Three Wealth Management Growth Drivers That Are Disappearing

The wealth industry has a growth problem.

Fees are compressing. New competitors are popping up every day. And the demographics – both of investors and advisors – are changing every day.

A robust technology strategy is key to solving the wealth industry’s growth problem. But what exactly does that mean?

The limits of market growth, selling and buying 

There are three factors currently driving growth for many wealth advisory firms:

  • rising markets in which rising valuations drive growth and revenue;

  • cross-selling in which a client will purchase multiple services and products from the same firm; and

  • growth via acquisitions since investment money is cheap and companies can rationalize amalgamation costs through benefits from scale.

Let’s call these three factors, respectively: market growth, selling and buying.

They all have their advantages, but they also have a common problem: there is a limit to how much growth they can generate. With that in mind the question becomes: how do you grow as a company? Even if the market continues to go up– and it may not– when a company has exhausted the three factors driving growth, what’s left for them to do?

This is where technology steps in

Technology such as advisor desktop systems has been used by wealth advisory firms for years, but in this context the question becomes, “how do you make your ability to acquire new clients more productive?” Right now, the vast majority of new client growth for most advisors typically comes through referrals. One area companies should be focusing on is making sure that your advisor workforce becomes more efficient in using certain types of technology, and that your firm is more efficient in using technology to allow for better lead generation, qualification and nurturing to ultimately capture new clients.

Another issue technology can help solve is advisor retirement. A significant portion of the current advisor population is retiring. The average age of an advisor is about ~55 years old and the current number of younger advisors is not enough to replace those leaving. Those who are left must find ways to become more productive and more effective at generating new business and identifying new clients. Technology can enable fewer advisors to better service more customers.

Lastly, where technology can really aid growth is through onboarding smaller clients and servicing them in ways that are meaningful for the client, as well as profitable for the company. For many firms, this option opens up a new revenue channel. Smaller clients are difficult to serve profitably – a client with $250,000 and a client with $1 million in investable assets take roughly the same amount of time to service, but the revenue can be four times higher for the latter client. 

When you’re trying to grow, you attract the types of clients you want, but you also have to figure out how to bundle smaller and younger clients who may not be individually profitable from a business perspective and service them in a meaningful way. Automated investing and robo-advisors are being used to service this group, but these investors may also have other financial advice needs, such as mortgage or student debt, or an inheritance or estate question. Current robo-advisor tools don’t really offer advice on how to holistically manage all these other financial issues, but by building AI modules within these investment platforms that help people think through the big financial issues, that’s where firms can provide that meaningful service in a manner that is personalized, efficient and at scale.

Wealth advisory firms have a lot to think about when it comes to driving growth in a way that’s efficient and at a scale. Technology can address many of these issues and implementation is something that most wealth management firms need to put front and center – starting now.