The ‘10s were all about finding a new status quo in the industry, politics and the market. The next ten years will tear all that down.
A decade is an arbitrary thing, but we can all agree that the era of dates denominated in teens is over and the habits the wealth management industry developed for a pre-2008 world are receding fast.
Over the last 10-12 years, very few people were willing to rock the boat. Change was incremental and grudging, measured more in basis points than leaps.
After all, we’d already suffered a lifetime of disruption in the years of the crash. Big firms and business models died, forcing a lot of people to adapt fast or reinvent themselves elsewhere.
That experience reinforced the defensive bias of an already change-resistant industry. Once you’ve had to circle the wagons on your career, you rarely look forward to repeating the ordeal.
But 10-12 years is a long time to keep the forces of disruptive change bottled up under increasing pressure. Sooner or later, change will accelerate.
We might not see a lot of it from year to year, which makes a lot of new year prediction lists trivial and pointless.
But multiply even the smallest incremental shifts over a decade and today’s advisors may not even recognize themselves in the industry mirror ten years from now.
That’s where we’re looking: through the random walk into a future that we might not be able to predict, but we can anticipate and plan around.
We’re looking for long-term outcomes. Those who keep their eyes open on this rollercoaster know when to scream and when to cheer.
2020: Trump Might Not Win But Liz Warren Will Lose
Election risk is the biggest binary question anyone who works with the global market needs to grapple with in the coming year. We just don’t know what will happen in November or even who will be running.
But while it looks like a coin flip right now, it’s still Trump’s race to lose. If he’s running, he’ll probably win.
He has the home court advantage and the incumbent tends to win as long as the economy doesn’t fall apart.
Unless all the indicators are wrong, the economy will do just fine this year. The biggest threat from that direction is people talking it down and creating a hypochondriac stall.
And if Liz Warren is running, she’ll probably lose. Hope is stronger than fear. Her rhetoric was formed in the pre-2008 world and her fame grew in the years of the crash.
I saw it then and it hasn’t changed. While scaring the middle class voter is big business, we and our clients need to live in a world where life is more resilient than Warren’s people want us to believe.
Warren’s world is all about fragility and brittleness. People don’t adjust there. Bankruptcy is a stain that lasts forever. Screw up and you’re over.
Trump has gambled and lost multiple times. He’s still here.
Those who don’t recognize this will retreat to the sidelines over the summer and stay there until it’s safe to come out. Remember how volatile it got in 2016?
But the more bizarre scenarios are probably off the table. No matter what happens in November, the corporate tax cuts won’t be rolled back. The trade war won’t turn hot.
A billionaire tax is not going to happen right away. If it does, your clients will have plenty of warning. We can anticipate. We can plan.
2021: Active Stock Picking Strikes Back
Index funds rule the world, which means the burden of innovation is on active managers to prove their value or face a long path to extinction.
There’s a lot of money and talent in the active world. They have the resources to compete and don’t want to fade away.
While 2020 may be the last year investors are satisfied with passive portfolios, I’m also seeing hints that the passivity has gotten too passive.
Index managers are getting too content with the random walk they created. They’ve competed on price, which means racing each other to zero in terms of fees.
You can’t get lower than zero. From here, if they want to grow, they need to differentiate. That means competing models of what “the market” is and how to slice it.
The more exotic those slices get, the more they look like actively curated portfolios. And that curation process costs something. Fees start edging up from here.
Meanwhile, “the market” wisdom is already on the complacent side. Prognosticators have given up. All the forecasts and targets add up to one big shrug.
I get that it’s hard to extend yourself and take a firm position after all the models have gotten so many things wrong. But people get paid to try.
Any high-conviction position can make money. It plays a role in a diversified portfolio, generates alpha.
You might be right, you might be wrong. Bringing you all together creates a kind of crowd wisdom and in the right conditions generates better risk-adjusted returns in the long run.
By 2021 I’m looking for a new wave of human- and robot-generated asset selection. Maybe that looks like high-frequency quant modeling. Maybe it’s just a better set of indices tailored to individual investors and their tastes.
But it’s time to challenge the random walk. Not every view of “the market” is right for every client at every moment.
2022 – Massive Consolidation Becomes Noticeable
Schwab Ameritrade was more than a warning shot. Zero commissions and custodian consolidation are real and not just hypothetical threats now.
While it might take the industry as a whole a year or two to react to the changing landscape, by 2022 we’ll be dealing with a substantially smaller universe of partners at every level.
There’s just too much capacity and as technology makes delivery frictionless, fee compression forces survivors to grab for scale.
This means fewer fund complexes, fewer independent trust companies and fewer technology vendors. Scale is king and with interest rates bottoming out the window to finance strategic acquisitions is closing fast.
It also means fewer regional brokerage firms as well as increasing consolidation of the IBD channel under LPL and a handful of rivals. RIAs will keep aggregating. Someone will achieve critical mass. Weak hands fold.
Who buys whom? That’s where the fun comes in. We don’t know how the pieces will snap together, but smart people are already testing for the right fit.
Don’t rule out vertical alliances. Fund companies can buy TAMPs. TAMPs can buy fund companies. RIAs can buy trust companies and banks can buy anyone.
I predict one fewer wirehouse by the end of 2022. And in that scenario, a lot of money is going to move as the tectonic plates shift.
You can be a consolidator. You can get bought. It’s coming. The question is where you want to go from there.
2023 – Millennial Clients Finally Make Sense
This is more of a line in the sand than a firm date, but if you aren’t ready to work with a new kind of investor by 2023, you’ll spend the rest of your life behind the curve.
