Wealth management is ripe for reinvention

Across the industry, executives share concerns: generational shifts, regulation and how to update legacy platforms.

Jan 29, 2014 @ 12:01 am

By Marion Asnes

The complexity of change — it's an issue that resounds across the economy in general, and the independent financial advisory industry in particular. Broker-dealer and custodian executives alike share many of the same business concerns — and faith that the solutions they seek are based in technology. However, these firms are not positioned to respond to the existing and emerging complexities of wealth management.

According to a recent IBM Midmarket Growth Business Executives Survey, 81 percent of respondents “expect the level of complexity to grow significantly over the next five years, but only 42 percent believe they know how to deal with it successfully.” For broker-dealers and custodians specifically, navigating complexity requires accommodating a large number of products and services that take them well beyond simple brokerage (and that their technology platforms were not designed to manage); evolving regulations; the new preferences of an emerging generation of tech-savvy wealthy people (which is also influencing the older generations); and an expanding reliance on technology to increase productivity and streamline the client experience.

InvestmentNews and Broadridge Financial Solutions gathered executives from leading independent broker-dealers and custodians to discuss emerging trends and evaluate how the industry will address the future of wealth management. “The complexity of the wealth management industry, coupled with evolving regulatory measures and generational shifts, are driving the need to reinvent the wealth management platform as we know it,” said Raghav Nandagopal, senior vice president of Broadridge.

Is the brokerage platform out-dated?

The advisor-client relationship has changed dramatically during the past decade. Ten years ago, advisors worked almost exclusively on a commission basis, and wealth management platforms were designed to support transactions. Advisors trumpeted their investment prowess and based their reputations on the returns they could deliver to clients.

After the 2008 financial crisis, most advisors learned that basing their reputation purely on investment performance left them unable to compete during bear markets. Now, the consultative, fee-based model of wealth management predominates, and it has brought about a new regard for long-term, holistic financial planning and client service. This requires that technology provide a unified, holistic experience for the advisor and client alike.

To provide that experience, platforms must aggregate performance data across various institutions, and then, integrate planning, portfolio accounting, trading, reporting and communications functions. For example, a client might have several investment accounts at various institutions plus a 401(k) with a plan provider; annuities through an insurance firm; and a trust account or partnership. To advise this client most effectively, a wealth manager would need to aggregate performance data from all the various accounts in one place and base recommendations on that complete picture.

Legacy transaction-based platforms persist, however, and force many enterprises to tie capabilities together. As a result, they frequently turn to outsourcers, who are specialists and can update and integrate their capabilities. Chief technology officers must stay current on outside developers and how their software connects both to the platform and to other applications. Technology shifts—such as the adoption of more sophisticated CRM systems and their integration with planning and portfolio management software—have gone on to empower new service models, like goal-based reporting, which ties account performance to long-term goals rather than investment benchmarks, liberating advisors from basing their value on investment performance.

Ascent of the Next Generation

We are in the midst of a huge generational shift: Over the next 20 years, the Boomer demographic bulge will leave the workplace, creating huge opportunities for financial management and enormous gaps in the advisor corps. Luckily, this will be a very gradual change: 10,000 Boomers are turning 65 every day, according to the U.S. Census Bureau, but the last cohort of Boomers, born in 1964, has yet to turn 50. At the same time, the Millennial generation—7 million stronger than the Boomers, the largest American generation—is entering the workplace and building wealth.

This generational shift affects the broker‑dealer world two ways: It has to attract young advisors and young clients. Enterprises are modernizing investor communications and advisor interfaces with Millennials in mind. Mobile platforms are a top priority. It's an area where the financial industry lags, with only 26% of independent broker‑dealers now distributing a dedicated mobile application. Yet executives are already creating more opportunities for engagement with Millennials, via deeper, more interactive client portals, mobile applications and collaborative tools.

A complete financial record

The most pressing problem for enterprises that want to update their platforms, executives agreed, is the lack of standardized data. Too much time is wasted on reconciliation and data management. A standard format for data would help attain one of the industry's most elusive goals: creating a complete and holistic view of a client's financial status that incorporates investment assets, real assets, insurance, income streams, bank accounts and debt.

The executives longed for such a personal dashboard as individuals as well as in their role as financial professionals. Doreen Griffith, CIO of Securities America, mentioned that she would like to be able to incorporate her mail and even her health status, and receive lab reports, for example, via her dashboard. David Ballard, COO of AIG Advisor Group, wished that he could have his personal screen be actionable, so he could—with his advisor's input—initiate transactions with a single click.

View the full video series from the InvestmentNews Wealth Management of the Future Roundtable.

Juggling old and new

Advisors may say that they are eager to engage with technology, but few do: Most technology upgrades have only a 20% adoption rate, forcing enterprises to juggle old and new. One key priority, to this day, is convincing advisors to abandon manual processes, such as rebalancing, to increase the efficiency of the practice and reorient staff toward business development and client service. Training is also key—as is bringing in younger advisors who may be more comfortable adopting new technology than the older generation. Older advisors will find that a practice that is technology-based, portable and scalable, however, will leave advisors in a better position to sell their book when they eventually decide to retire.

Old and new is a concern for clients as well. Generating retirement income may be a longtime focus for wealth managers, but today's mass affluent and even wealthy clients are balancing long post-retirement life expectancies with low yields—in most cases, without the support of a corporate pension. They are drawing down their balances, which puts them at risk—and forces advisors to prospect for new accounts to keep their businesses healthy. Both advisors and executives feel a new sense of urgency about innovating retirement-income strategies, and no one yet has come up with a “killer app.”


Over the next 20 to 30 years, older advisors and clients will be cycling out, to be replaced by tech-savvy digital natives who will expect much more rapid communication, data-based insights, and business intelligence from their technology. The opportunities for transformation are enormous and ubiquitous.

At the same time, there are great risks. A hodgepodge of systems, housed in the offices of independent advisors, creates potential for security breaches. In addition, as client interactions become more virtual, new efforts will be required to verify identity and know your client.

Technological innovation and standardization of data will both be essential for the industry to progress. Executives who advocate data standardization believe it would make information security less onerous. Enterprises bear responsibility for security at the federal and state regulatory level, from a variety of agencies. They are engaged, once again, in a balancing act—this time, it's security versus access.

Advisory businesses have to contend with complexity on every front: from navigating succession planning, increased regulation and margin compression to the financial-planning process itself, with its multitudinous variables—such as longevity, risk tolerance, projected rates of return—as well as an expanding array of products. Clients now expect the 24/7 access to financial information that they enjoy with other types of information and entertainment. Advisors and enterprises will need technology more than ever, and their technology partners must be ready.

This article was excerpted from a sponsored advertising supplement "What's Next?" that appeared in the January 20, 2014 edition of InvestmentNews. The supplement was sponsored by Broadridge and can be downloaded here. In addition, a series of videos conducted at the InvestmentNews/Broadridge Wealth Management of the Future Roundtable can be viewed here.


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