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Creating a Sustainable and Enduring Wealth Management Firm

Kevin Connor
Sep 5, 2017
Building a sustainable and enduring wealth management firm requires vision and action. With a changing demographic, the status quo is no longer sustainable. In order to build a thriving wealth management firm capable of long-term growth and success, your business strategy should include the following three components: talent management, a plan to scale your successes, and mergers and acquisitions.

Talent Management

Successful companies from all industries focus on talent management for several key reasons. Your business is made up of people; you want to keep your superstars as well as reduce recruitment costs. You want your employees to work to their full potential and feel valued for their efforts. You want to build a positive organizational culture and reward both productivity and loyalty.

These are universal reasons to implement a talent management plan. However, wealth management firms have some other compelling considerations: productivity, technology and automation; a changing demographic; and changing preferences regarding the gender of the advisor.

A Changing Demographic

All industries must grapple with the huge generational changes that are coming as the Baby Boomers age and Millennials come of age. This changing demographic brings with it two challenges: internal impacts and external ones.

Internally, the industry itself is likely to lose about one third of its existing financial advisors over the next ten years to retirement. From a talent management perspective, this is huge. The demand for financial services is expected to grow by 32 percent due to retiring Baby Boomers, yet the industry is potentially going to lose one-third of its most qualified advisors during the same time period. This leaves a large amount of wealth to be managed by other, presumably younger and less experienced, advisors.

On the plus side, Fidelity Clearing & Custody Solutions has noted that firms with a significant number of clients age 45 and under grow twice as quickly as firms that do not. Pairing younger clients with financial advisors from their own generation could be an excellent way to leverage youth. Older financial advisors will retire, so make sure you have a plan in place to replace them with the next generation.

According to Ernst & Young’s Next Generation of Financial Advisors, younger clients favor younger advisors. The keys to attracting young financial advisors include: technology investments, a well-defined career path, an understanding of priorities, reexamining compensation, improving onboarding processes, and establishing mentoring and coaching programs.

Meanwhile, your firm’s client base will change. While Baby Boomers are continuing to retire, it’s crucial not to overlook the younger generations. In fact, it’s expected that both Millennials and Generation X will have more household wealth than Baby Boomers by 2030. Millennials are going to have a huge impact, and their tastes, needs, and requirements are dramatically different from previous generations. They will need financial advice, but they’ll also need a different type of financial advisor to give it to them.

Changing Preferences Regarding Gender

Women now control 51 percent of household wealth, and are the primary breadwinners in more than 40 percent of American households. However, just 15 to 20 percent of financial advisors are women. Gender may not have been a big concern with Baby Boomers, but it is a significant one among female Millennials, 26 percent of whom have indicated a preference to work with female financial advisors.

Productivity, Technology and Automation

There are only so many hours in a day, right? That’s not to say that productivity within the financial advisory business is capped or limited by the clock. While the personal touch remains important, technology and automation are helping today’s advisors accomplish more in less time. As tools improve and the industry as a whole embraces them, productivity per advisor will likely increase.

These technologies and automation tools, when properly selected and used, supplement the advisor’s work. Other supplements to advisor productivity include strategic planning, teamwork, specialization, segmentation, and investment management outsourcing.

Succession planning and recruiting the right talent are a must if you want to build a sustainable, enduring wealth management practice. You’ll also want to identify your current and future stars, and invest in both technology and talent development, implement a work-life balance plan, and establish a mentoring program.

Scaling Your Business

After building a viable wealth management business, it’s time to scale it — but only once you have a strong operational foundation. After all, if your business is dysfunctional, scaling it will only amplify areas of dysfunction. One thing to keep in mind about the financial services industry is that revenues and costs are not necessarily in alignment. Your revenues may be up for reasons beyond your control such as a strong stock market. Nothing you did, in this example, is necessarily scalable or repeatable. Your expenses, on the other hand, are usually within your control. If your firm consistently “lives below its means,” it will be operating more efficiently than if you increase your spending when the market’s high.

Technology is one area that’s often easy to scale, especially software as a service and cloud-based offerings. However, it’s crucial to make sure that your technology investments make sense for your firm.

Successfully scaling a business is not about adding advisors and software licenses; it’s about making strategic decisions and deploying proven best practices. It’s also about making sure that your firm has the leadership in place to scale the business appropriately. This circles back to talent management, talent development, mentoring, and having a well-defined career path.

You’ll also want to examine the processes and systems used throughout your firm. Are they scalable? Can they be simplified? Modernized? Improved upon? Are they still relevant? Which systems can be eliminated? Are any systems missing that should be implemented?

Mergers and Acquisitions

Mergers and acquisitions have become increasingly important to the wealth management industry. An Investment News study in 2016 found that 43 percent of firms surveyed had plans to merge with or acquire another company over the next two years. According to the study, the driver for M&As in the industry is increased competitive pressure. Smaller firms simply cannot keep up with the costs of technology and compliance. In a complicated regulatory environment, firms are looking for ways to strengthen their organizations, improve their technologies, and achieve economies of scale.

There are several types of acquisitions in the wealth management industry:

  • Scale-driven acquisitions — These tend to be either defensive or opportunity driven. With a defensive scale-driven acquisition, it’s often about driving cost efficiencies and growing the combined business. Opportunity-driven acquisitions seek scale as well, but as a means to take advantage of a given opportunity. For example, a smaller firm may not have the resources or know-how to market an innovative new product or service; a larger company, seeing the potential, may acquire the company with intentions to use its own marketing resources to get that product to a larger market.
  • Strategic aggregation acquisitions — This type of acquisitions combines similar businesses together to increase sales, purchasing power, and access to financing due to the combined company’s larger size, resource sharing, and combined marketing strengths.
  • Complementary acquisitions — This type of acquisition involves cross-selling and revenue diversification. Where strategic aggregation involves combining very similar organizations, the organizations merging in a complementary acquisition may offer different, but complementary services. For example, banks often acquire RIAs, enabling them to add new services while also increasing scale.

The wealth management industry continues to be lucrative, but it is evolving. Client needs are changing due to generational changes; technology is becoming increasingly important both for practice management and for productivity and automation. The people serving as financial advisors in the near future will likely be younger, with more female advisors joining the ranks and closing the gender gap. The industry is likely to become more competitive and will likely be under increased pressure from regulators. In order to be competitive and sustainable, today’s wealth management firms must develop strategic plans focused on talent management, scale and mergers and acquisitions — all while operating efficiently and productively to create the best value for their clients.

You May Also Be Interested In Reading: Practice Management Tips: Onboarding New Clients


“3 Basics for Scaling Your Business.” 2017. Accessed August 28. https://www.entrepreneur.com/article/269913.

“Aggregation | Business Growth Leader Worldwide.” 2017. Accessed August 28. http://nationaldiversified.com/?page_id=207.

“The Coming Wave of M&A for Advisory Companies.” 2017. Accessed August 28. http://www.investmentnews.com/article/20161023/FREE/161029989/the-coming-wave-of-ma-for-advisory-companies.

“The Next Generation of Financial Advisors.” 2017. Accessed August 28. http://www.ey.com/Publication/vwLUAssets/EY-the-next-generation-of-financial-advisors/$FILE/EY-the-next-generation-of-financial-advisors.pdf.

“Value Driver #3: Create a Sustainable, Enduring Firm - YouTube.” 2017. Accessed August 28. https://www.youtube.com/watch?v=1CyUEdR1Dms.

“Where Are All the Women in Financial Services?” 2017. Accessed August 28. http://www.thinkadvisor.com/2016/06/30/where-are-all-the-women-in-financial-services.

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