Last year, we had this thread about what robo-advising offers and how it could affect PWM careers going forward. I just came across this article on the current state of robo-advising, and I found two points that were really interesting. First, it talked about the business model of robo-advising, which gives an argument to the benefit of robo-advising over traditional investment managers.
“What digital advice has done is create an entirely new distribution process that takes that person performing that service out of the equation,” Cass said. Robo-advisers have commoditized the single thing that most people thought they were paying their financial advisers to perform, Cass said, adding, “Robo-advisers are not doing anything new for investors. We are just delivering it in a new way, and because of that, able to charge a heck of a lot less for it.”Second, it talked about how robo-advising is running into walls in terms of growth and development.
Two years ago, the notion that an independent, stand-alone digital franchise or robo-adviser could emerge and create a sustainable brand that would carry forward to the next 30 or 40 years — based on the amount of money Wealthfront and Betterment were raising — seemed inevitable, Cass said. But that is no longer the case. “The fear that an independent robo-adviser will dismantle the wealth management industry from the inside out is gone,” he said. “You’ve hit a point in the industry where the stand-alones are facing rising costs for customer acquisition and declining revenue over a lifetime for each client.
To me, those two points seem to contradict each other. If robo-advising is delivering the same service at a lower cost, why wouldn't it continue to grow?
If it is true that robo-advising won't overtake PWM, then what will the relationship look like in 5, 10, 20, 30 years?
Big element of talking their own book here.
Advisers will always be in demand. Joe Main Street will always want investing explained to him. That's not going to change.
I would postulate that robo advice is a misseling scandal waiting to happen. These cookie cutter risk profiling systems will not take into account the individual suitability needs as well as an advisor would. Investment performance is the be all and end all on WSO. In the real world people want to have their hand held, education and guidance about something they don't fully understand.
Where Is PWM Headed? (Originally Posted: 08/01/2014)
Hi guys, been a lurker here for a while now...love the site. I figured I'd wait to post until I had something worth posting about so here we go.
I spoke with an MD at GS PWM yesterday and he shared some interesting insight into what he thinks of PWM as a career nowadays, and where he thinks it's going. He mentioned that the sector has changed drastically over the past ten years or so to the point where building a book is exponentially harder than it used to be because of the fact that private wealth advisors (especially at bulge brackets) have very little control over their clients and the products that get pushed on them (Brofessor alluded to this in one of his 3 PWM writeups).
He went on saying that he sees value in doing a 2-3 year analyst stint in PWM coming out of undergrad (particularly at a place like Goldman) in order to gain experience...but that he is seeing many associates/VPs leave the firm after only a short time in order to start their own RIAs (think Iconiq) or transition into another sector in the industry (he cited VC as he works in the Bay Area and has exposure to the VC culture out there). I'm not sure if he was upset that his associates have been leaving him for greener pastures or if he genuinely believes the PWM is headed downhill at the BB level...he also mentioned that even though Goldman has a $10M minimum for PWM clients, he believes the Goldman platform is really built for clients with at least $25M in investable assets.
Brofessor recently did some great writeups on the past and present of the PWM and PB games...but where do you guys see the PWM going in the future, especially at the BB and small RIA levels? And for those of you in PWM...would you take the same path you've taken given the chance to do it all over again?
Thanks
thanks for the shoutout, won't reiterate what I wrote in my blog about the future of the industry (lower ROAs, less headcount, robo advisors, etc.), but as to your comment about products getting "pushed" on clients, you're thinking PB, not PWM. my firm, like every one of them, has ideas that they show to brokers but every PWM practice here (and I'd imagine at other wirehouses it's the same) has COMPLETE control over what products are clients are offered.
as to your final question, I wouldn't change much. I think I go into the business in a good way. of course I could say something like I wish I had studied harder in high school and paid more attention to the SATs instead of girls and surfing, gone to Princeton, majored in finance, and so on, but that's not realistic. we're all a product of our experiences and I can't say that I'd be the person I am today without those experiences, so it's tough to say I'd want to change.
Thanks for the reply, clearly I was out to lunch without a sandwich while reading your first PWM writeup (where you do indeed discuss your views on the future of PWM).
The MD I spoke with also mentioned that PWM has a different feel/vibe in most of the cities in the US, but he did not expand upon what type of vibes he was referring to. Is there any way you could shed some light on the differences in PWM between cities like NY/Boston versus LA/SF for example other than the obvious lifestyle differences?
Thanks
I wish I could tell you from experience, but my entire career has been in the bible belt. I will say that in talking with colleagues around the country, PWM tends to look pretty much the same everywhere, it's more driven by the investing philosophy, clientele (net worth & industry mostly), and structure of a practice than it is the geography. of course, a north dakota FA will have a much different clientele and a much different "vibe" than someone in Menlo Park who deals with serial entrepreneurs and VC guys, so I'd say the differences are more industry based than anything.
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