Everyone is talking about modernizing wealth management. But as a close observer of this space, I see only a few are positioned to deliver.
J.P. Morgan is moving quickly to walk the talk. How do I know? I’ve talked with 160 executives about the future of financial advice on my WealthTech on Deck podcast.
I see J.P. Morgan running to transform their platform so advisors can embrace the promise of tax-smart, household-level portfolio management that improves investors’ outcomes and wins new assets under management (AUM).
“If you take a step back and you look at the evolution of the wealth management and, candidly, the asset management industries, there are a couple of very broad trends that are turning into hurricanes at our backs,” Ted Dimig, global head of wealth management advisory solutions, said on a recent episode of my podcast, WealthTech on Deck.
Those trends are:
1. Understanding clients’ goals
2. Personalizing their investment portfolios
3. Delivering tax-smart advice at the household level
4. Technology that ties 1, 2 and 3 together.
“The fact is, the more you can get a client's goals to match their investment solutions, the higher the probability that they're going to stick with their investments over the long run,” Dimig said.
“And the more you can do that in a seamless, integrated ecosystem that enables them to personalize based upon preferences, wants, taxes, the better the probability of hitting their outcomes that you're ultimately going to have. That, in a nutshell, is what we're working through today.”
J.P. Morgan Is On The March
Eric Lordi, managing director of J.P. Morgan Private Bank, understands better than many the future requirements for wealth management platforms. Formerly, he was part of the team that developed Morgan Stanley’s impressive comprehensive advice platform.
“The march is consistent,” Lordi said on my podcast. The destination? “A modern wealth management system, or operating system, where we can meet the clients where they are on that journey to advice and … drive better client outcomes and embrace goals-based (financial planning).”
Lordi noted that this vision requires a meaningful mental shift throughout the industry—“from an account-based structure to a relationship-based one.”
“Probably the most important part, too, for clients, is personalization,” Lordi said. “How do you really get to that level of preferences, knowing the client, knowing their particular situation, knowing their balance sheet, and not just the individual account or implementation, and stitch all those things together.”
J.P. Morgan Wealth Plan is one example of technology that helps advisors understand clients’ preferences and goals. Built into the Chase mobile banking app, Wealth Plan allows investors to create a complete picture of their finances, net worth, net income, spending, financial goals and budget—with the ability to connect with a J.P. Morgan advisor.
Amanda Lott, head of wealth planning and innovation at J.P. Morgan, said in a podcast interview that Wealth Plan and other tools combine goals-based advice with uncovering opportunities for J.P. Morgan to help clients with different solutions, such as banking and lending.
For example, she said, technology can help show advisors where clients may be getting off track or how clients with charitable giving goals could use a donor-advised fund to limit their tax exposure in a year when their incomes are high.
“Using technology to complement the advisor also ultimately impacts and drives a higher client experience,” Lott said.
Tax-Smart Portfolio Management Moves To Center Stage
I interviewed these three experts at different times, but each pointedly said that making tax management a routine part of J.P. Morgan's work for its wealth management clients is critical.
“I don’t think it’s contrarian to say that the next 10 to 15 years of returns are likely to be much lower than the last 10 to 15 years of returns,” Lott said. So, it’s vital to “help our clients squeeze every last drop of juice out of that orange … get their portfolios running as efficiently as possible.”
To do that demands technology that supports asset location—placing assets in the types of accounts with the most favorable tax treatment—along with multi-account tax harvesting, rebalancing, transitions and withdrawals.
“Gone are the days where tax management was a broker and advisor emailing someone in December to just sell something at a loss,” Dimig said. “You need to think about that tax journey 12 months out of the year, 365 days, whether that be through direct indexing … (asset) location … (or) adhering to different (Investment) vehicle preferences.”
Tax-smart withdrawals are particularly concerning to individuals approaching or in retirement. They can be substantially helped by technology that identifies the most tax-efficient way to draw income from multiple investment accounts, pensions, annuities and Social Security,
‘Optimizers’ Connect And Coordinate Accounts
Lott said an advisor doesn’t need one tool for asset location, another for tax harvesting, another for transitions, etc. Rather, advisors need a top-down, client-centric platform that identifies opportunities to limit tax drag, quantifies those for a client and executes the necessary trades and transitions.
Lordi described the work as developing “optimizers” that cross systems to “orchestrate” the application of various techniques that together deliver tax alpha.
“Ultimately, you’d love for this orchestration all to happen at the household level and then seamlessly cascade down across whatever trading systems and account types we have so that we can make this really easy for users,” Lordi said.
He described the future ecosystem as “always on advice.” Dimig noted that continuous vs. episodic advice maximizes returns and widens the scope of J.P. Morgan's engagements with its clients.
“If you can start every meeting by saying, ‘Hey, Jack, I saved you $25,000 by using that tax strategy,’ that's a good starting point,” Dimig said. And, “When you think about taxes, it's not just one product. It could be, ‘What's the appropriate investment vehicle?’ ETFs are super tax efficient. Maybe it opens the door to having a conversation about annuities and insurance … It may open the door to a gifting conversation.”
Technology can revolutionize the advisor/client relationship, Dimig said, “so it goes beyond just the ‘How did I do versus the S&P,’ and it really enables you to get deeper and better understand what makes your clients tick.”
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.