necessary to help independent advisors survive. Adding services to the operations portfolio will provide immense value add for advisors. While billing, trade management, statements generation are core activities, additional services such as sleeve level reporting, white labelling, custom proposal generation, trust accounting, tax loss harvesting, automated rebalancing, account aggregation will help acquire more advisors. A key focus area for TAMPs should be to minimize operations & compliance risk as meeting compliance requirements is a top priority for advisors. Using automation to improve the speed and accuracy of transactional processes helps reduce costs and improve accuracy.

Sources:

1. Cerulli Associates, Federal Reserve, U.S. Census Bureau, Internal Revenue Service, Bureau of Labor Statistics, and the Social Security Administration
2. A Year of Tremendous Growth for RIAs
3. https://www.cnbc.com/2019/10/17/these-are-the-changes-and-challenges-keeping-top-advisors-up-at-night.html?__source=sharebar|twitter&par=sharebar
4. https://www.cnbc.com/2019/10/14/technology-is-redefining-that-client-financial-advisor-relationship.html?__source=sharebar|twitter&par=sharebar
5. https://www.thestreet.com/personal-finance/financial-planners-see-growing-demand-from-younger-prospects-14772572