The wealth management industry has changed significantly in the past ten years, but that was just a small taste of what's to come. Looking forward to 2030 and beyond, disruptive new technologies, investment preferences, and demographic shifts will re-make the competitive landscape in which wealth managers operate. Firms that want to succeed in this new environment need to start planning right now–because acquiring and retaining clients in this new world will be a very different proposition and require very different skills than RIAs rely on today.
The big question facing RIAs is this: in an increasingly commoditized world, with easy-to-use, self-directed brokerages and shrinking costs to investors, how will you distinguish yourself, continue to grow, and justify your fees?
To set the stage, consider the broad, nearly all-encompassing changes just over the horizon.
Technology has the potential to disrupt nearly every aspect of today's wealth management business. Consumer-facing financial technology ("fintech") is growing by leaps and bounds—according to Investment News, "Global robo-managed assets (institutional and retail) are expected to reach $6.2 trillion by 2027, growing at an annual rate of 13.5%".
Automation trends like artificial intelligence (AI) and machine learning (ML) are also growing at a breakneck pace. And while they may not replace advisors any time soon, they can change the game by improving an RIA firm's performance across a range of strategic functions, from alpha generation to risk management, to operational efficiency (e.g., trading, reporting, and compliance).
Disruptive tech also has the power to reshape marketing and communications functions. Younger, tech-savvy investors are replacing older, more traditional investors. These new investors have different priorities and preferences than today's core advisory clients. A study by Fidelity found that more than 50% of millennials would switch advisors if their current advisor wasn't using technology. In a survey by Aite Group, wealth managers cited enhancing their "digital client engagement platform" as their top tech priority by a large margin. These clients will expect more frequent, value-add, high-touch communications than even today's most discerning clients.
Beyond disruptive tech, the wealth management industry also faces potentially seismic shifts in demographics, macroeconomics, and investor preferences. Investors coming of age today are more attuned to shifting priorities like ESG, climate, sustainability, and fair-trade policies. Institutional investors are already making huge strides in these areas: State Street recently reported that global ESG assets comprise more than $30 trillion and more than a quarter of the world's professionally managed assets. RIAs will have to offer similar capabilities if they want to remain relevant.
On the macroeconomic front, as global growth patterns continue to favor emerging markets, U.S.-based investors will likely seek international investment opportunities, and advisors will need to become more adept at global investing. In the hunt for alpha, domestic investors' appetite for greater exposure to global equities could radically shift the model portfolios of today.
Recent fiascos within the cryptocurrency market serve as a reminder that there is an opportunity for advisors to provide more esoteric investment options while still providing professional oversight and fiduciary care. New technologies, such as low-fee investing apps and crypto exchanges, may satiate young investors' insatiable appetite for higher-risk strategies; still, they offer no protections to those who may be unknowingly in over their heads. As a result, successful RIAs of 2030 will have to provide clients with exposure to unique and differentiated investment strategies other than the plain vanilla equity and fixed-income model portfolios currently dominating the landscape.
Add up all these shifts, and it paints a picture of a very different wealth management business: RIAs will be serving very different types of clients, with potentially radically different objectives, preferences, and expectations than clients of today. The industry will also continue to be challenged in addressing a radically different value proposition, forced to compete on all fronts against cheap, sophisticated automation.
So, what will an RIA need to offer in 2030 to attract new clients and grow assets?
Successful RIAs will need to deliver a more value-added, high-touch service than any robo-advisor or automated platform could possibly offer.
First, we believe RIAs will need a differentiated in-house asset management solution to remain relevant. The premier advisor of 2030 must offer clients more unique, actively managed, bespoke "alpha-seeking" investment strategies because the trend is moving away from low-risk, low-cost, diversified passive investing. The latter is easily automated, and those clients will likely migrate to AI-driven tech platforms, leaving an open market for RIAs to deliver customized strategies with higher excess returns.
An RIA's asset management capability will likely include custom investment vehicles, reducing client expenses, and capturing revenue for the firm. It will also likely include expanded access to "alternative" assets (e.g., private equity, private real estate, hedge funds, etc.) for income enhancement, non-market correlated returns, and risk management. And bespoke asset management capabilities will likely have to include in-house socially responsible investment solutions to attract millennial clients who will be the millionaires of 2030–i.e., environmental-social-governance (ESG) or values-based investing (VBI) solutions.
As for communications and client service, a high-touch relationship—often driven by social media and other digital communications—will be key.
The industry will see an increased focus on robust client portals and client-facing content. The last few years have brought an emphasis on written content, and by 2030 that emphasis will shift again, with multi-media content becoming "table stakes" for premier RIAs. Advisory firms will need to continue exploiting multiple channels like engaging Twitter feeds, regular and frequent market insights by text, video, podcast, and other proprietary delivery channels, with a higher emphasis on mobile technologies.
Finally, like it or not, daily content delivery is becoming the norm as a more digital-savvy, engaged, high-net-worth client base supplants the more traditional HNW clients of today.
Looking just beyond the horizon, it's easy to see how radically different the wealth management industry of tomorrow will be. Clients will have much higher expectations of advisors and RIA firms who must justify their fees against digital platforms that offer inexpensive wealth-management solutions to the masses. In return for those fees, HNW clients will demand a robust capability to deliver custom strategies and vehicles, as well as a radically expanded and refined client experience that takes advantage of a wide array of communication technologies.
For leading RIAs that hope to grow in the next decade of the 2030s, these won't be "nice-to-haves"; they will be "must-haves." So, if you want to be a winner in this new world, best start building now.