The Wealth Management Digest

Transcript: Welcome to this week’s Wealth Management Digest.

We have three topics to cover, so let’s get started.

1. We have Vanguard disclose to the SEC that it will end this plan to market RIA services to American Express card holders. When this announcement came up about two and a half years ago, it was a big deal. These are two huge players doing a partnership. The fact that it ended we have yet to learn a lot of details since it was just a disclosure to the SEC. So we’ll have to wait and see what Vanguard & American Express have to tell us separately.

2. We have data from Morningstar Direct show that active funds and ETFs shed about $379B in outflows this year, while passive strategies took in $410B. It’s pretty crazy how some trends could go on for decades. That’s the case between passive and active. The move towards passive continues and is one of those things I don’t see why it would stop anytime soon. It’s crazy, considering how big the passive market is now versus a decade ago.

3. We have a new white paper called “Welcome to the Jungle,” written by industry consultant Mark Hurley. Definitely worth a read. Fairly comprehensive. Some of its predictions are, call it not industry standard, some are. A couple of things worth mentioning when I read through it is a pretty consensus view here: the industry will become more competitive in the RIA space as there will be further consolidation. It also predicts that larger firms will institutionalize their process and have operators run the show rather than advisors who became CEOs but didn’t kind of like scale to become operators. I think that’s fairly expected as the industry continues to become kind of more sophisticated. It does not mean that there won’t be niche players, but those niche players will have to be a lot more sophisticated & differentiated to sustain margins. One of the things that he mentions that I think is a really interesting way of looking at the space, is looking at asset management and saying, “What can we learn from the asset management industry?” which is roughly, call it 10-15 years ahead when it comes to the level of consolidation, scale, and sophistication, to see what we could make apples to apples comparison to what might happen next for the wealth management industry. And I do think that that idea, where you have highly consolidated scale players and then more niche players that are highly differentiated, is something we’ve seen in asset management and likely will be something we’ll see in wealth management. It also mentions that talent will be in greater demand, harder to come, and more expensive. 100% I agree with that. The industry, for all intended purposes, was a cottage industry, and it’s becoming more sophisticated. The advice will continue to evolve, and the standard of becoming an advisor will get higher on what service we provide. It makes sense that it’s going to get harder to find great talent, and it’s going to get more expensive. That is something that I totally agree with. Well, that is it for this week. Talk to you next week.

– Andres