The wealth management industry is facing a transformation—both from active managers and the technology that will be used to customize portfolios. That was the message of thought leaders in a webinar sponsored by Schwab Asset Management and T. Rowe Price on Tuesday.
“Active management can deliver a better life for advisors’ clients,” said Sébastien Page, head of global multi-asset and chief investment officer at T. Rowe Price, during the webinar on the latest trends in wealth management. “But advisors need a skilled active manager, not an average one,” to reap benefits for clients.
Most portfolios can have a place for investments with both active and passive management, he added.
At the same time, advances in technology will enable a continuing improvement in advisors’ ability to customize portfolios to each client’s goals, said Omar Aguilar, CEO and chief investment officer of Schwab Asset Management.
Current trends in the global marketplace and in geopolitics have investors taking evasive action, the two agreed. Many investors and advisors are feeling an aversion to loss right now because of existing inflation and the possibility of a recession, Aguilar said.
They’re also led by “recency bias,” he said—the tendency to take action because of recent bad news instead of taking a long-term view, and that’s harming them.
A third trend among investors is what Aguilar termed “anchoring,” which means taking action now based on things that happened in the past, which may be irrelevant in the current environment.
These biases can make investors do things that are not just harmful but contradictory. “For instance, investors, particularly millennials, are afraid of stocks because of potential risk, but they are willing to invest in cryptocurrency,” Aguilar said.
“Advisors have a very big role to play in helping clients understand these trends,” he added.
Page said it’s impossible to predict the market’s future—and its return to a more normal trajectory. Markets are pricing in a 3.2% inflation rate for each of the next five years, and, even though that is lower than the current rate, it is still substantially higher than the Federal Reserve’s 2% target. “It is going to take some time before we get back to a more normal inflation rate,” Page said. “The Fed said inflation would be transitory, and it has not been; now the Fed is behind the curve to try to fix it.”