Wealth Management

Many important events—such as the establishment of professional credentialing programs; the increasing federal regulation of wealth managers; the emergence of the Internet, social media, and other technology; and the growing economic power of women and their increasing representation in wealth management—have shaped the industry.

Promoting Quality in the Profession

Investment and finance professionals have provided services to clients for more than a hundred years, but the quality of their advice has varied greatly. By the mid-20th century, many in the industry began to feel that standards were needed to increase professionalism and ensure public trust. In 1947, 11 representatives from financial analyst societies in Boston, Philadelphia, Chicago, and New York voted to form the National Federation of Financial Analysts Societies. In 1959, the federation established an independent organization—the Institute of Chartered Financial Analysts—to administer the chartered financial analyst (CFA) credentialing program. (After several name changes, the institute is now known as the CFA Institute). The first CFA exams were administered in 1963.

The certified financial planner designation is also well-respected in the industry. Its origins can be traced to late 1969, when 13 industry professionals gathered and resolved to create the International Association for Financial Planners (IAFP) and the College for Financial Planning. In 1972, IAFP enrolled its first group of students for the certified financial planner (CFP) course at the College for Financial Planning. In 1973, this first graduating class formed a new membership organization called the Institute of Certified Financial Planners. In 1985, the College for Financial Planning established an independent, nonprofit certifying- and standards-setting organization, and transferred ownership of the CFP certification program to a new organization, the International Board of Standards and Practices for Certified Financial Planners, Inc. (now known as the CFP Board). Today, the CFA Institute has more than 190,000 CFA charterholders in more than 160 markets.

Technology Changes the Industry

Over the last 25 years or so, technological developments such as the computer, the Internet, mobile devices, social media, and cloud computing have changed the way wealth managers do their jobs. For example, wealth managers no longer receive information on the financial markets from the daily newspaper dropped on their front porch, but rather digitally 24/7 through the Internet. Snail mail has been supplanted by e-mail, instant messaging, and video conferencing. Wealth managers still advertise their services through word-of-mouth and in upscale financial publications, but they also use social media and the Internet to interact with and attract new clients. Wealth managers at large firms now use customer relationship management software to better understand their clients, and large firms use proprietary software to communicate, track, and record all activities related to a family’s personal, trust, investment, and business enterprises. Blockchain technology (a distributed ledger database that uses advanced cryptography to maintain a continuously-growing list of financial records that cannot be altered) is increasingly being used by financial firms to improve efficiency and the accuracy of financial record-keeping and reporting. Artificial intelligence (AI) is now in wide use in the wealth management and other industries. “More than 95 percent of firms surveyed are investing in AI, with top investment priorities in client-facing front-office functions such as customer interaction and research, as well as the data management systems to support those activities and the risk, fraud, and data security to protect them,” according to Broadridge’s 2024 Digital Transformation & Next-Gen Technology Study. Companies are now using generative AI (GenAI) for a variety of in-house and customer-facing applications. Generative AI is a form of machine learning algorithms (including large language models, LLMs) that can be used to create new content (including text, simulations, videos, images, audio, and computer code), as well as analyze and organize vast amounts of data and other information. Broadridge says that “organizations are already using the LLMs behind GenAI for a wide range of tasks where insight generation can make a difference, including: answering client inquiries and offering customer support, educating and training employees about investment products, and improving data-driven decision making and analysis.”

In summary: technology has allowed wealth managers to better communicate with and understand their clients, but it also has created increased expectations from clients, who have more access to information about financial services and products and higher expectations regarding the availability of their wealth managers due to e-mail and social media.

Another noteworthy technological development is algorithm-driven financial portfolio management software that allows customers to invest with minimal human interaction. Robo advisory firms have emerged to provide robo advisory investment services. Some traditional wealth management firms also are embracing the use of robo advisory software to complement their traditional offerings. In 2022, robo advisors collectively managed $2.5 trillion in assets, according to professional services firm PwC. PwC’s 2023 Global Asset and Wealth Management Survey predicts that “assets managed by these algorithm-driven and increasingly AI-enabled digital platforms will surge to almost $6 trillion by 2027, nearly double the figure for 2022. This trend signals a broader one across other aspects of the asset and wealth management industry, with more managers experimenting with generative AI in the middle and back office, and using it to enhance trading strategies and analyse unstructured data.”

