The transformation of the adviser-client experience

The U.S. auto industry has changed dramatically in recent decades. Is wealth management headed for the same type of disruption?
APR 23, 2018

In 1955, the Detroit auto companies owned 95% of the U.S. market – but the times they were a-changin'. Returning servicemen were having families and moving to the suburbs, driving demand for smaller second cars. The Big Three liked the big margins of their big cars and were busy adding horsepower and chrome to pump up their profits. They looked down their noses at the VW Beetle, the top-selling small entry — it was low on horsepower and driven only with a stick shift. Toyota initially bombed in the U.S. market, selling only 288 cars in 1958. But the 1966 Toyota Corona was more powerful and sported factory-installed air conditioning and an automatic transmission. Those features hit the bull's eye of boomer demand — especially among the growing number of female drivers. When the Arab oil embargo struck in 1973, Detroit was pounded, but it still delayed serious investment in smaller cars until 1977 — if "serious" meant the combustible Pinto and the Cadillac Cimarron not-a-Chevy Cavalier. But it was too little, too late. By the mid-1990s, Detroit's market share had fallen by more than half, a third of all auto-related jobs were gone, and the Camry was the No. 1 selling car in the U.S. If you were to calculate the dollar value of Detroit's lost market share, it would be over $300 billion in 2018 alone (roughly the total worldwide revenue from all businesses at both General Motors and Ford in 2017). Yikes.

DID ANYONE SEE THE ICEBERGS?

This industrial collapse is breathtaking. How could it have happened — in plain sight? Didn't anyone see the icebergs? Is the current wealth management system headed for its own iceberg? Will there be a retrospective in a 2025 InvestmentNews issue that declares "they ignored the signs"? Are robo-advisers the new small cars? In his authoritative 1986 chronicle of the auto industry fail, "The Reckoning," Pulitzer Prize-winning author David Halberstam wrote about the "Japanese ascent and the American malaise" as Detroit failed to grasp the challenge to its market dominance. Will the new headline be "Amazon/Google/Apple stepped in to save America's investors" from advisers who didn't listen? Disruption doesn't just happen — it gets invited. Overconfidence, failure to understand significant market changes and ignoring direct consumer input create opportunity — for competition. Add in attractive profit margins, technological innovations and the ability to start fresh without legacy systems, and you have the makings of a pretty robust industry transformation. In wealth management, the "product" is client success — facilitated by the ease of the adviser/client working relationship. There is a lot of great industry press afforded technology and low-cost products, but fintech and passive investing alone will not create the best client outcomes — at least as long as the clients are human. Advisers add the most value when they help their clients make better choices. It's tough to focus on the risks of longevity or how best to support a special needs child if your CRM is clunky or your portfolio tool doesn't address taxes. Advisers and clients have been waiting forever for a simpler, easier way to connect and advisers waste precious time every day explaining awkward procedures and non-intuitive protocols. The best clients demand transparency, seamless communications, and more comprehensive and insightful analyses. The best advisers don't need a fiduciary rule to outline good business practices — they benefit more from insightful data systems, smart portfolio tools and flexible products. Together this team must tackle the real challenges of wealth management, which are the real-life issues of health, longevity and legacy — among others.

PRIVATE CLIENT 2020

The leadership team of InvestmentNews has given me space to take on the future of wealth management and the disruption now beginning across the industry. I'll be offering observations and suggesting implications. I will defer always to the needs and preferences of wealth management clients and continue to champion the best advisers. I've scoped out nine elements of the wealth management "eco-system" and will dig into each, as well as consider how they best work together to create better client solutions. I've logged a lot of miles over the past 35 years and I will be leaning on many great friends and colleagues to capture innovation. My hope is that together we can gain the insights that by the year 2020 will be 20/20 hindsight. (Full disclosure – my parent's first car was a VW Beetle and my grandfather tried to convince me his Cimarron was a real Cadillac. I learned to drive on a three-speed Vega and my first car was a Corolla Liftback. I have kept a first edition copy of "The Reckoning" on my desk for years.) Steve Gresham is former head of the Private Client Group at Fidelity Investments and adjunct lecturer in public policy at Brown University.

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