Financial advisory sector revenue will grow to $200 billion by 2030 from $57 billion today, according to a white paper published Wednesday by Zoe Financial, whose algorithm facilitates matches between investors and fee-only financial advisors.
The paper, written by Zoe Financial’s founder and CEO, Andres Garcia-Amaya, explains how several factors are coming together to drive major industry change that will provide both opportunities and risk for advisors.
“Digitization and automation are transforming every industry, and there’s a huge opportunity for financial advisors who will adapt to this new paradigm,” according to Garcia-Amaya, who was an executive director at JPMorgan Chase before founding Zoe in 2017.
Zoe Financial’s forecast of $200 billion in industry revenue in 10 years indicates much faster growth than other estimates of the U.S. wealth management market. The white paper cites a report by IBISWorld, which estimated that total financial planning revenue would grow at a 7% annualized rate and reach $80 billion by 2024.
But Zoe’s own research, the paper says, points to a more rapid annualized growth rate closer to 12% because of broader access to new clients.
According to the paper, now-digital-savvy baby boomers are seeking a wealth management experience tailored to the specific circumstances of their retirement and their expectations of hassle-free service.
Boomers, now 75 million strong, currently account for nearly 60% of wealth in the U.S., up from 21% in 1990 when they reached a median age of 35, according to the paper. By comparison, Gen Xers collectively owned 9% of the nation’s wealth when they reached age 35.
Boomers are not wealthy simply because they had more time to accumulate savings, the paper notes; they are the wealthiest generation in the modern era, the paper says.
Today’s retirees have to make their own decisions regarding trillions of dollars of retirement funds, but are largely ill-equipped to manage the withdrawal stage of their savings by themselves, according to the paper. Indeed, three in four Americans believe they lack the financial skills to manage money in retirement, it says, citing research by the National Institute on Retirement Security.
“Financial advisors who offer a personalized, frictionless digital wealth management experience will fill the gap,” Garcia-Amaya said.
The paper explores how the financial industry is changing as automation streamlines workflows. Zoe predicts that innovation and competition will cut fees for advisory services by a third.
The paper notes, however, that financial advisory practices that digitize the value chain by updating their tech stack and automating processes will likely prevent margin erosion.
“The bottom line is that the financial advisor, who used to be part of distribution (a financial products salesperson), is now becoming the product,” Garcia-Amaya said.
Today’s investors have different expectations from those of previous generations, according to the paper. To succeed in the digital transformation and serve this new generation, the wealth management industry must streamline and digitize.
“Advisors will need to personalize services and make their value proposition more transparent,” Garcia-Amaya said.