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The Wealth Management Industry Has an Embarrassing Secret

Most wealth managers do a mediocre job of portfolio management basics like reba


The embarrassing secret in our industry is that most wealth managers, even those serving ultra-high net worth investors, do a mediocre job of portfolio management basics like rebalancing, tax management and customization. Robos still specialize in simple portfolios, but that’s a marketing choice. It is now possible for robo firms to outperform industry-dominating "bulge bracket" firms in terms of the quality of their core portfolio management. Not better value for the money. Just flat out better. 

This serves as both a threat and an opportunity. The threat, obviously, is that if you don’t up your portfolio management game, your business will be in trouble. Maybe you won’t lose your current clients, but you will struggle to attract the next generation.

The opportunity is that it is within your means to capture the clients that other firms are losing. The Chief Investment Officer of a regional bank shared with us that his firm never used to be able to compete with bulge bracket firms. In response, his firm adopted technology that automated customized, tax-sensitive rebalancing. “Now,” he says,“ we never lose in a head to head competition. Never. Not once.” He walks prospects through his firm's ability to offer custom asset allocations, custom product choices, open architecture product selection, tax-sensitive transition and expert ongoing tax management. The perhaps surprising truth is that bulge bracket firms can’t come close.

The good news is that this is all eminently doable by just about any firm, yours included. It isn’t about your ability to spend money. The portfolio monitoring and rebalancing technology that makes this possible (ours included) increases efficiency, so being able to deliver a higher level of portfolio management doesn’t even require net increases in expenditures. Just a willingness to do things differently. 

Taking advantage of this opportunity requires two changes:

  • Leverage portfolio management technology: You can’t serve clients better at lower cost without automation. Computers are good at repetitive “boring” tasks like portfolio monitoring, rebalancing, and tax management. Advisors may have the patience for these tasks, but they don’t have the time. Modern CRM and financial planning systems will also become “table stakes”.
  • Demonstrate your value: It’s not enough that you manage portfolios better than your competitors. You need to make sure your clients know you’re doing a better job. This is partly a matter of choosing to talk less about product and more about the importance of tax, expense and risk management. But it also requires having the tools to document your value. Rebalancing technology can help here, too, automatically calculating metrics of your value, such as how much you’ve saved your clients in taxes. 

In the 1976 movie “Network”, a slightly deranged TV anchor played by Peter Finch starts a national movement with an angry declaration that “I’m mad as hell, and I’m not going to take it anymore.” I’m pretty sure he wasn’t talking about wealth management when he said this, but the sentiment might nevertheless be be an apt description of investor attitudes. The problem is that investors are increasingly questioning whether they’re getting their money’s worth. Investors may not literally rise up in fury, but sooner or later (in a quiet, dignified manner) they will take their money elsewhere.


For more on this topic, check out The Three Types of Wealth Management Firms.


President, Co-Founder