The Affluent Marketplace Intensifies

Challenges and Opportunities Ahead

by John Mastal

Mr. Mastal is managing director of Convergent Wealth Advisors, in Washington, DC, an industry leader in wealth management with over $10 billion in assets. Connect with him by e-mail: [email protected]

The investment advisory arena continues to be as dynamic as ever. Traditional providers of advice and services to the high net worth investor (HNW—$500,000 to $10 million investable assets) are experiencing unprecedented challenges. Their business models are being tested by industry consolidation, democratization of investment knowledge, rising regulation, and blurring of the service demarcation between the ultra-high net worth (UHNW—over $10 million investable assets) and HNW investor. These factors have left many advisors scratching their heads as to how to grow their business, best serve their clients, and improve their profitability.

Across the board, we believe these industry dynamics are creating a great opportunity for savvy advisors to significantly grow their business—as well as exposing them to the risk of being left behind. This competition continues to heat up as wirehouses, private banks, independent broker dealers (IBDs), and custodians (on behalf of registered investment advisors or RIAs) all spend a great deal of money on marketing and technology to target prospective clients in the HNW marketplace. The difficult task at hand for many advisors is evaluating which potential platform provides the most synergistic business model.

Stress on the players

 Since the Great Recession of 2008, wirehouses and private banks have been barraged with bad (yet often accurate) press, complicating their advisors’ business development efforts. Additionally, with many five- to seven-year forgivable loan deals expiring soon, advisors are now reviewing the pros and cons of their upcoming “free agent” status. IBDs, custodians, and RIAs are scrambling in an effort to improve their marketing, research, technology, reporting, and client service to lure potential advisors who can effectively serve the HNW marketplace. Aggregators have also joined the fray, adding another thorn in the side of private banks and wirehouses. These aggregators are often backed by private equity money, giving them the ability to create competitive pay packages for potential advisors (similar to, though often not as large, as the ones offered by wirehouses and IBDs). All this industry tumult has brought about new opportunities for advisors, especially wirehouse advisors desiring to make a shift and work with clients in a solutions-oriented, open architecture investment consulting environment, impartial to product.

Change is Afoot

Further buoying the advisor exodus from the wirehouse model is the rapid transformation of available investment products and platforms. Better planning, more products, more service choices, more transparency . . . all aimed at providing an improved experience for the client. What only institutions, endowments, and ultra-high net worth clients could access five to ten years ago is now becoming available to the mass market investor. These options are creating a new HNW market environment that seek to provide talent and solutions once reserved only for the UHNW investor. However, many HNW and most UHNW clients are demanding more than just a separately managed account, a mutual fund or ETF product in their portfolio. Clients want a combination of more sophisticated and more specialized services: holistic wealth management, estate planning, and the like. And more and more, clients are looking to find advisors who are equally knowledgeable about their industry or profession. As in law or medicine, the advisor of the future will likely be a specialist rather than a general practitioner.

Seeking Solutions

Aggregators have also joined the fray, adding another thorn in the side of private banks and wirehouses. These aggregators are often backed by private equity money, giving them the ability to create competitive pay packages for potential advisors (similar to, though often not as large, as the ones offered by wirehouses and IBDs)

Advisors need to carefully evaluate all of these factors in order to decide which platform will best highlight their competitive advantages and help overcome their weaknesses. An advisor should determine which niche skills they possess—as well as the kind of company culture they want to be a part of— and then methodically assess the various business models to determine the right fit for their clients and their business. However, as the investment advisory industry attempts to accommodate change, most advisors are struggling, as well, to build out their capabilities. The challenges facing the industry are likely to only get more complex and costly. Advisors who understand how each platform—aggregator, private banker, wirehouse, IBD, RIA and custodian—can minimize these complexities will help ensure future success.

Advisor Stressors

  • retirement / succession
  • technology & operations
  • compliance & legal
  • continuing education
  • marketing & business development
  • staffing & profitability

However, as the investment advisory industry attempts to accommodate change, most advisors are struggling, as well, to build out their capabilities. The challenges facing the industry are likely to only get more complex and costly. Advisors who understand how each platform—aggregator, private banker, wirehouse, IBD, RIA and custodian—can minimize these complexities will help ensure future success.

 

About Convergent Wealth Advisors
Convergent Wealth Advisors is a recognized industry leader in wealth management, advising on over $10 billion in assets (as of December 31, 2012). Convergent provides investment consulting services and customized wealth management solutions to ultra-high net worth individuals and family offices with investable assets of $10M and more. Independence by ConvergentTM is a division of Convergent focused on servicing clients with $500,000 and more in investable assets.

Convergent has offices in Washington, DC, Los Angeles, New York, and Portland, OR.

Convergent Wealth Advisors has launched Catapult by ConvergentTM for select entrepreneurial advisors with a targeted niche in the HNW and UHNW market. The Catapult initiative provides these advisors all the newest industry technology, research, reporting, and compliance offerings, combined with a 20 year industry leader legacy.

Disclosure: The information contained in this summary is for informational purposes only and contains confidential and proprietary information that is subject to change without notice. Any opinions expressed are current only as of the time made and are subject to change without notice. Moreover, the information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. Non-deposit investment products are not FDIC insured, are not deposits or other obligations of Convergent Wealth Advisors, are not guaranteed by Convergent Wealth Advisors and involve investment risks, including the possible loss of principal.