Dog with PE scarf

Over the last several years, wealth managers have seen a lot of disruption.  Regulatory changes, technological changes, and changes in traditional asset allocation have all made life tougher for financial advisors.  More specifically, wire houses (the big brokers) have watched as the RIA community went in search of a differentiated model, with independence and fiduciary duty as the main selling point.  Further, no matter the model, a shift to passive, or index investing made it difficult for managers to justify their fees and claim exploitation of market inefficiencies or market timing.  

Many advisors continue to operate the same way they have for decades.  They use some quantitative model determined by the wire house (usually age-based asset allocation around the 60/40 stock/bond portfolio) and/or they participate in a price war with each other.  This process has been brutal.  It’s difficult to obtain and maintain clients, and the reward for doing so continues to decline.  With that said, many managers have decided that they’d rather innovate, and show value to their clients in far more impactful ways.  

We’ve spoken a few times in the past about the changes that have been happening to the 60/40 portfolio and some of the risk and reward reason why that’s appropriate.  But one aspect that is often left out of that discussion is how much stickier clients are when A) Their investments outperform the benchmarks.  B) The assets in their portfolio are less liquid.  Intuitively, private assets have traditionally been a tool of the institutional investor with the occasional family office thrown in.  But with better technology, more options, and regular access through the right platform, many advisors are really differentiating themselves from their peers.  Investors meanwhile, often push back on these investments because they’re worried about liquidity. 

Thankfully, today we have reached a certain maturity in private markets that allows for new and different ways to access these investments.  In some cases, that means curated portfolios, and in others it means access through platforms that help find secondary buyers.  In either case, this should mean much larger access to better investment structures for investors, and an opportunity for the wealth advisor to differentiate themselves from their peers.  So as we look forward, we believe that private investments will be the wealth manager’s new best friend.

Source: PitchBook


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