Wealth management in the 2020s


For wealth managers, the last decade turned out to be far better than almost anyone could have expected at its start. Last year capped the 2010s and had substantial implications for wealth managers. In many ways, this past year highlighted the major trends of the decade, and those trends will no doubt shape 2020 and the rest of the decade to come.

The unrelenting bull market. After the brief sell-off in stocks at the end of 2018, many investors came onto 2019 anticipating a recession. Yet despite trade tensions, Brexit uncertainty and the inescapable political drama, the equity market delivered a remarkably positive year with a noteworthy lack of volatility. This was an extension of what we have seen all decade: a stock market that has climbed ever higher despite myriad concerns. It was hard to lose as an investor in the 2010s. A backdrop of liquidity and accommodative monetary policy drove investors to embrace risk in their search for yield.

A consumer revolution for investors and their wealth managers. It’s been a decade of disruptive technological advances and declining costs for investors and their advisers. The domination of ETFs has collapsed investment costs, and custodians have driven execution costs all the way down to zero. We started the decade with a couple of robos in the market, but now there are a multitude of low-cost or zero-cost digital investment advisers to choose from. Almost no firm was on the cloud in 2010, but today there are a number. Social media has gone from a curiosity to more of a standard for community building. By contrast, much of the core business has remained relatively stable, notably the services advisers provide and the fees they charge. In many ways, wealth advisers are doing much of the same work they were a decade ago: delivering plans and building portfolios.

The decade of the deal. It was a banner decade for consolidation in wealth management. Mercer and Wealth Enhancement Group went through recaps, and United Capital sold to Goldman Sachs (that’s obviously one I’m more than a little connected to). Billions in capital from private equity flowed to wealth management, and banks went from not providing growth capital in 2010 to lending at two times EBITDA leverage ratios in mid-decade, to lending at over five times EBITDA today. As a consequence, multiples have expanded and a record numbers of smaller firms have been acquired. At the beginning of the decade there were very few independent RIAs that could be considered national in scale. By 2019, that had changed dramatically.

And into the 2020s

With that backdrop, let’s take a look at how these events will likely shape our future and what decisions you can make today that might help your advisory business thrive into the next decade.

The bull will eventually meet a bear. We’re entering the 12th year of this bull market, with less volatility than in any of the preceding years. It’s unlikely this decade’s returns can match the past decade’s in absolute numbers. Investors have not seen a major (greater than 20%) decline in a very long time. As valuations climb higher, so does the risk for investors. In addition, the demographics have changed. The baby boomer retirement surge is peaking, which means we will see an increased outflow from stocks (and advisers’ assets too) as retirees live off their savings and invest more conservatively. Now is a great time to demonstrate the value of human-led advice by helping clients rationalize expectations and prepare for a return of volatility. Want to protect your business? Run scenario analyses in clients’ financial plans with reduced returns and higher implied volatility for the next decade. That can help folks be prepared for downside market risk, which many of your clients haven’t dealt with in some time.

The shift from cost to value. Now that we’ve essentially reached zero-cost investing, firms will need to provide increased services to deliver value to their clients (and revenues). Expansion of services allows practices to maintain pricing and continue to grow. By the end of this decade, planning and investing alone will not suffice to defend your fees. You will need to do more: Wealth managers will likely find themselves facilitating bank loans and services, providing insurance advice and coordinating a client’s entire financial life. To do that at scale, independent firms will need to partner more with vendors, create repeatable service models for clients, and have more clearly defined and distinct positioning in order to stand out. We’re starting this decade with artificial intelligence and blockchain as interesting ideas, but by the end of the decade both may be a part of almost every wealth manager’s business … either directly or through vendors.

The big will get bigger. We can expect accelerated consolidation in wealth management if lenders continue to provide leverage to purchasers. Many of the founders of larger independent firms are baby boomers, like their clients, and are reaching retirement age themselves. We should expect an acceleration of large, strategic firms participating in the buying as they try to join in the most profitable part of the industry: the wealth management fees advisers charge. Which businesses will get the highest premium? The ones that are bigger, those that are growing organically (adding new clients without buying them), and those that can operate and grow without too much reliance on any one person will have the best outcome regardless of market conditions.

An exciting future

If the past teaches us anything, it’s that the future is unpredictable. However, we can all prepare for uncertainty by making changes that improve our business, regardless of whether things unfold the way we imagined or not.

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Joe Duran is CEO of  a Goldman Sachs company. Follow him at 

Written by Investors Wallets

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