1. Regulation Best Interest forces smaller brokers to seek cover.

2020 will be testing ground for the new SEC rule, especially for smaller brokers. They won’t have sufficient resources to integrate the new technology needed to adapt and will embrace the services of large consolidators that can deliver reasonable pricing through economies of scale. Offices of supervisory jurisdiction will take on a larger role as consultants for BDs, and hybrid registrations are expected to increase.
(Photo: Diego Radzinschi/ALM)
2. Zero commissions create a value migration.

BDs highly dependent on commission revenues will need to find other sources of income, deliver more value to clients and scale operating models with new technologies to survive. Firms that have relied on investor trades need to evaluate their clients’ needs and offer services clients are willing to pay for, such as digital advice and banking services. Aite Senior Analyst Greg O’Gara says Goldman Sachs, with its ability to offer an array of value-added services, is well positioned.
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3. Zero commissions affect asset management distribution.

This change adopted by multiple discount brokers and RIA custodians like Schwab, TD Ameritrade and Fidelity, has virtually eliminated no-transaction-fee (NTF) platforms for ETFs whereby ETF providers covered trading costs through revenue arrangements with RIA custodians. Now all asset managers are essentially operating on the same platform, which puts midsize and small ETF managers at a disadvantage compared to larger ones.
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4. Advisors support client longevity.

By 2020 one-third of the U.S. population will be 65 and older. Their life expectancy and those of other baby boomers is lengthening, and many face the prospect of living 20 to 30 years in retirement, presenting opportunities and challenges for advisors who have traditionally focused on investment management and asset accumulation. Their value proposition needs to change to provide clients with reliable income streams and support for health care, elder care and caregiver needs — all involving advanced financial planning. Ultimately, advisors should consider compensation tied to advice rather than assets, which will be declining.
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5. Financial wellness moves beyond the workplace.

As workplaces expand wellness programs beyond HSAs to offer help with student loan repayment, elder care support and financial crisis management, wealth management firms need to re-evaluate their service and support models, including their methods of compensation.
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6. Defined contribution plans add digital advice.

DC plans have $5.8 trillion in assets, according to Aite Research Associate Eric Sandrib. Traditionally, many of those assets were rolled over into IRAs when workers retired or switched jobs, making them available for advisors to manage. Now more DC plans are offering digital advice solutions — Vanguard is piloting one — which would preclude rollovers. “Keep an eye out for competition” for rollover and nonqualified investment assets, Sandrib says.
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7. Wealth managers incorporate banking services.

Wealth management firms can deepen their relationships with clients by offering savings and checking accounts, branded credit cards and lending options through partner institutions, all client-centric products. Many robo-advisors already offer such services, but so does the Carson Group through its partnership with Galileo Money. Other wealth managers can do the same using APIs to access BBVA Open Platform, Cross River or similar offerings. Pirker expects a proliferation of new cash management offerings from wealth managers in 2020.
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8. Global private banks perpetually evolve.

Private banks also will be focused on customizing the client experience in 2020, providing investment advice and prudential risk management strategies with transparent pricing, according to Aite. They will be hiring relationship managers and advisory personnel, deploying digital client platforms and rationalizing their geographic footprints while their management increases a focus on investment solutions teams with advisory and asset management services.
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9. Global private banks seek stability.

Their numbers are increasing in Asia while declining in Europe and remaining stable in North America, says Senior Aite Analyst Wally Okby. Within Asia, Singapore, with its strong regulations and standards of client protection, will benefit over Hong Kong as private clients keep close tabs on jurisdictional risk. Financial advisors can take this time to reaffirm their value proposition to clients by showcasing their scale, Pan-Asian and global booking capabilities and product offerings.
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10. Relevance of ESG rises.

UBS plans to invest $5 billion of client assets in sustainable/socially responsible investments by the end of 2021. Wells Fargo is offering nine model portfolios focused on environmental, social and governance factors, and many more ESG and SRI offerings will be coming down the pike from asset managers and vendors. The ESG sector will become mainstream if it hasn’t already, according to Aite. In 2020 it expects a deeper focus on impact measurement and reporting, efforts to standardize terminology and more ESG offerings in retirement plans as awareness of climate change and other ESG-related issues grows and firms see the need to mitigate ESG-related reputational risks.
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2019 was a momentous year for the wealth management industry.

Among the highlights: Schwab said it would buy TD Ameritrade for $26 billion, Goldman Sachs bought United Capital for $70 billion and Schwab, TD, Fidelity and several more firms ended commissions for stock, ETF and options trading. The Securities and Exchange Commission finalized its Regulation Best Interest rule for broker-dealers and several states, including New Jersey and Massachusetts, introduced their own fiduciary rules for BDs that would hold them to a higher level of service for clients than the SEC’s rule would.

While all that and more was going on, the U.S. stock market soared. The S&P 500 and Nasdaq had their best year since 2013, gaining 29% and 35%, respectively, despite growing instabilities around the globe including the U.S.-China trade war, Brexit and raging fires in California and Australia.

2020 promises to bring more big changes to the wealth management market, which Aite Research Director Alois Pirker says will be “redefined” by the tie-up between Schwab and TD Ameritrade, one of its chief rivals. At the same time, global tensions and the looming climate crisis will lead more clients of wealth managers to push for “purposeful investment opportunities,” namely ESG and impact investments in their portfolios, and the growing number of retirees dealing with issues of aging and longevity will challenge advisors to provide more varied, client-centric services than many have traditionally offered. There will also be more consolidation, increasing competition from the 401(k) market offerings and different compensation schemes as the wealth management industry continues to evolve in 2020.

Visit the slide show gallery above to view the top 10 trends in wealth management that Aite is expecting in 2020 — what it calls the 2020 Wind of Change.

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