The oldest millennials will be as old three years from now as the oldest boomers in 1988. Weren’t the late ‘80s great for the wealth management industry? Wasn’t it an era of creative disruption, innovation and ultimately professional success?
If history rhymes at all, that’s the kind of era we’re looking toward now. Admittedly the details are very different this time. They want different things. They have different hopes and fears rooted in their experience.
But at that point in their lives, they’ll be making money and looking toward retirement. They’ll have kids, families, settled lives.
Maybe they need help with their student loans. Maybe they’ve been forced to dramatically rethink retirement. Help them with it.
And their parents and grandparents will be transferring wealth. They don’t know how to manage it. It’s a new experience. They need help.
This will be the industry center of gravity for the foreseeable future. You don’t have to be here, but if you want to remain relevant, it’s going to be worth finding ways to deliver what they want at a price you can support.
2024 – Berkshire Hathaway Starts To Break Up
When you put a $550 billion conglomerate in the hands of someone born in 1930 and give him a lieutenant who’s six years older, you’re making a big gamble on life expectancy.
Sooner or later Warren Buffett and Charlie Munger will die. Statistically, they’ll probably die fairly close together, leaving what now looks like an enormous power vacuum at the top of Berkshire Hathaway.
Someone can step into that vacuum, but the company isn’t exactly known for moving faster than its founders. And the clock is ticking.
I’m setting 2024 as the peak scale Berkshire Hathaway will achieve, no matter how much longer the founders have. Beyond that point, there’s more value to be liberated in spinning out some operations and selling others.
Insurance can stay together. There are synergies to capture there.
But the candy companies and other businesses only exist to feed cash to the founders for reinvestment. Beyond that, there’s no intrinsic reason for shared ownership.
People with vision will offer Buffett or his heirs a premium to take the parts they want. While Buffett invests “forever,” he won’t be around forever to make his case.
2025 – A Shockingly Short Bear Market
After a full decade without a recession or major market shock, I suspect the bulls will finally run out of room by 2025, assuming of course that nothing external and unforeseen gets in the way before that point.
That’s not so bad. While a little rain will always fall in the course of any career, dodging the bullet for 10-15 years is a testament to the market’s real ability to pivot around all obstacles.
Wall Street climbed every wall of worry and came back ready for more. All the fretting, all the fear and all the second guessing only added up to one truth: everyone who bought into the market at any stage made money.
Whether they made “enough” money or whether they’ll get the returns they want in the future is always an open question. We’ll pivot to find them the best outcomes possible.
But whenever the party stops, history shows that the market bounces back faster every time it hits a wall. The long recessions of previous centuries are gone now. Lost decades are vanishingly rare.
In a static statistical environment, that would make me nervous because it means those bad periods will be more numerous in the future. However, we don’t live in that world.
We learn. We adapt. It’s improving. Every time we fall down, we learn not to do it again. We’ll find a new way to fail in the 2020s, but repeating the dot-com crash or the credit crash is just not going to happen.
Too many people are terrified of just that scenario. They’re watching. And as we learn how to bounce back, the recoveries get faster. Money flows into the gap. It takes a lot of fear to overcome that.
I predict Dow 50K sometime in 2025. Whether it’s at the start of the year or the end remains to be seen. Nobody will notice.
2026 – All Compensation Is Relational
At this point we’re already getting far out. There’s an entire presidential election we’ve skipped. It doesn’t matter. Let’s predict something going on behind the scenes here.
By 2026, zero-expense funds and zero commissions will be the law of Wall Street. The race will have hit bottom.
People will still make money. You’ll be an influencer, pointing people to the right instruments in a world where investors can’t simply compare fees and buy the cheapest index fund.
Details will matter. Long-term planning will matter. Experience will matter.
You’ll probably be a family advocate, working with one or more centers of wealth to help build a dynasty. Technology will multiply your capacity.
Your reach will be global. You’ll contract local talent as needed on a gig basis and collaborate with the best minds on the planet.
Curating that expertise is worth money. You’ll be able to demonstrate value and justify that fee.
They’ll be happy. And there will be enough money to go around.
2027 – The First AI Advisor Gets Certified
Robo keeps getting better. By 2027 it will be indistinguishable from a human. But it won’t have your experience.
It will learn fast though. Make friends with the robots. Teach them what you know. They’re just like the human interns you bring in now.
They want to do a good job. They know that one day they’ll replace you. But for now, you’re the boss.
2028 – The Last Mutual Fund Converts
If you aren’t actively traded at this point, why are you around? Everything will become fungible as we wind down the ‘20s. Blockchain will make it happen.
But if you’re on the blockchain, you don’t need to settle overnight. You’re constantly repricing as long as the market is open.
The trading day doesn’t need to remain arbitrarily fixed, either. Value will fluctuate in real time. On everything.
You just won’t have to watch. The robots will do that for you. You’ll be playing golf.
2029 – The Center of Gravity Shifts
By the end of the decade, half of all advisors will be 65 or older and 10% of those now in the industry will be dead.
The full retirement age will probably push up to 72 to match the longevity tables. That’s still going to buy the typical retiree a decade after work.
The millennials will be in charge of the robots. You’ll be here for fun and because you’re good at it, checking in with legacy clients and their heirs. If you aren’t here, you’ll be elsewhere.
Most of them won’t even remember 2008 much less previous boom and bust eras. But the cycle of wealth will go on. You might not recognize the details but the essentials are by definition eternal.
People will worry about the future. They need help. We won’t know what’s coming.
Experience will present likely scenarios. Planning will generate solutions for emergent problems.
It’s going to be fun.
