Analysis
By any measure, 2021 was a transformational year in the independent wealth space.
5 Big Wealth Management Trends for 2022
by Timothy Welsh
4. Cloud, Meet Cloud Native
Without a doubt, one of the biggest trends in the industry is the continued and beneficial innovation in some of the core technologies that enable independent advisors to efficiently run their businesses, no matter how small or large.
Just as business technology operating systems have evolved rapidly over the years, from DOS to Windows to cloud-based, now we are on to the next generation with cloud-native computing.
According to technologists, cloud-native technologies empower organizations to build and run scalable applications in modern, dynamic environments that utilize the latest software development tools such as atomic design, containers, service meshes, microservices and APIs to deliver speed and agility in developing the latest wealth management applications.
Particularly in bridging legacy systems with multiple-data sources and the latest applications, cloud-native approaches will enable advisors and firms to create their own "digital ecosystems." By leveraging this approach, firms can create technology they design and host themselves. This allows them to own their own data and integrate the systems and tools that best fit their value proposition, customized to their needs.
Essentially, firms are able to build their own "app stores" that they control and select, and they can seamlessly bring them together in an integrated framework and environment.
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5. Uncommoditizing Investment Management
Today, many advisors are de-emphasizing investments as part of their offering as it becomes commoditized, and instead focusing on financial planning and wealth services as their value proposition.
The good news for investment-focused firms, however, is that new rebalancing and trading technologies are enabling advisors to bring differentiation back to investing.
Direct indexing, for example, enables firms to customize and personalize portfolios by holding the underlying securities to mimic a separate account structure to track an index or adhere to a model portfolio to accommodate personalized constraints and opportunities.
The benefits of this type of technology bring up the ability to efficiently deploy tax-loss harvesting, accommodate a large legacy position or manage to an ESG mandate without changing the risk profile of the portfolio.
This means that for the tax-loss harvesting opportunities alone, portfolio managers can deliver a significant "tax alpha" that can more than make up for their added fees for actively managing the portfolio.
To show the impact that direct indexing is having in shaping the industry going forward, consider the dozen or so acquisitions by large asset managers scooping up boutique direct-indexing shops for their technology and expertise — most notably, Vanguard's industry-defining acquisition of Just Invest.
(Image: Shutterstock)
Timothy D. Welsh, CFP, is president, CEO and founder of Nexus Strategy LLC, a consulting firm to the wealth management industry and can be reached at [email protected] or on Twitter @NexusStrategy.
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