In 2024, Forbes reported that the 10 largest robo advisory firms (based on assets under management) were:

1. Vanguard Robo-Advisors
2. Schwab Intelligent Portfolios
3. Betterment
4. Wealthfront
5. Personal Capital Advisors
6. Blooom
7. Acorns
8. M1 Finance
9. FutureAdvisor by BlackRock
10. SigFig

More Women Entering the Field

In the United States, women control about 51 percent of wealth, according to New York Life Investment Management. The asset management firm says that “personal wealth controlled by women currently stands at $10 trillion and is set to rise 200 percent by 2030.” Despite this fact, women (as well as ethnic minorities) have been traditionally underrepresented in the wealth management industry. In 2020 (the latest year for which data is available), just 18.1 percent of financial advisers were female, according to research from Cerulli Associates, a finance market intelligence firm. This was a slight increase from 15.7 percent in 2017. The number of female advisers employed by wirehouses (such as UBS Wealth Management, Goldman Sachs, Morgan Stanley Wealth Management, BofA Securities, and Wells Fargo Advisors) is much lower. The CFP Board published a whitepaper analyzing why women were underrepresented in the wealth management industry. Here are the top reasons why they avoid the industry:

• Compensation structures and business models may be unfair or unattractive to women.
• There are not enough mentors and role models for women who aspire to careers in the industry.
• Work-life balance concerns may be a deterrent.
• There may be a misconception that one needs a strong math background to succeed in the industry. While mathematical acumen is necessary, strong interpersonal and communication skills are often cited as equally as important as math ability for success in the industry.

In the past decade, the tide has begun to turn, and the percentage of women in wealth management has slowly increased. Professional associations and many banks and large investment firms have made efforts to encourage more women to enter the wealth management industry. One groundbreaking organization is the Association of Women in Alternative Investing, which seeks to increase the number of women in hedge funds, private equity, and venture capital firms, as well as the number of women in all other areas of the financial services industry, by providing mentorship, networking, and education opportunities for women who are currently working in or contemplating entering these fields. Additionally, the CFP Board’s Center for Financial Planning created the “I am a CFP® Pro” campaign (https://www.cfp.net/initiatives/diversity-and-inclusion/i-am-a-cfp-pro) to encourage more women and ethnic minorities to pursue careers in financial planning.

In addition, banks and wealth management firms such as Morgan Stanley, UBS, Raymond James, and J.P. Morgan are increasing their efforts to create a more diverse workforce by launching summer internship programs that target female undergraduates, implementing more female-friendly practices and fringe benefits, hosting career days at high schools and colleges to encourage women to enter the field, hosting women-centric events (e.g., Raymond James’ annual Women’s Symposium), and launching or expanding women’s networks that provide professional development and networking opportunities. Raymond James offers additional resources for women, such as Aspire magazine and the “Aspire to Greater” podcast.

COVID-19 and the Wealth Management Industry

In late 2019, the coronavirus COVID-19 was detected in China and quickly spread to nearly every country. It caused more than 704 million infections and more than seven million deaths (through April 2024), and—during its peak years—massive business closures and job losses. In the short-term, the COVID-19 pandemic negatively affected the health of individuals; employment opportunities at businesses, nonprofits, and government agencies; and daily life. The pandemic also affected job-seekers and employees. Some companies cancelled or delayed internships and other experiential learning opportunities, while others converted them to an online format. Onboarding of new hires was either delayed or moved to an online format by many companies. Most employers transitioned in-person interviews to telephone and online formats, and many businesses required their employees to work at home some or all of the time.

In early 2020, the economic effects of the pandemic caused stock markets to crash and a global recession to occur. More than $18 trillion was erased from global financial markets in February and March 2020, according to the World Federation of Exchanges. By early September, the U.S. stock market and other financial markets had rebounded and markets continue to be strong into mid 2024. In the long term, the outlook for the investment industry is good. Global assets under management are expected to increase from $131 trillion in 2021 to $160 trillion by 2029, according to Research and Markets. Wealthy people will continue to need wealth managers to manage their money, as well as protect it during economic downturns

Research conducted by J.P. Morgan has found that the pandemic—and its negative impact on economies around the world—served as a wake-up call for both investors and wealth managers to consider more socially responsible investment strategies. “Over the long run, COVID-19 could prove to be a major turning point for ESG investing, or strategies that consider a company’s environmental, social and governance performance alongside traditional financial metrics,” said Jean-Xavier Hecker and Hugo Dubourg, Co-Heads of ESG & Sustainability within J.P. Morgan EMEA Equity Research. According to U.S. SIF: The Forum for Sustainable and Responsible Investment, sustainable, responsible, and impact investing assets reached $8.4 trillion in the United States in 2022. These assets accounted for one out every eight dollars under professional management. “Sustainability and ESG factors continue to be integral to investment programs, even though the journey is increasingly challenged with politicization and increasing levels of regulation,” according to The World’s Largest 500 Asset Managers, a 2003 Thinking Ahead Institute and Pensions & Investments joint study. But it can be challenging to implement these factors into investment programs. “Most investment organizations have an ESG knowledge and skills gap to fill and will have to improve ESG data practices to make it decision useful,” according to the report.

Finally, the pandemic prompted many wealth managers to have to rely on communications, collaboration, information security, cloud computing, and other types of technology to interact with clients and work effectively with team members. Firms that had invested strongly in building these capabilities before the pandemic performed better than those that had not done so. The pandemic prompted many firms to increase spending on technology. “Financial services companies have made big strides in digital transformation in recent years,” according to Broadridge’s 2024 Digital Transformation and Next-Gen Technology Study. “Firms are investing heavily through the economic cycle, modernizing their core IT platforms to support continuous innovation and adopt next-gen technologies, such as AI and blockchain.”