Last year should’ve been a victory lap for the wealth management industry. Stocks were chasing records, cash was flowing and the psychic wounds of 2008 had finally closed.
What we learned, of course, is that you can’t predict anything. For a lot of reasons, 2018 was more exhausting than triumphant.
The already accelerated news cycle went into overdrive, pushing everyone off balance. Tax reform was confusing. And with so many months consumed with correction and worry, clients who should be in a great mood are showing the strain.
But if 2018 defied expectations, 2019 may just be the year the industry takes control of its own destiny back. Here’s what we expect here at the Wealth Advisor:
1. Smart people step away from the noise. This one’s pure logic. The news cycle has become a random circular walk of chatter that only feeds itself and a persistent sense of anxiety. Last year proved that digesting every Tweet and every rumor in real time is a waste of resources. This year, it’s all about controlling what you can control — your clients’ moods and your ability to serve them — and letting everything else slide.
I know this is hard when you’re wired into the cycle 24/7. But the random walk metaphor is essential here. Think back to all the headlines that seemed so urgent at the time and went nowhere. Someone who tried to pivot with each one would have wasted a whole lot of mental resources.
We tell people they can’t time or even anticipate the market. You can’t anticipate the morning chatter. Don’t try. When the landscape really shifts, you’ll know. Until then, don’t deviate from your course.
2. The Fed looks overseas. Remember 1998? It was a crazy year within one of the greatest bull markets in history. The domestic economy was booming. Foreign markets shuddered on a wave of currency devaluations and credit defaults.
Greenspan paused. From what we’ve been hearing from the Fed, Jay Powell can pause too if global shocks raise the risk of economic contagion. He’s looking at foreign markets as well as Wall Street.
With that in mind, I wouldn’t be surprised if we see a small rate cut in 2019 in response to geopolitical strain elsewhere. It won’t mark the long-term peak of the rate cycle and the Fed will take it away again relatively fast, but Wall Street will cheer.
3. Angry clients point fingers. Advisors who’ve been warning that forced fiduciary status will trigger a wave of lawsuits will get vindication once investors get their year-end statements.
Truly great strategies returned 2%-3% this year, and that assumes they beat the broad market by 10%. Relative outperformance is great, but if the absolute return doesn’t hit the retirement “number,” class action lawyers are going to have an easy time collecting angry people.
Those of you who’ve educated your clients to ride the market wave will be in a better position. Managing money successfully is all about managing expectations and especially negotiating the efficient frontier. Do your clients have the cash they need to weather an extended slump? How are their assets hedged? Are you using all the tools the modern world makes available? Let them know.
4. High-risk models break down. You know the old line about swimming without a suit when the tide is high. The tide has gone out just enough that we’ll see the stress in the new year. Think back to Long-Term Capital Management in the ‘90s. Move up to Amaranth for something a little more modern. We may already be seeing the liquidations. Your clients shouldn’t panic, provided of course you did all the due diligence.
If you didn’t, there’s still time to cut exposure. The past is the past. But you control the decisions you make today. Long track records and predictable returns are the gold standard in stressful market cycles. Your clients won’t forget a complete blowout.
5. Innovation stays on top. If you can’t predict or control the big changes, technology keeps opening up ways to build efficiencies into the days in between. Use the tools that are available to accumulate incremental operating edges — every minute your team conserves in 2019 can turn into hours that transform your practice over the long term. Think of compound interest. That’s what every process improvement can do for your profit margins and ultimately the resale value of your business. Whether it’s automated compliance, making full use of your CRM or outsourcing the entire portfolio function, the only thing preventing you from harnessing your own “robo advisor” is inertia.
6. Wealth moves with the computing cloud. Once upon a time, all affluence was physical and location-based. Cash was stockpiled in local banks. Real estate was the foundation of labor and production. Rich people congregated in specific places and people who wanted to work with them needed to be present.
You can now serve your clients from anywhere. That’s important because they’re on the move, chasing the best tax domicile and quality of life. Their relatives are spreading out all over the planet, operating in multiple currencies and legal frameworks simultaneously.
The very process of wealth creation is now often entirely virtual. An executive may never check into the physical corporate headquarters, instead living anywhere that’s convenient and comfortable. The headquarters itself becomes more show than anything else.
You can move with them. Take the office to your clients and prospects with a mobile interface. Do business around the country via teleconference. Chase wealth wherever your registration lets you go.
After all, Silicon Valley, like Wall Street, is a state of mind now. Digital nomads are on the go. Keep up.
7. Nuance trumps numbers. After a year when taxes went down and stocks didn’t go up, it’s clear the old math has hit a limit. Investors are tired of abstract metrics. They’re looking for value and satisfaction. You can provide both.
Don’t get me wrong. The fundamentals still apply. But they’re not everything now. People will pay for comfort. They’ll sacrifice a little performance for moral clarity — call it “impact investing,” ESG or the old-fashioned social consciousness, a portfolio with heart outweighs the potential drag on the bottom line.
What they’re looking for is meaning and a richer experience. They want long-term assurance that their legacy is as strong as it gets, that the heirs will make them proud and the causes will go on changing the world.
They want philanthropy, activism, engagement. And yes, they want comfort. As the world changes, they want to be able to control a few of the details just like everyone else. Give them that feeling and they’re loyal for generations to come.
8. Gridlock prevails. Washington isn’t calling any big shots next year. Don’t waste time trying to stay ahead of the flow there. Regulation isn’t changing. Trade policy isn’t changing. The budget isn’t changing. Keep your head down and focus on your personal footprint. Are you doing the best you can under current prevailing conditions? Will you be nimble enough to withstand an unexpected shock?
9. We’re all getting older. Your clients and competitors are either retired or getting close. The next generation is stepping up. Have a succession plan in place. Get ready to make your transition — or if you’re still engaged and having fun, help other people make their transition and boost your competitive profile.
Investors whose advisors are retiring need a replacement. Advisors who are retiring need someone to step up. A lot of accounts are starting to move. Are they moving to you?
10. You’ll get sick of Liz Warren. I worked with her briefly on consumer bankruptcy and loved her then. That was a long time ago. Since then, her organization has lost the original message. As she runs for the presidency, I don’t see it getting better. More noise.