Industry Disruptors—Challenging the Status Quo

As the leader of a dynamic, growing wealth advisory business, several times each year, you and your leadership team should engage with your strategic planning document—using it to inform key decisions, help scan the market to identify new insights and approaches, and make powerful choices about the future of your firm.

Whitepapers from credible sources can serve as useful learning tools in this process. Occasionally, they can inspire your team to challenge the prevailing wisdom and disrupt the status quo. For many firms, industry disruption is something to be feared. For elite firms, however, it’s something to be welcomed and embraced. Disruptors cause us to re-examine, reassess, and rethink our core assumptions and our approach to business. Sometimes, they even shift the entire wealth management landscape.

One such industry disruptor is Mark Hurley. Over the years, Mark has been to the wealth management industry, what Airbnb has been to traditional hotels. His new firm (Digital Privacy and Protection LLC) provides enhanced cyber-security protections for wealthy families through their advisors. And his latest whitepaper – Welcome to the Jungle: The Next Phase of the Evolution of the Wealth Management Industry – is undoubtedly worth a read (perhaps even a detailed study).

While you may not agree with all of Mark’s ideas, his long list of contributors (of which I am one) is impressive. Anytime you bring together a group of thought leaders, the likes of Mark Tibergien, Michael Kitces, Brian Hamburger, and a host of others, the resulting insights merit careful attention and consideration.

I recently sat down with Mark for dinner in Dallas to discuss his findings and opinions. Here’s my take on his most notable ideas worth considering for the future of our industry:

1. Most of the industry’s growth over the past decade has been driven by market appreciation. Still, there’s a tremendous opportunity for renewed organic growth—with 7+ million prospects between age 45 and 60 seeking advice as their wealth accumulates. Furthermore, the current fees generated by each new client far outweigh the cost of acquiring them. However, most firms are unprepared to take advantage. Having not aggressively marketed for years, they don’t have the brand recognition or culture necessary to create strong referral networks.
2. Wealth management will become far more competitive and cutthroat—with less peer sharing and reduced participation in industry events and study groups as successful advisors look to insulate themselves. What is now a congenial club will begin devolving into a jungle.
3. Bigger firms will finally start to capitalize on their scale to create competitive advantages—squeezing smaller competitors by doing more for clients for the same fees. Sophisticated smaller firms will adopt niche strategies (enhancing their expertise in the most complicated and important problems of targeted, narrow client groups) in a scramble to sustain margins. Others will affiliate with shared resource platforms to help reduce the fixed costs of certain services.
4. Renewed organic growth will fuel a talent war—with demand rising, supply limited, and costs climbing. This challenge will be further exacerbated by the need to replace a wave of retiring senior professionals. Not only will labor costs rise, but firms will struggle to maintain service standards as they replace highly capable professionals aging out with far less experienced young advisors.
5. Cyber threats will increase costs, lower productivity, and aggravate everyone—posing an existential threat to every firm and every client. While the SEC has proposed regulations that will mandate self-reporting in the event of a breach and force participants to disclose counterparty cyber risks to clients, managing this risk will be costly and aggravating and will lower productivity.
6. It will take some time before cost-effective AI software is available to impact wealth managers materially. When that time comes, however, such tools could dramatically improve participant operations; most notably the onboarding of new clients.
7. The days of making easy money from M&A are over. While prices will remain rich, quality in M&A will ultimately matter. Going forward, much more of the value generated from these transactions will be realized well after the deal closes rather than upfront. Aside from the rare transaction between aggregators, we expect the average size of acquired firms to be much smaller over the next 10 to 15 years.
8. The M&A market has finally recognized that the stability of wealth management client relationships creates an implied value that’s much greater than their traditional valuations. Well-run, growing wealth managers of all sizes will therefore be in high demand—with buyers willing to pay much more for these businesses than their less attractive peers.

Whether you agree or disagree with the assertions made and the vision put forth of the future wealth management landscape, there are clear imperatives to consider. This paper should prove a valuable resource for strategic thinkers and next-generation professionals to read and discuss internally, determining which considerations are most applicable to their own firms.

Knowledge is power. And ClientWise is committed to the mission of helping to foster knowledge across our industry—from the Strategic Planning work we’re doing right now with many clients (including a foundational module on ‘Acquiring Knowledge’) to our whitepapers, events, financial service industry blogs, and especially our ClientWise eXchange™ online collaborative community. 

Coaching Questions:

• How might our leadership team leverage this whitepaper to stress test our current strategic plan? What, if any, adjustments should we make?
• What other resources should we be leveraging to scan the industry?
• What assumptions about the future of the wealth management industry does our firm make that are unique or challenge the status quo?
• How could we more effectively develop our next generation leaders who will guide the firm to the future?