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Commitment To And Progress On The Adoption Of Goals-Based Wealth Management

MMI Industry Guide Survey Finds Significant Commitment To And Progress On The Adoption Of Goals-Based Wealth Management

The Backdrop: Strong Industry Growth Projections

WASHINGTON, D.C., November 11, 2015 – The 2015-2016 MMI Industry Guide to Investment Advisory Solutions – Trends and Statistics released today portrays an investment advisory solutions (IAS) industry that is in a continuing strong growth mode and also in the midst of a broad-scale and accelerating transition. Survey data released in the Industry Guide reveal an ongoing IAS shift from a sales- and transaction-oriented business to a holistic goals-based approach – indicative of a larger trend taking place across the entire financial services sector.

Each year, the Money Management Institute (MMI), the national association representing the $4.2 trillion investment advisory solutions and wealth management industry, develops in partnership with Dover Financial Research a consolidated industry growth forecast that is based on a survey of advisory platform sponsor firms that are MMI members. Respondents are asked to provide industry trend information and five-year projected growth rates for the major IAS market segments – Separately Managed Accounts (SMA), Mutual Fund Advisory (MFA), Rep as Advisor (RAA), Rep as Portfolio Manager (RPM), and Unified Managed Accounts (UMA).

This year’s Industry Guide also includes the results of a survey of sponsor firms that asked about their commitment to and progress in the transition to goals-based wealth management (GBWM), the comprehensive management – from accumulation through withdrawal and bequest – of the multiple accounts and investment products typically found in an investor household. The principal objective of GBWM is the achievement of optimal outcomes in terms of an investor’s lifetime goals. The survey results provide strong evidence that the adoption of GBWM is well under way, but also finds that the transition presents significant challenges.

The trend toward GBWM adoption takes place against a healthy pattern of industry growth:

  • IAS assets, which reached more than $4.2 trillion at the close of the second quarter of 2015, have more than tripled since the final quarter of 2008.
  • Sponsor firms are projecting IAS industry growth of 10% per year over the next five years with industry assets reaching $6.4 trillion by year-end 2019. This is a somewhat more conservative estimate reflecting slower market growth expectations than the $6.6 trillion in assets and 14% average annual growth rate through year-end 2018 forecast in last year’s survey.

“The past decade has seen the beginning of a fundamental change in the delivery of retail financial advice – a shift toward measuring the achievement of client goals based on personalized performance and outcomes instead of against arbitrary market benchmarks. The survey results in this year’s Industry Guide clearly demonstrate that many large financial services organizations are already making significant investments in the infrastructure required to support the delivery of customized, goals-based guidance,” said Craig D. Pfeiffer, president and CEO of the Money Management Institute.

“In addition, the shifts we are seeing in the Industry Guide’s market segment data,” Mr. Pffeifer continued, “support the survey findings about the trend toward GBWM. Increasingly, the platforms and market segments seen to have the greatest growth potential are those that best lend themselves to truly holistic wealth management.”

2015-2016 Industry Guide Goals-Based Wealth Management Survey Highlights:

  • GBWM continues to gain traction, and it is clear that it has become a priority among sponsor firms. An overwhelming proportion of respondents (89%) indicated that GBWM is now an important initiative at their firms.
  • When asked to project the proportion of their firms’ accounts that will transition to GBWM over the next five years, the responses were highly optimistic with a roughly fourfold increase – from the current 10% to 38% – predicted at the end of five years.

goals-based wealth management

  • 88% of executives surveyed indicated that their firms are investing a moderate to significant amount in GBWM, but 89% of those same executives thought that their firms’ spending on GBWM wasn’t adequate and should be increased.
  • GBWM-related investments are being put to work in a number of ways. Sponsor firms are beginning to put in place the infrastructure – including planning tools, platform software, and other technologies – needed to deliver the elements of a comprehensive GBWM approach.
  • Most of the current initiatives focus on the front end of the advice delivery process because front-end planning is the first step in implementing a goals-based process, planning modules and interface improvements are likely to drive near-term revenue growth, and converting the front end to GBWM reorients both the client and the financial advisor.

2015-2016 Industry Guide Growth Survey Highlights:

  • Drilling down on the overall 10% growth estimate, sponsor firm executives were asked where the greatest future growth potential was to be found. More than 70% of the respondents selected UMA/UMH (Unified Managed Household) and single integrated platforms. This is a substantial increase from prior years, a reflection of firms, financial advisors, and clients increasingly seeing the benefits of consolidating different types of investments in a single custodial account in which assets can be managed holistically.
  • The shift to UMA/UMH and single integrated platforms will result in slower growth for Mutual Fund Advisory programs. Over 70% of respondents see MFA as the market segment with the lowest growth potential, followed by SMA programs at 43%, as mutual fund and SMA assets are increasingly being migrated to UMA and single integrated platforms.
  • With a projected average annual growth rate of 18%, UMAs are forecast to grow the fastest among the IAS segments over the next five years, albeit from a relatively smaller asset base of $423 billion as of the first quarter of 2015.

goals-based wealth management

The Industry Guide also includes a major GBWM-related MMI research paper done in partnership with State Street’s Center for Applied Research – The Performance Paradox: Overcoming Present Day Misalignments and Delivering on Investors’ Long-Term Goals.

About the Money Management Institute (MMI): Since 1997 MMI has been the leading voice for the global financial services organizations that provide financial advice and professionally-managed investment advisory solutions to individual and institutional investors. Through industry advocacy, educational initiatives, regulatory affairs, data reporting, and professional networking, MMI supports and advances the growth of a diverse spectrum of investment advisory solutions that serve an evolving worldwide financial landscape. MMI member organizations are committed to the highest standards of fiduciary responsibility and ethical conduct and to creating the most successful outcomes for investors at every level of assets. For more information, visit www.MMInst.org.

About Dover Financial Research (Dover): Dover is a boutique Boston-based research and consulting firm specializing in the financial services industry. The analysis, independent research, and market intelligence that form the foundation of the MMI Industry Guide to Investment Advisory Solutions are provided by Dover on behalf of MMI. For more information, visit www.doverfr.com.