For years, the wealth management industry has been rising on a geyser of assets under management. From an estimated $27 trillion in 2018, assets are estimated at $64 trillion today and are projected by Statista Market Insights to hit $87 trillion in 2028.
But fast-growing industries face challenges. For this week’s Big Q , we asked industry professionals to identify some of them. The question: What are the biggest challenges facing the wealth management industry and why are they so important?
Alan Moore, CEO, XY Planning Network and AdvicePay: A major change is the shift from product sales to advice. It means you have to actually train on finances and advice, not just learn sales. It’s creating a spike in demand for CFP professionals—we just had the largest cycle of exam takers in the past 12 months—after the CFP has been around for 50 years. And there’s a shortage of talent who can handle being advisors.
Product organizations hired for salespeople for years and now have to adapt to hiring advice givers. It’s causing products to be reinvented with no-commission alternatives. It’s leading people to switch channels and break away—because broker-dealers are technically securities product/sales distribution platforms, and you don’t need one if you’re in the advice business.
The shift to advice has been under way for over 30 or 40 years. But the vast majority of the industry, probably 90%-plus, is still built around a product distribution business model, not around advice. You see this in recruitment efforts, where folks are being recruited into sales roles and you lose 90% to 95% of your new hires because they don’t make the cut. We don’t have 90% or 95% turnover on new hires into advice roles, but people who want to work in the advice industry are very different from the folks who want to do sales.
Ryan Parker, CEO, EP Wealth Advisors: My one-word answer as far as the biggest challenge is “people.” This has always been a talent industry. It’s about people serving people. But increasingly, the talent opportunity and challenge is getting more and more complicated and nuanced. To serve clients, it’s no longer sufficient to just have the best advisors. Plus, the best advisors are increasingly difficult to attract and to develop and to cultivate. That’s either because they’re happy with where they are, or once they get in a good situation, they probably do serve clients well by staying the course.
The talent that surrounds the client and enables the advisor, that’s where the war is really heating up. And it’s not just the financial planning or tax or estate, but it’s the technical talent—people who understand and can deploy the different technologies that are inside our industry and increasingly ubiquitous across industries. I really think that whatever your time horizon is, the ability to attract, develop, align, and then reward and retain the best talent throughout the organization is critical.
I think it starts with the front lines who are interfacing with clients every day, but it goes now to every single position. That is what’s going to separate those who are able to build something of scale and significance over time. Clients are going to go where the best talent resides. So to compete, I’m going to go for the best people.
Daniel Burke, founding partner, investment management, Callan Family Office: One of the biggest challenges facing the industry is managing the complexity and volume of all clients’ personal data.
An ultrahigh net worth family or family office often has data everywhere—siloed at multiple providers and custodians, old tax returns, et cetera. As advisors, we have to help them manage this data in order to provide good advice and execute across their full balance sheet. We’re investing more and more in data processes, data quality, and technology to help families make decisions across a clean, comprehensive set of data.
The challenge is that even if we invest to collect all of that data, the systems downstream, the third-party applications, CRMs, trading systems, reporting systems, and financial planning software, this whole ecosystem of apps and fintech investments, can’t necessarily work with all that data. The fact that so many of the technology players are focused on solving for the mass affluent leaves a real gap in the process for the ultrahigh net worth. And that’s a challenge for the industry to try to solve.
Mitch Avnet, CEO and managing partner, Compliance Risk Concepts: We provide outsourced, ongoing compliance support to asset management firms and independent investment advisors, and to the institutional folks and to broker dealers as well. To me the challenge is figuring out how to embrace new technology concepts out there, whether it’s AI, crypto, or anything else coming on the horizon Advisors have to really be thoughtful, careful and pragmatic in terms of how they leg into this stuff.
One of the biggest concerns I think any regulator or compliance officer would have when a firm gets into the world of what I call one-offs, like AI or crypto, is having the operational infrastructure expertise or capabilities to support it in place.
It’s great to say that you’re going to embrace AI. But how is that built into your overall model, specific to portfolio management? Are you just turning over the keys to a machine, or are you using it as a tool in how your team does their overall analysis and how they implement strategies? I think early entrants can get caught with their pants down when there’s a flight to a new, shiny object, if they haven’t really thought about what the potential ramifications are if something goes wrong.
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“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said
Alibaba Group co-founder Jack Ma said competition will make the company stronger and the e-commerce giant needs to trust in the power of market forces and innovation, according to an internal memo to commemorate the company’s 25th anniversary.
“Many of Alibaba’s business face challenges and the possibility of being surpassed, but that’s to be expected as no single company can stay at the top forever in any industry,” Ma said in a letter sent to employees late Tuesday, seen by The Wall Street Journal.
Once a darling of Wall Street and the dominant player in China’s e-commerce industry, the tech giant’s growth has slowed amid a weakening Chinese economy and subdued consumer sentiment. Intensifying competition from homegrown upstarts such as PDD Holdings ’ Pinduoduo e-commerce platform and ByteDance’s short-video app Douyin has also pressured Alibaba’s growth momentum.
“Only with competition can we become stronger and allow the industry to remain healthy,” Ma said.
The letter came after Alibaba recently completed a three-year regulatory process in China.
Chinese regulators said in late August that they have completed their monitoring and evaluation of Alibaba after the company was penalized over monopolistic practices in 2021. Over the past three years, the company has been required to submit self-evaluation compliance reports to market regulators.
Ma reiterated Alibaba’s ambition of being a company that can last 102 years. He urged Alibaba’s employees to not flounder in the midst of challenges and competition.
“The reason we’re Alibaba is because we have idealistic beliefs, we trust the future, believe in the market. We believe that only a company that can create real value for society can keep operating for 102 years,” he said.
Ma himself has kept a low profile since late 2020 when financial affiliate Ant Group called off initial public offerings in Hong Kong and Shanghai that had been on track to raise more than $34 billion.
In a separate internal letter in April, he praised Alibaba’s leadership and its restructuring efforts after the company split the group into six independently run companies.
Alibaba recently completed the conversion of its Hong Kong secondary listing into a primary listing, and on Tuesday was added to a scheme allowing investors in mainland China to trade Hong Kong-listed shares.
Alibaba shares fell 1.2% to 80.60 Hong Kong dollars, or equivalent of US$10.34, by midday Wednesday, after rising 4.2% on Tuesday following the Stock Connect inclusion. The company’s shares are up 6.9% so far this year.
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