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Industry Spotlight > RIAs

How the Pandemic Has, and Hasn't, Changed Wealth Management

By Bernice Napach

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What You Need to Know

  • A panel of advisory firm executives discussed the impact of COVID-19 on the business.
  • Some say the pandemic has changed the way business is done forever.
  • Other challenges include investing amid continued near-zero interest rates and requests for cryptocurrencies.

The COVID-19 pandemic has changed the way many financial advisory firms do business, and many of those changes will persist.

“The genie is out of the bottle, and nobody is thinking ‘I’m going back to exactly the way things were,’ ” said Josh Brown, CEO of Ritholtz Wealth Management, who spoke on a panel about the future of post-COVID wealth management at this week’s SALT conference in New York.

The work-at-home arrangements and online meetings with staff that have allowed firms to operate during the pandemic will continue, according to Brown. His firm has always been heavily virtual but has a New York City office for staff and client visits.

Before the pandemic, it would hold offsite conferences and other get-togethers. But that ended with the pandemic, save for a few young staff members allowed back in the office last summer to escape their cramped apartments in Manhattan or Brooklyn, Brown said.

Firms such as the Bahnsen Group, however, fully reopened their offices at the height of the pandemic. Founder David Bahnsen, who was also on the panel with Brown and Aureus Asset Management co-founder and CEO Karen Firestone, mandated in May 2020 that all 35 of the firm’s employees return to the office.

“I built the firm around a certain culture. … The brand matters [and] interaction in the office is important for us,” Bahnsen said.

Firestone started welcoming back staff and partners July 6 after everyone had been fully vaccinated.

“Now there are some days when everyone is back in the office and days when some partners, especially those with small children, are working from home. … We can do it virtually. I don’t think it’s as much fun, [but] I think this will change the way we do business forever,” she said.

Ritholtz Wealth Management, too, has taken a hybrid approach to reopening the office. Brown said every Thursday when he’s in the office he sees more people coming back to work there, including some staff from outside New York who are visiting. All visitors must be vaccinated.

“There is something important culturally about getting together in person,” Brown said.

How Investing Has Changed

The past 18 months have not only changed how some advisory firms maintain their office. The way financial advisors invest client money has also changed, according to Firestone.

“Because interest rates are essentially at zero, we’ve all had to invest in a way that assumes fixed income or cash is really only for what you need to have available” and use other assets to fill the entire pie, Firestone said. “You can’t charge people fees that are more than what they earn on Treasurys.”

Her firm has been using more alternative assets, including venture capital, private equity and real estate, and she and other staff members have had to spend more time learning about non-equity asset classes since fixed income is no longer a “reasonable portion” of client portfolios.

Crypto, however, is not an alternative asset that Firestone invests in directly, though her firm has allocation to external managers that own crypto. “It may be important for many young people. … We can’t analyze it like we analyze other assets, but can see the appeal of including it in diversified portfolios.”

Bahnsen said some clients are asking about it, but the asset class “doesn’t fit into the principles” his firm has built its business around. The Bahnsen Group focuses on high-conviction quality dividend growth assets including stocks, credit and real estate as well as venture capital, with a strong focus on providing cash flow.

Advisors may lack experience with cryptocurrencies and be reluctant to offer clients such investments, it’s “very important” they don’t roll their eyes about cryptocurrencies when clients ask about the asset class, Brown said.

“The notion of us actively managing a portfolio of crypto is ludicrous,” but advisors should not ignore clients’ questions about it or requests for it, he said. If a client feels they need the exposure, advisors need to consider who should provide it: themselves, or have the clients do it on their own.

Brown suggested two approaches: Give clients permission to do it themselves, or the advisor could do it in-house and set parameters. Then consider whether to take a market cap or equal weighted approach. “You know intuitively Bitcoin is not going to go from $500 to $50,000 ever again,” he said, referring to the weakness of the first approach.

“It’s a very, very hard time right now for wealth managers, trying to keep up with what’s going on in the culture and the markets but also not end up making a huge mistake for the people who trust us with their assets.”

Pictured: Josh Brown, CEO, Ritholtz Wealth Management

Bernice Napach

@Think_Napach

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