The Year 2017 – So Much Wealth and So Much Cheating

It has never been easier to do the right thing in the money management business but the bad behavior continues.

I read this today about Morgan Stanley paying $8 million to settle up on advisors stuffing inverse ETF’s into client’s retirement accounts:

All of this just makes it easier for the advisors offering the lowest cost, simple products/ strategies and consistent communication.

Josh has a great post up with beaucoup stats on the state of wealth management in 2017. Some meat:

Chip’s opening keynote is always a panoramic look around the industry and it never disappoints. He notes that there are 326.5 million people (consumers) in the United States today, comprising 125.6 million households. Collectively, they hold $42 trillion and change in investable assets and another $22 trillion in retirement plan assets. In other words, some $65 trillion in liquid assets to be managed by the investment industry.

This is on top of $11 trillion in small business value and another $29 trillion in personal assets and homes that they live in. Added together, US households have $107.9 trillion in total assets, with $15.1 trillion in total liabilities, or total household net worth of $92.8 trillion.

There are 1,826 billionaires in the United States and another 142,000 people with net worths exceeding $25 million.

This is a staggering amount of wealth.

Who is going to manage it?

The conclusion reached by both the audience taking a poll as well as by Chip, who is a leading consultant to the industry for 20 years, is that the only categories with meaningful growth in the space will be the RIA channel, the online brokerage channel and the digital advice channel. Everyone else is losing share and these trends should persist. It’s important to note that assets are triple-counted in this industry – in Chip’s example, if he buys a mutual fund from an RIA – the RIA counts the money as AUM, so does the mutual fund company and so does the RIA’s custodian.

There was a lot of talk about fee compression, both at the fund level and the advisory level. Advisors aren’t giving up their margins, so they’re turning to product companies that have lower fees to keep a lid on the all-in costs they’re showing to clients. As a general rule, “Whoever is the closest to the customer almost always eventually wins.” Put another way, the advisor who owns the relationships (distribution) will survive the downward pressure on fees better than the fund companies will. This is regardless of the “active-passive debate” or anything else.

On the whole fuss over millennials, Chip notes that, for the time being, they’re irrelevant to the wealth management industry. “93% of the assets in 401(k) plans are held by Boomers. For the next five years at least, that’s the market.”

Like I said yesterday…if your kid can’t code he/she better be able to give investment advice.


Also published on Medium.