WEALTHTECH INSIDER: Five Key Takeaways For the Future of Financial Advice


The wealth management and financial advice industries will continue to grow, according to Chip Roame, founder and managing partner at Tiburon Strategic Advisors, but in the decades to come it might look very different.

“This is to me a great profession, the wealth industry is a great profession,” he said. “You can build a huge business in wealth management through organic growth or inorganic acquisitions, but I also think that small advisors will be here forever. In 90% of America you can have a great lifestyle business, run a small business with around 100 clients, and live a great life. It’s going to be a great profession for the next two-to-four decades, and that gets me excited.”

Rusty Vanneman, Orion Advisor Solutions

Roame joined Rusty Vanneman, CMT, CFA, Chief Investment Strategist at Orion Advisor Solutions, on a recent episode of The Weighing Machine podcast to share five key conclusions about the future of the financial advice industry.

Opportunities In New Audiences

Like most of the financial industry, Roame divides potential client bases along several different characteristics, one being generations. But financial advisors and the media are hyper-focused on the current generation of retirees, Baby Boomers, and the largest up-and-coming generation: Millennials.

“The big opportunity in the next few years is clearly Generation X,” said Roame. “They are going to save and invest more money than Millennials and Baby Boomers combined.”

Roame also thinks the mass affluent segment is underserved, though it represents trillions of dollars of wealth.

The Investment Equation Has Been Solved

Roame believes there will always be a place for active management in investment products but says that the data is overwhelming in favor of indexing.

“Indexing, passive and quantitative investing gets 80% of all the flows,” said Roame, and there’s no sign that any market condition will suddenly make assets flow back into active investments. “Active managers have said that when the market goes up, it will go back into active, or when the market goes down, it will go back into active, or when it gets more volatile, it will go back into active. None of that has been true. Passive investing and indexing are taking most of the flows over time.”

Passive management is not only winning as ETFs gain flows and market share, but also as more of the mutual fund and separately managed account business tilts towards indexing large sums of money.

“The ETF market is $6 trillion, direct indexing is about $350 billion,” he said. “It’s about 5% of the ETF market, and in direct indexing flows are measured in the tens of billions of dollars. ETF flows are up around $1 trillion.”

Advisors Need a New Scorecard

Financial advisors and wealth managers have come to embrace the value they can create through financial planning, but still benchmark themselves and their clients as if they were asset or investment managers, said Roame.

“At the end of a quarter, we say how did we do against some benchmark, and that’s an investment management mentality,” said Roame, who believes advisors need to highlight the impacts they make for their clients outside of the portfolio.

Two Channels Are Winning

Consumers are flocking to two different channels for investment management and financial services, said Roame: RIAs and discount and online brokerages.

“Now I’m not sure that the median firm in either industry is growing,” said Roame. “If you lined up all the discount and online brokerages from the fastest growing to the slowest growing, and all the RIAs from fastest growing to slowest growing, and took the middle firm from each group, I don’t think those firms are actually getting bigger—but the big firms are getting really big, really fast.”

Roame pointed to mega-brokerages like the online and retail operations of Schwab and Fidelity as examples of growers, as well as huge RIAs like Mercer, Mariner, Edelman Financial Engines, Creative Planning and Focus Financial Partners.

Two Tech Trends Accelerated by Covid

The impacts of Covid on the wealth management industry have been widely debated, but Roame believes that the pandemic has accelerated two already present technology trends that will likely help shape the industry’s future: digital marketing and virtual delivery.

The old way of finding clients used to be in doing in-person seminars and sitting on community boards and seizing other engagement opportunities, or by seeking client referrals or center-of-influence referrals. Most of those sources of growth disappeared during the pandemic.

“What went up were things on the internet, firms were buying digital marketing and now it’s just booming,” said Roame. “Big RIA firms are growing through digital marketing, not a bunch of client referrals or center-of-influence referrals from CPAs. That’s how you get big: digital marketing.”

Thanks to the pandemic ending many in-person meetings for the past two years, the whole world is more comfortable meeting online and using services like Zoom and Microsoft Teams to conduct business and keep in touch.

Roame believes virtual delivery is now here to stay, making advisors more efficient.

The Outlook for Mergers and Acquisitions

“I think in both wealth and wealthtech you’ll see a ton of consolidation, and then a bunch of IPOs,” said Roame. On the RIA side of things, major players like Mariner, Creative Planning and Edelman Financial Engines will continue to accelerate their organic growth and acquire firms until they go public.

In wealthtech, firms continue to grow their platforms via acquisition. Roame believes that most of them will also go public in the years to come.

What RIAs Need

Roame said that RIAs need to solve for three big issues to be successful: Lead generation, benchmarking and succession or acquisition planning.

Lead generation is key to growth, said Roame.

“If you can generate your own lead flow, you can grow a really big business in the wealth world right now,” said Roame. “I think there are a lot of vendor companies that should be helping advisors to figure out lead generation, because that’s a thing that a lot of capable and skilled advisors may not be as skilled or focused on.”

Advisors also need to be able to benchmark their businesses. Roame recommends starting with annual benchmarking studies from Schwab and Dimensional Fund Advisors.

Finally, advisors need to have a succession plan in place, a plan to sell their practice at some point, or a plan to grow through acquisition.

“If there’s going to be a lot of consolidation, you might as well be part of that consolidation,” said Roame.