The private wealth industry is changing dramatically, and the speed of change will accelerate. Several macro and industry-specific trends are shaping a new world of wealth management. Technology and how it will evolve the private wealth industry is the most significant factor in this new financial environment. Generative AI will dramatically transform the wealth management business.
EQ + DO + AI + CT = Smart Decisions
By the turn of the next decade, there will still be para-advisors and wealth advocates and no wealth managers. There will be many fewer of these professionals than the current ranks of wealth managers. Regarding the wealth advocates, as they work with the financial elite, they will be significantly more profitable and build substantial personal affluence.
Successful wealth advocates will combine emotional intelligence (EQ) with determining objectives (DO), generative artificial intelligence (AI) and collaborative thinking (CT), enabling them to help the financial elite make smart decisions. There are relatively few wealth managers doing this today sans AI, and they are some of the most accomplished private wealth industry professionals.
EQ is being in tune with your emotions and those of others. The following are the components of EQ:
• Self-awareness
• Self-regulation
• Motivation
• Empathy
• Social skills
DO is predicated on EQ. The cornerstone of DO is the Everyone Wins Process. Wealth managers learn about their financial elite prospects and clients through open-ended questions. Instead of focusing on strategies and products, which is very common today, the focus is on desired outcomes.
By 2030, AI will replace most financial and wealth planning specialists, completely commoditizing technical expertise. Private wealth industry savants who are the most creative and clever specialists will remain as customized solutions are sometimes required. These savants will be in high demand and compensated exceptionally well.
A related consideration is that the platforms will empower wealth advocates, making all legally sanctioned financial services and products or comparable solutions available. Proprietary wealth management solutions or legal strategies are non-existent, just like they generally are today.
While a paradigm shift is required for AI to replace wealth managers in 2030, generations more entwined with technology than the baby boomers, for example, will be comfortable working with para-advisors who, because of AI, can provide them with all the expertise they require most cost-effectively. There will also be total AI advisors for a population segment. However, when these individuals and families relying on para-advisors or AI advisors join the financial elite, they will transition to wealth advocates.
Through the methodologies of CT, wealth advocates help the financial elite connect the possible wealth management solutions with their desired outcomes. It is a matter of skillfully evaluating the options in conjunction with the financial elite. Wealth advocates provide the financial elite with all the appropriate information and insights, share what other members of the financial elite are doing and how that is working for them, and ensure they consider all the essential elements impacting their situations, empowering them to make smart decisions.
The Financial Elite And Winner-Take-All
Even though the financial elite will comprise more families that will continue to control a more significant and growing share of the world’s wealth, their planning, investment and related needs and wants will be concentrated in fewer wealth advocates than the number of wealth managers working with this smaller less affluent cohort today. This is a function of our current and intensifying winner-take-all economy.
Each wealth advocate will work with a significant percentage of the financial elite. Their experience working with them will make connecting professionally, personally and emotionally easier, which then becomes a barrier to entry for others. As noted, their ability to share what other members of the financial elite have done in varying situations and how their decisions worked out is incredibly powerful, which is often crucial to them making smart decisions.
Almost all the financial elite will demand this human connection buttressed by total transparency, resulting in them working with a limited number of wealth advocates by 2030. Remember, they will require the highest level of technical expertise, which AI and a cadre of savants will provide. Also, the number of niche specialists will be severely limited.
Greater Compensation For Wealth Advocates
Total transparency is a product of the private wealth reset. Today, most of the financial elite are being poorly served. They are getting subpar wealth management solutions, missing out on meaningful opportunities, or getting their desired outcomes but are overpaying.
In 2030, wealth management compensation from the financial elite will be increasingly a function of value received. The compensation arrangements will be patterned after how the senior executives at high-performing single-family offices are remunerated. Success fees, when applicable and legally acceptable, will be the norm. Concurrently, project and retainer fees will dominate compared to, for example, time-based billing. Bundling of fees will still exist where the combination is less expensive than the sum of its parts, and each part can be shown to be of value.
Few private wealth industry professionals worldwide are compensated this way today. These compensation approaches put the economic risks of subpar wealth management solutions, missing out on meaningful opportunities on the wealth advocates instead of the financial elite, where they are usually today.
Considering the experiences of the private wealth industry professionals using these compensation approaches today and the projected multi-faceted growth of the financial elite, based on a structural-predictive model, the compensation for wealth advocates increases exponentially compared to current wealth managers. One million in annual income will likely become eight or nine million. It can even rise to ten times that or more. Welcome to the world of single-family office compensation.
Becoming A Wealth Advocate By 2030
With AI and a cadre of savants providing the highest level of technical expertise, Wealth advocates differentiate themselves from para-advisors and AI advisors by being able to build the required rapport and communicate complex concepts and alternatives to the financial elite in ways that precisely align with their desired outcomes.
Everything except AI is here now. Instead of AI, there are subject matter experts. The time is now to take action for wealth managers who want to become wealth advocates and dominate the private wealth industry in 2030 and beyond. By doing so, wealth managers will ensure an extremely profitable future and significantly grow their business with the financial elite today. They will immediately benefit from the winner-take-all economy.
Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.