Wealth Managers Are Facing New Challenges

New York (HedgeCo.Net) One of the iconic lines from the movie Moneyball comes when Billy Beane (Brad Pitt) is being confronted by old-school scout Grady Fuson (Ken Medlock). Fuson is unhappy that the Oakland A’s are taking a new approach and becoming more statistically focused and “discounting what scouts have done for 150 years”, and Beane gives him a simple three word response—“Adapt or die.”

Are traditional wealth managers facing a similar situation where they need to adapt or die? It might not be that critical yet, but those that don’t adapt or are slow to adapt are going to fall behind their competitors that do.

As I sat down to write this article and started doing some research, I came to realize that I am a kind of demarcation point for the information age (at least at this moment in time). I am 48 years old and that means that I have lived the second half my life with internet availability and the first half without internet availability. I was born in 1967 which means that I was 24 years old when the World Wide Web became available in 1991. Now it is 24 years later and I don’t know how I would function without my computer and being on the internet.

By being the demarcation point, it means that everyone younger than me has had the internet available to them for more than half their life. And each new generation is going to be more tech savvy and they are going to rely on technology more and more. Not only are my children comfortable with technology, they know how to use it and they also trust it to find information. They know how to use the internet to find information on any subject much like previous generations knew how to use encyclopedias and the card catalog system at the library.

What does any of this have to do with the wealth management industry? Wealth managers must realize that each year, their new clients are going to get more and more tech savvy and they are going to expect their financial advisors to have newer technologies. They expect to be able to access their account information from any mobile device and they expect access to web-based modeling as well as mobile portfolio management.

Salesforce.com recently released their 2015 Wealth Management for Connected Investors report and the results showed the continuing shift toward technologically driven wealth management. The report placed investors in to one of three generations, millenials (ages 18-34), Gen Xers (ages 35-54) and baby boomers (ages 55+). According to the survey, 89% of the millenials think modern financial planning tools are important when it comes to selecting an advisor while 83% of Gen Xers find it important. Only 53% of the baby boomers found technology driven tools important.

While the bulk of the wealth may be concentrated with the baby boomers at this point in time, there will be a shift of that wealth in the coming years. According to the report, over $2 trillion in assets will transfer down from the baby boomers to their Gen X and millennial children over the next five years.

At the recent Frontiers of Finance forum in New York, MIT’s Leonid Kogan offered this statement, “I would say we are living in an interesting time period, this generation is more tech savvy than the one before,” Kogan said. “This new generation, as they enter a saving period, they are going to be different from baby boomers. They are more self-reliant. They like transparency. They like to emphasize control over their investments and less willing to delegate to advisors.”

Kogan isn’t the only one trumpeting for change in the wealth management space. Consulting firm Deloitte produced a report last year entitled Digital disruption in Wealth Management: Why established firms should pay attention to emerging digital business models for retail investors. Deloitte noted in that report, “Established Wealth Management firms that do not learn from digital startups and adjust their business models accordingly could find themselves at a significant disadvantage in the marketplace.” The report went on to say, “Wealth management is an industry ripe for disruption, and wealth management startups are a leading indicator of what is anticipated to come.”

Offering digital and automated solutions for investors is going to be a must for wealth managers. HedgeCoVest is happy to be part of the movement that is forcing change within the wealth management industry. By offering investors the same strategies that hedge fund managers are employing, and doing it through revolutionary technology, we are offering retail investors something they didn’t have access to before. The changes don’t stop there either. The HedgeCoVest platform can also be used by financial advisors to make hedge fund strategies available to their clients. Rather than thinking of HedgeCoVest as a threat to their business, advisors should think of us as a potential partner that can help them with technology driven wealth management solutions.

We sure have come a long way over the last 30 years. In the mid to late 80s, the only machines on an advisors desk were their phones and a Quotron. Now you can get almost all of the same information you got from that dinosaur machine on your smart phone. Adapt or die.

Rick Pendergraft
Research Analyst

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