The second major force—technology—certainly has gotten a great deal of attention in general. However, what has gone largely unnoticed is the longer-term impact it will have on the economic model of wealth managers.   

In a nutshell, technology is going to force wealth management firms to substantially increase both the scope and the sophistication of their services or they will see their fees go down. Why? Technology is rapidly commoditizing many of the traditional sources of wealth manager value-add.

To be sure, many industry participants are skeptical because robo-advisors—despite having burned through hundreds of millions of dollars of capital—have had little impact to date on the industry. But robos mostly help people invest money and that represents only a tiny part of the value provided by advisors. Instead, wealth managers’ core value added function has been (and remains) helping clients to understand and diagnose their problems and then (and only then) to help them construct solutions to meet their goals.

So far technology has been largely unsuccessful in addressing this complex need. However, if you look at the advances in on-line learning AI software, it is clear that highly sophisticated technology-based solutions are coming and that potential clients will be able to directly access them online. (In fact, it is likely that wealth management firms are going to adopt these kinds of tools themselves in order to be much more efficient in onboarding clients.) Although these online tools are unlikely to completely replace the need for human interaction, the ability of clients to use them on their own will create pressure on the fees they will be willing to pay their advisors.

Successful wealth management firms will respond to these changes by significantly expanding their core services offerings. While subsequent articles in this series will explore some of these new potential services in much greater detail, there are a couple of ways to broadly think about this issue. 

One way of peering into the future is to look up the proverbial economic food chain—i.e., businesses with much larger and more sophisticated clients—and see what they are doing. With certainty, what is being done today for clients who have $300 million of assets will in some form be provided in the future by advisors to clients with only $3 million. And future successful wealth management firms are going to look increasingly similar to today’s multi-family offices.

Another way to think about how wealth manager service offerings are going to change is to take a top- down view of what wealth mangers actually do today for clients, which is helping them to manage their existing wealth in a manner that addresses their problems and goals.

In the future, successful industry participants are going to expand beyond these boundaries. They are going to play a much larger role in helping clients to build and sustain wealth. They also are going to help them to more efficiently and effectively consume it.

The third force that will reshape the economics of providing advice—the changing needs of clients—will also play a role in helping to determine the future service offerings of wealth managers. Client demographics are changing and with that so too are their future needs.

More specifically, according to the Stanford Longevity Center, for every three years that you live, your longevity increases by four months. Average client age is going to increase over time and what clients will need from their advisors will likewise change. At the same time, throw in a wave of upcoming new medical advances that will likely make treating cancer much more like diabetes than a death sentence and that, at some point, Alzheimer’s and dementia will be chronic as opposed to fatal diseases. Good luck figuring out how to make sure your clients don’t outlive their money.