Announcing his paper titled “Welcome to the Jungle: The Next Phase of the Evolution of Wealth Management,” Mark Hurley, CEO of Digital Privacy and Protection, made sweeping predictions about the wealth management industry including fierce competition for talent, the rise of successful specialist firms, increasing direct investment by sovereign wealth funds and more. The paper was released on the morning of Dec. 6 as Hurley presented at MarketCounsel Summit 2023.
Hurley made waves in 1999 with a paper predicting massive consolidation in wealth management, concluding that his predictions came true, though across a longer time frame than he expected.
Hurley sets the background for his new paper in the triple influence of low interest rates, low inflation and rising equity markets that made it easy for firms to grow for many years. According to him, this led to the recent years of private equity money entering wealth management through M&A. Acquisition values rose, with the rationale that any overpayment would be compensated by continually appreciating markets.
“The industry will be more of a jungle, not a club – not polite and genteel.”
Mark Hurley
“Industry participants went to sleep,” Hurley says. He explained that 70% of industry firms would have shrunk but for market appreciation. During this process, marketing reached a limit as firms stopped expanding their marketing efforts.
Hurley says that this phase of the industry’s evolution ended in March 2022 as the Federal Reserve began raising interest rates.
The Forecast
“The industry will be more of a jungle, not a club – not polite and genteel,” says Hurley, as the shrinking talent pool will drive firms to increasing competitiveness to hire employees immediately capable of making a difference. “Make sure you lock down your talent,” he cautions, pointing to restrictive covenants as a tool.
In technology, he predicts that cybersecurity will become increasingly important and difficult. He predicts AI software will have a lesser impact in the near term than many expect because it is expensive to implement and requires large data sets that very few companies possess.
Hurley sees a future in which the owners will take a long-term view of investments and engage less in public offerings to raise funds because the long-term horizon would contrast with a public company’s requirement to produce quarterly results. Both buyers and sellers will become more selective.
His vision includes an industry obsession with marketing, as competition will be fiercest for employees with marketing talent, and the development of powerful, cost-effective brands that emphasize problem-solving over financial advice.
The Destination
Hurley believes today’s wealth management industry parallels the investment management industry 10 to 15 years ago, resulting in megafirms, specialists and generalists.
He expects the emergence of 30 to 50 megafirms, based primarily on organic growth, and sovereign wealth funds disintermediating private equity firms in their holdings of wealth management firms. He predicts 200 to 500 specialist firms between $5 billion and $10 billion in assets, which hold niches in solving complicated problems for specific client types. The specialists will not just advise on wealth clients already hold, but on creating, building and managing wealth, providing broad-ranging services such as headhunting and consulting.
He sees sovereign wealth funds disintermediating private equity firms in their holdings of wealth management firms.
He predicts the remaining firms will become generalists, which will get paid the same but have to produce more for clients. Hurley states that “nobody is going out of business,” but these firms will struggle, eventually evolving into bookkeepers for their clients.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com.
