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Written by: Chris Heye, PhD
Between 2018 and 2023, the S&P 500 grew at an annual compound growth rate of 12.4%. According to research by Cerulli, Hybrid RIAs (12.9%) were the only type of advisory firms on aggregate to exceed that figure in the growth of their AUM. Wirehouses (8.6%), national and regional BDs (11.3%), and even independent RIAs (11.2%) failed to keep pace.[i]
Things didn’t get much better in 2024. According to the Investment Adviser Association (IAA), total assets under management for RIAs grew 12.6%.[ii] But the S&P rose by more than 23%.
Houston, I think we have a problem.
Why aren’t most wealth management firms experiencing any organic growth?
There may be a simple explanation.
From a growing volume of survey research, we know that adults in the US are extremely concerned about how health events and costs might affect financial and retirement security. Most believe that healthcare costs and health events pose the number one risk to their retirement.
For example, a recent survey by the Retirement Coaches Association found that Generation X members view healthcare costs as far and away the greatest challenge to their financial and retirement security. [iii]
Another survey conducted by Edward Jones and Agewave reported that “healthcare costs, including long-term care” was the #1 financial worry regarding retirement for both retirees and pre-retirees. The percentage reporting this as their top fear was between 52% and 66%, depending on the exact survey population. Concerns about the financial consequences of health events and costs far outstripped fears about inflation, taxes, or an economic downturn.[iv]
This means that for a typical wealth management firm, at least 50% of clients are more worried about the costs of healthcare than any other threat to their retirement security.
The concerns about the effects of health events and costs on financial security are evident in other surveys, including those designed to identify client expectations around the services they receive from financial professionals.
A great example is a report conducted by the Spectrem Group that reveals major gaps between what wealth management clients are expecting and what they are actually receiving. They found that more clients expected advice related to wealth transfer than investment management. And while 96% of clients expected to receive wealth transfer advice, only 24% of them actually did. Other major gaps were found for estate planning assistance (93% of clients expected to receive but only 22% actually did), long-term care insurance advice (83% versus 14%), health insurance (65% to 4%), and life insurance (82% to 12%).[v]
What does this all mean? These survey findings strongly indicate that the majority of wealth management clients are not receiving the services they really want. And what these clients want is exactly what you would expect from an aging client base.
History offers no shortage of warnings for what happens when industries fail to evolve as consumer demand shifts. Think retail department stores, cable TV, or the US automotive industry.
So, the answer to the question “why is organic growth so slow?” may in fact be very simple. Wealth management clients are not receiving the services they want most.
Until the Baby Boomer generation passes, and perhaps not even then, growth in the wealth management industry will be determined largely by advisors’ success in meeting these health, longevity, and wealth transfer planning needs.
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[i] Cerulli Associates, “Planning and Progress: The State of WealthTech 2025”
[iv] Edward Jones, “The Four Pillars of the New Retirement”, June 2021, www.edwardjones.com/sites/default/files/acquiadam/2021-06/Four-Pillars-US-Report-June-2021.pdf
[v] https://spectrem.com/Content/expectations-not-always-expected.aspx