The New Marketplace in Wealth Management: Part 1

In a period marked by elevated economic uncertainties and rapid digitalization, Wealth Management (“WM”) firms are confronted with fundamental shifts in their operating environment. The post-pandemic economy, still elevated inflation, outsized market performance and other pressures will continue to prompt the WM industry to re-examine strategies and adapt to the changing behaviors and expectations of clients. In this current high-interest environment, the pressure on WM firms caused partially by competition for customer portfolios, credit constraints and corporate and household vulnerabilities is very real.

Current trends in the marketplace are exerting pressure on wealth managers to adapt their operating models and improve their technology to remain competitive. WM firms are increasingly tasked with preparing for strategic takeovers and integrations, competing for assets to manage, navigating a talent acquisition squeeze, and improving the digital experience for clients. These adjustments are essential for positioning WM firms to serve an evolving clientele effectively.

Investors often have competing financial goals, such as reducing debt, increasing saving and tax efficiency, managing appropriate risk-reward portfolio balancing, and ultimately, wealth maximization by retirement. Although they have access to out-of-the-box digital investment tools, investors need help understanding their full end-to-end financial well-being goals at all life stages. Comprehensive financial advice and expertise driven by a centralized investment model is no longer a “nice to have,” but is expected from investors.

As economic uncertainty and rapid digitalization continue to redefine the financial landscape, WM firms are facing transformative shifts in how they operate. In fact, the challenges confronting WM firms have never been more pronounced. The lingering effects of the pandemic, inflation and market volatility demand strategic reevaluation, while the expectations of a digitally savvy client base continue to rise. Increasing competition in the marketplace for customers is only intensifying the urgency for WM firms to adapt and innovate.

To remain competitive, wealth managers must not only rethink their operating models but also make bold investments in technology and improving the client experience. Strategic takeovers, talent acquisitions and enhanced digital platforms are becoming vital moves, as WM firms position themselves to meet the demands of an evolving clientele. The need for personalized, comprehensive financial advice is no longer optional—it’s essential.

With these shifts, WM firms must navigate three critical macro trends:

Increasing M&A Activity and Acquisition of Assets and Talent

In 2023 alone, there were 321 RIA deals to consolidate WM firms,¹ with private equity and the largest WM firms being the biggest drivers behind the trend. In addition, the trend of expansion continues in the talent space with firms creating larger teams comprising five or more advisers focused on market capture. Scalable teams, client service excellence and expanding outreach are all key growth drivers. Diversity, both in terms of demographics and expertise, is increasingly vital for next generation growth. Teams are becoming less office-bound, but rather embracing virtual operations and prioritizing leadership roles to optimize client engagement.

M&A activities bring impactful deal challenges, both pre-acquisition and post-acquisition, such as operational readiness, cultural fit of clients, human capital, products portfolio and regulatory expectations. Post-acquisition, focusing on improving the effectiveness and efficiency of the client journey, streamlining systems, retaining talent and enhancing performance are crucial factors for sustained success.

Traditional models suggested that simply capturing the high net-worth (“HNW”) clients was a necessity for the best returns. Evidence now suggests the most successful operations are data-rich, and have a greater focus on growing the affluent market segment. This segment tends to skew younger, and by capturing younger generations earlier and demonstrating the value-add of financial advisors to achieve financial goals, WM programs are creating stronger relationships with this client base earlier and developing a long-term revenue stream. To support this, WM firms will need to adapt their talent acquisition strategy to ensure they have the support that this market segment will demand.

Substantial Volume of Generational Wealth Transfer

The wealth transfer of Baby Boomers, an estimated $70-80 trillion,² is currently underway. The heirs are digitally savvy and prefer digital connectivity to human interaction for obtaining information and conducting business. The transformation extends beyond just the advisor model; it also requires significant changes from the advisors themselves. Younger clients now anticipate ultra-digital accessibility, comprehensive information consolidated through a single portal, the ability to contact their advisor on demand, and preferably a younger advisor who can relate to their needs and preferences.³

Generational dynamics have a significant impact on the choices that investors make. Many core offerings, such as real estate, inheritance and tax efficiency, will remain strong revenue sources across all generations. But in key growth areas, like sustainable investing, the demand for access to relevant and insightful information, digital assets and a tailored alternatives market, will drive success in a modern WM firm.

To compete in this new marketplace, WM firms will need to embrace these new expectations and invest in technology and talent while modernizing their product offerings and speed to market. The investment market has always moved quickly, but advancements in technology and an increase in accessibility to information allow clients to react more quickly than before.

Expectations and Literacy in Data & Technology

Gen X, Millennials, and Gen constituents expect technologically advanced, simple use and intuitive WM experiences. They value a hyper-personalized and enhanced customer experience, efficiency and scalability. The firms they choose will be able to handle their many different demands accurately and quickly. This will require organizations to leverage valuable data points to personalize interactions and provide informative experiences. The deployment of Machine Learning/Artificial Intelligence with the right guardrails is a necessity going forward for WM firms.

Customers and advisors will want to know, “What is the best action?” and “Do I have up-to-date, relevant, accurate information at hand to better understand the investments?”

As the transfer of wealth accelerates from an older, mostly risk-adverse generation, customers will continue to trend younger and more affluent, the advisor workload will significantly increase, and demand for growth investment products will expand. Hiring ever more wealth managers to accommodate this growing business at the current rate of productivity is not a feasible option. The digital-first, data intelligent and user-friendly WM applications will prove paramount.

In this era of rapid change and heightened expectations, WM firms must evolve or risk falling behind. The demands of today’s clients—who seek hyper-personalized, technology-driven solutions—are reshaping the industry. To stay competitive, firms must prioritize digital transformation, strategic acquisitions and enhanced client experience innovation. By embracing these changes, firms will not only meet the needs of the next generation of investors but also strengthen long-term client relationships. Now is the time to act—ambitious WM firms must modernize, adapt and lead the way into the future of wealth management.

Footnotes:

1: Holly Deaton, “These Are 2023’s Top M&A Trends,” RIA Intel.

2: Ben Carlson, “The $70 Trillion Wealth Transfer,” A Wealth of Common Sense.

3: Stephanie Conway, “The Greatest Wealth Transfer in History has Begun,” Philanthropy Daily.