Democratizing Wealth Management

Abstract

Over the past 25 years, as access to pensions has declined and longevity has increased, people have needed to bear increasing responsibility for their financial well-being. Fortunately, wealth management has become democratized in that time, bringing to a greater number of people the techniques that once were available only to institutions and the very wealthy. Alpha, the value added relative to an appropriate risk-adjusted benchmark, has been shrinking for a variety of reasons. However, factor-based investing has grown, offering a convenient way to access the premiums once assigned to alpha. Tax-aware mutual funds have become more common, while the rise of exchange-traded funds allows investors to defer capital gains. Continuing advances in efficiency have enabled separately managed accounts to be offered for lower assets and at lower costs. The appropriate vehicle depends on the specifics of the investor, the characteristics of the strategy, and the type of account where it is held. Wealth management should continue to evolve to meet the needs of investment professionals and those they serve.