Today's wealth management business is not a growth stock. It’s more like your grandmother’s passbook savings account.

Remove the effects of markets, mergers and acquisitions (M&A), and our industry has only had a 3% to 4% growth rate for a long time. There’s scant evidence to suggest a change in that pattern soon.

Tiburon Strategic Advisors founder and CEO Chip Roame said the industry’s organic growth in 2022 was an anemic 2.4%. He’s still evaluating 2023 figures but told me not to expect a turnaround story.

Traditional and independent broker/dealers, banks and registered investment advisors (RIAs) keep scratching for new assets. The easiest path has been through M&A.  

Organic growth is hard. Can asset and wealth management firms reclaim it? Some will, but most won’t. Those that do will develop creative and urgent responses to a few realities:

• Generational dynamics and their effects on wealth management.

• Client expectations of the services advisors should provide.   

Take Care Of Boomers’ Wealth
On a recent WealthTech on Deck podcast, Steve Gresham reminded listeners that we're an aging country —12,000 boomers will turn 65 daily in 2024. Never in history have so many people rounded that age corner in one year.

Additionally, boomers over 70 now have 30% of the country’s wealth. Many predict an unprecedented wealth transfer (more than $80 trillion, according to an estimate by Cerulli) to succeeding generations.

But hold on. Gresham also said many will be spending down their assets in their 70s, 80s, 90s and 100s to pay for expensive healthcare, long-term care, assisted living and memory care.

In other words, the folks who have driven the industry’s growth may be in net redemptions for the foreseeable future.

So, how should you respond? Let’s start with the fact that firms and advisors who are growing organically in a low-growth business are succeeding in earning the business of other advisors’ clients by:

1. Helping clients navigate the financial vicissitudes of aging. My colleague Paul Samuelson wrote about specific strategies for newly retired clients and retirees in “late old age.”

2. Becoming a “whole life” advisor to aging individuals and couples. Hear them out about their dreams of finding meaning in life after work. Bestselling author and aging expert Ken Dychtwald said he is bullish on this opportunity for financial advisors who embrace it.

3. Being ready to help clients transition into retirement when they have a strong urge and need to consolidate assets. Prove your value by helping them with their two key concerns: sustainable retirement income and reducing taxes.    

Follow Clients’ Marching Orders
Survey after survey of investors point to areas where their expectations for services will tip their selection of financial advisor—tax minimization and retirement income planning.

Unfortunately, the industry’s taken just one arrow—tax harvesting—out of the quiver that makes up true tax alpha. Tax harvesting has become a lucrative service for some. Dig deeper, though, and you can see a soft underbelly:

1. Tax harvesting services only look at half the household assets—the taxable assets—and mainly apply to single accounts, not an investor’s entire portfolio of taxable (brokerage) and tax-advantaged accounts (IRAs, 401(k)s) and other holdings, such as employee stock ownership plans (ESOPs) and real estate.

2. Tax harvesting over time provides diminishing returns to investors (and their advisors).

For clients in accumulation, capitalizing on the power of tax-smart asset location—placing assets in the type of account with the best tax treatment—results in quantifiably better outcomes. Ask any expert. They’ll tell you asset location has the most significant impact on improving after-tax results—by a lot.

Keep in mind that if you can quantify the benefit in dollars and cents, you can demonstrate why your fees are a bargain. Many firms and advisors understand that, but few today have the kind of tax overlay services that allow them to help clients maximize asset location across their portfolios.

Turning to decumulation for retirement income, Morgan Stanley has enjoyed huge success with its Intelligent Withdrawals service, which recommends withdrawal strategies across client portfolios to reduce tax drag and maximize retirement paychecks.

It’s way out in front of the pack. Most advisors tackle retirement income with spreadsheets and formulas and “eyeball” or “best guess” what they see. That is not a recipe for organic growth or client success. Morgan Stanley has developed an “easy button” for retirement income with Intelligent Withdrawals.

Clients Are Willing to Pay. Can We Deliver?   

A recent report by Cerulli Associates pointed to growing market demand for advice, especially around tax minimization strategies. Just 38% of affluent individuals said they would pay for advice in 2009; in 2022, that number had climbed to 63%.

Among advisory practices serving high-net-worth investors, estate planning and tax planning are the two fastest-growing service areas, according to Cerulli.  

Morgan Stanley (and some others) understand that curbing tax drag contributes to organic growth through asset retention and asset consolidation:

• The more assets investors can keep invested (rather than be used to pay current taxes), the more assets a firm and an advisor retain.

• Demonstrably limiting tax drag on household portfolios is a strong incentive for clients to consolidate assets with an advisor and refer friends and family.

Is it any wonder that Morgan Stanley enjoys the fastest industry growth rate as a percentage of its asset base?

“Price is an issue in the absence of value” is an old expression. The market is there. It’s willing to pay—especially if you quantify the tax alpha you generate. It’s told us what it wants. And it starts with you.

How quickly will you deliver far-reaching value and accelerate your organic growth?

Jack Sharry is the EVP and chief growth officer of LifeYield and host of the WealthTech on Deck podcast. He is on the board of Next Chapter, a leadership community dedicated to improving retirement outcomes.