A Wealth Management Retrospective: 50 Years Of Evolution And Disruption

Post written by

Sonya Thadhani Mughal

Chief Operating Officer and Chief Risk Officer, Bailard. Leadership, management and vision; promoting diversity and inclusion.

This year marks the 50th anniversary of Neil Armstrong’s “one small step for man” walk on the moon, the iconic Woodstock music festival and the founding of the wealth management firm where I work.

Not unlike the space program and the music industry, the field of wealth management has evolved dramatically since 1969. I joined the firm 25 years ago, and since then, I have not only witnessed, but also have navigated some of the most memorable and disruptive events in the history of my chosen profession. These include the emergence of the internet as a tool for investing, the 2008 financial crisis, and the challenges and innovations that characterize today’s increasingly complex and globalized financial system. But despite sweeping changes in the industry, wealth management professionals work toward the same enduring goal: to help clients plan for the future, stay abreast of the changing investment landscape and attain peace of mind.

A Growing Menu Of Diverse Products

Until the mid-1970s, American investment portfolios consisted mostly of U.S. stocks and bonds, with little to no regard for diversification or asset allocation. This began to change when Wells Fargo and American National Bank launched the first index funds for institutional investors in 1973, and Vanguard followed suit shortly after with an index fund for retail investors. In 1993, the first SEC-compliant exchange-traded fund hit the market.

As the financial services marketplace broadened and evolved, wealth managers began to focus on risk management in a more meaningful way. New securities, funds, alternative investments and other products led to increasingly complex and customized portfolios, designed to address individual investors’ specific needs — and to protect assets in the face of inevitable market downturns and volatility.

Technology Opens New Frontiers

The 1980s marked the rise of electronic stock trading. As the stock market climbed during the next few decades (punctuated by the crash of 1987, the dot-com bubble bursting and the Great Recession), legacy financial institutions launched a wave of discount brokers. With increased access to the markets, the financial advisory industry, once the territory of high-end wealth managers catering exclusively to institutional investors and ultra-high-net-worth individuals and families, began to serve a broader, more mainstream client base.

The latest tech-driven disruption of financial services has been the introduction of automated investing platforms, beginning with the advisor-facing tool iRebal in 2004 and followed by robo-advisors Betterment and Wealthfront (both founded in 2008). These and other algorithm-driven, automated platforms continue to democratize the financial services space and transform the way wealth managers and investors approach, construct and manage portfolios.

The Increasing Retirement Burden

Today, investors have significantly more control and transparency over their financial lives than they did 50 years ago — but they also bear increased responsibility for their financial futures. The introduction of the 401(k) plan in 1978 marked the beginning of a transformative shift in the way Americans prepare financially for retirement.

Today, 401(k) plans hold more than $5 trillion in assets, and private-sector pensions are rare: According to the Wall Street Journal, only 13% of workers in the private sector have traditional pensions, down from 38% in 1979. This means that retail investors are increasingly accountable for accumulating enough assets to fund their lives in retirement.

The Enduring Role Of The Advisor Or Counselor

In 2019, investors have more investment options and tools at their fingertips than ever before. And yet, this unprecedented accessibility and practically limitless array of products have not eliminated the need for human advisors.

The democratization of access to investing did not necessarily align with an increased public understanding of the financial markets. And while investors with relatively uncomplicated financial lives (such as young people just beginning their careers) may be comfortable taking a technology-enabled “do it yourself” approach to their financial plans and portfolios, their needs become more complex over time. Buying and selling property, launching a new business and blending family finances are examples of tasks with high stakes — both financially and emotionally.

A knowledgeable wealth manager doesn’t just rebalance their clients’ portfolios and pick stocks. They are a trusted professional with whom clients share the details of not just their financials, but also their personal lives. While a robo-advisor might construct an investment portfolio that looks similar to those created by wealth managers, algorithms still can’t listen, empathize and nurture a relationship the way a human can, nor can they dynamically change a plan based on a client’s ever-changing life and priorities.

Beyond crunching numbers and watching the markets on behalf of clients, a skilled and trusted wealth manager can help grant them peace of mind. I have found that it is often this intangible support that matters most to clients. No matter how many shifts and disruptions the wealth management industry has undergone over the past 50 years, or how many will arise over the next 50, an advisor who makes their clients feel taken care of will always be in demand.

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Chief Operating Officer and Chief Risk Officer, Bailard. Leadership, management and vision; promoting diversity and inclusion.