Pick up any industry article, white paper or analyst briefing circu- lating in the independent wealthmanagement space these days, and itseems a foregone conclusion that thefuture of advice will be big.
That is big as in large, dominantregional and national firms owning allof the clients, all of the advisors and allof the assets. Thus, if you want to be aplayer in 2020 and beyond, you need toget big and get big fast.
In fact, it seems that those “get bigor die” analysts basically have the word“scale” tattooed on their foreheads asthe only answer to any industry trend,development or strategic question.
This shouldn’t be a surprise.Particularly as the costs of investmentproducts, services and delivery arebeing driven down — literally to zero —by the behemoth digital players in theirown personal technology sprint to getmassive scale, so they can stay in business in an era of zero interest rates andzero commissions.
At the same time, with much of existing advisor tech being disjointed, costsof client acquisition increasing and compliance becoming more complex, theword “scale” is becoming ubiquitous asa requirement for independent advisoryfirms to be able to allocate more of theirfixed costs over a larger client base toremain profitable.
Yes, scale is good, and independent advisory firms that have grownto billion-dollar plus status should beadmired, respected and congratulatedfor this incredible achievement. Theirgrowth continues to power the successof the wealth management space.
More importantly though, for the
broader wealth management ecosystem
supporting advisors, size is critical to
being profitable in a world where basis
points are being squeezed out of just
about every part of the investment man-
agement supply chain.
But is scale really an absolute requirement for all advisors? Is the future ofsmaller advisory firms so bleak and grimthat they will be swiftly relegated tothe dust bin of history? I think not, andhere’s why.
MICE THAT ROARED
Depending on which survey or report
you reference, there are about $80
trillion to $90 trillion of investable
assets in the United States, give or
take a few trillion. The largest finan-
cial services firm of them all, Fidelity,
gathered just a hair over $8 trillion
after 75 years in business. This means
the biggest, most successful financial
services company ever in the history
of the industry has only been able to
achieve a 9% market share.
Plus, the state of competition inwealth management is dramaticallyincreasing, and it will be tough for thoseindustry leaders to truly achieve dominant market shares. And it is extremelyunlikely that our regulated industry willevolve into a scenario similar to the real“scale kings” — the tech titans, such asAmazon, Facebook, Google and Apple,that have market share in some verticalseclipsing 90%.
That’s simply not going to happen
The largest financial services firm of them all,
By Timothy D. Welsh
Fidelity, gathered just a hair over $8 trillion
after 75 years in business. This means the
biggest, most successful financial services
company ever in the history of the industry has
only been able to achieve a 9% market share.
Small Is the New Big
“Scale” is today’s industry buzzword. Still, though most advisory firms are
small, they can survive and thrive.