The year 2019 is shaping up to be a game-changer for the wealth management industry. In the first half, we’ve experienced major moves in pricing and shifts in the competitive landscape, while the march towards more scalable, fully integrated digital + human models carries on. Nimble disruptors continue to flourish, but in the first six months of 2019, the industry behemoths really started flexing their muscles and Goliath has awakened. In my opinion, these are the three most relevant trends to emerge in recent months and how they’ll set the stage for continued change.

#1 The New Price Wars

The large direct-to-consumer firms have declared a price war, and the territory is the digital + human advice model. Schwab’s move to subscription-based pricing for its Intelligent

Portfolios Premier service set out to beat Vanguard’s PAS— and all bets are on Fidelity and TD to follow soon. These offerings marry automated and human advice, and essentially unmask pricing for financial guidance. Vanguard, at 30 basis points, charges less than a third of what traditional firms charge, and the subscription models convert to hourly rates which can be much lower still.

Advisors will be facing questions about price more than ever, as their clients see the advertising of these new services and associated fees. When Schwab, Vanguard and Fidelity say, “comprehensive planning” and “expert advice” it sounds pretty good. Intangibles like relationship quality are hard to express and market, and today’s consumers expect clarity about the features and benefits of the products they choose, relative to the price they pay.

In Cerulli’s 2018 survey, 70% of advisors said clients are more fee sensitive than 5 years ago. In 2017, Fidelity’s Benchmarking report said over three-quarters of RIAs are already discounting their fees. That said, people still care about access to an advisor—a Harris poll in late 2018 found 88% of consumers still believe human advice is valuable and that technology should support it, not replace it. However, the number one drawback of traditional wealth management in that poll and others is cost. In this perfect storm where price disruptors will be marketing aggressively, and consumers are skeptical, we need to get costs down for both providers and investors.

#2 Competition from Custodians

The same companies that are fueling the price war are the custodians for a large portion of the industry’s advisors. It’s a complicated history—to grow and scale their own businesses, today’s largest custodians embraced supporting advisors and their clients on platforms serving broker-dealers and RIAs. The advisors benefited from capabilities to help them in the front, middle and back office, and in many cases enjoyed the halo effect of the custodians’ retail brand on their own small business. While at some level the custodian and advisor could be competing for the same clients, they mainly co- existed as more friends than enemies.

This peace depended upon trust and some rules of engagement regarding the retail investors. In the old days, it was possible to set up marketing suppression rules like “do not call” and “do not mail” to segregate the clients assigned to an advisor and remove them from retail marketing campaigns. In the era of digital and social marketing, that’s no longer possible. The price wars and associated advertising have ended the truce between custodians and advisors, and the battle lines are being drawn.

While advisors focus on protecting their older high net worth clients, the big retail players are targeting the next generation of investors, cutting off a supply of future clients. The truth is, as of 2030, Boomers will no longer be the wealthiest generation, and the likes of Schwab, Fidelity, Vanguard and others are playing to win over the long haul. As advisors wake up to this, the cozy relationships once enjoyed with the multi- channel custodians will feel a lot less comfortable.

#3 Scaling to Win

What the pricing war and the custody battle have in com- mon is a lesson about scale and power in the marketplace. Players with scale—which can be size, or cost structure, or both—have an advantage. As our industry moves into a highly competitive phase, every firm needs to ask the question, “Do I have the resources and efficiency to win in this environment?”

Winning may mean having the power to cut your prices, or spend on marketing, or invest in your offering. Consider the two merger transactions involving national RIAs— Edelman and Financial Engines, and the pending deal between United Capital and Goldman Sachs. Along with other strategic benefits, both create large wealth managers with a chance to scale and compete on a whole new level. These are not roll-ups, they are integrated models with consistent and common infrastructure. Consolidation of mid to large size firms will continue, and more pressure will be placed on aggregators to prove efficiency to ensure their underlying firms do not lose power in the marketplace.

In the first six months of 2019, the industry behemoths really started flexing their muscles
and Goliath has awakened.

But just being bigger, or consolidating operations, isn’t enough. It’s time to rebuild the pipes and plumbing we all use to put money to work in our industry. When we replace high friction processes like batch, ACH and ACAT with digital technology and straight-through processing, we will radically improve the speed, flexibility and cost-efficiency of financial services for everyone. Today’s infrastructure is obsolete – it’s a critical frontier for innovation. With the pressure on to improve market power and competitiveness, we can’t ignore how our old plumbing drags us down.

People react to challenges in different ways. We’ve known that pricing pressure was coming our way, and there have always been watchful eyes waiting for the custodians to break their truce with advisors. For over a decade, promises have been made about scale and efficiency from technology, but that hasn’t paid off beyond incremental gains. Even so, the industry has prospered as Baby Boomer assets have continued to flow into accounts. The skeptics found their reasons to stay on the sidelines—kicking the can down the road for as long as possible. Why change when times are good?

But change has its tipping point, and I think we are in a phase where the line between firms looking to the future and those hanging on to the past just got brighter. Halfway through 2019, it feels like time to fasten your seat belts.

This article was originally featured in Wealth Management, here.

In his role as CEO of Apex Clearing, William sets the vision and strategy to help Apex identify and realize new areas of growth and opportunity. Under his guidance, Apex continues to be a proven leader in clearing and execution, helping power the digital revolution in financial services.