At the 2018 MarketCounsel Summit I was asked for the most important "breakthrough" moments for our firm. As we reach the end of the year, I believe we should reflect on the most important developments in the wealth management industry as a whole, and where we're headed in the months to come.
Biggest events for advisers
1. The merging of Edelman Financial with Financial Engines. In April, Hellman & Friedman, a large private-equity firm, announced it was taking Financial Engines private for over $3 billion and
merging it with Edelman Financial. The uniting of the first robo-adviser with one of the largest national registered investment advisers was a bold move to further combine human advisers with a tech-enabled platform. This combination will help the retirement plan provider further its relationship with plan participants and retain a larger foothold in the rollover business once people retire. This combination highlights the race to capture
retirement-plan rollover assets.
2. The Focus IPO. Focus Financial, a wealth management roll-up firm, finally made its
public debut in July. After an initial run-up to almost $50, the stock suffered a decline along with the general market malaise, dropping into the high twenties. It's not clear where the stock goes next, but the generous valuation the company still enjoys has increased interest in the wealth management vertical. Wealth management is differentiated and commands a premium valuation (12 to 15X) to asset managers and independent brokerage firms, which suffer from ongoing compression (7 to 9X) as they struggle to compete with ETFs and other low-cost vendors.
3. The seller's market. There's no doubt that we are in the
hottest seller's market for RIAs since 2007. Fueled by the massive private-equity coffers, easy high leverage loans from banks and a highly competitive market, prices and terms have never been better for sellers. As in past periods of frothiness, there will be casualties, so sellers should be wary of the equity they take.
4. The rising national RIAs. For the first time in our history, we have several integrated, national wealth management firms either approaching or surpassing $25 billion in assets under management. Captrust, Creative Planning, Edelman Financial,
Mariner and United Capital (yes, I know, but I have to mention it) join Fisher Investments as rising competition for smaller RIAs. We are well on the way to having several dominant $100 billion wealth managers.
(More: Independent broker-dealers fastest-growing brokerage group)
Biggest events for clients
1. The return of volatility. Whether it was the short but impressive surge we enjoyed from the tax cut passage or the subsequent swoon from the Fed raising rates, the tariff battles or Brexit concerns, volatility is back. It's not likely to get better as central governments around the world continue to pull back from the flood of liquidity we all enjoyed from quantitative easing. Of course, this is further exacerbated by an investment community unaccustomed to an administration starting public feuds with foreign governments over Twitter. It gives clients a fresh reminder of the risks of investing, and the importance of a good adviser. However, we also know that choppy markets often lead to client turnover.
(More: Financial advisers put market volatility in perspective for clients)
2. The death of the DOL rule. What was set to become the most important legislation to shape our industry in decades has evolved into the laughable "best interest" standard. Rather than protect consumers, we now have a policy with the apparent sole purpose of confusing retail clients so that they really can't tell the difference between a fiduciary (a confusing term few understand) and a best-interest broker who can sell commission products under a new banner. This is a massive lifeline for brokerage firms, especially the independent firms that rely so much on commissions and payments from product vendors. I have no idea how this policy shift helps consumers, but it's good for some businesses.
3. The fall of bitcoin. A year ago, bitcoin was well on its way to reaching $20,000. That price has now collapsed to around $3,400. Many investors are wiping their brows in relief if they avoided the debacle, but many others were harmed by the inevitable decline in bitcoin mining and the chipmakers that provided the power for it to happen. As an example, Nvidia has followed the bitcoin fall; after peaking at around $300 earlier this year, the stock now flirts with $110. Don't look for a quick recovery. Bubbles don't easily re-form.
And into 2019
So another year is in the books, and it certainly feels as if it was more challenging than it needed to be. I hope you have a restful and recharging holiday season. I have a feeling we all might need it. 2019 could be one of the most intriguing years in quite a while.
(More: Stop asking for referrals. You're better than that)
Joe Duran is founder and CEO of United Capital. Follow him at @DuranMoney.
