How Wealth Management Lost Clients in Translation

Abstract

The Wealth Management (WM) industry is in transformation and yet, unlike institutional investors, there is no dedicated investment model to guide through this transformation. The prevailing classical, institutional asset allocation model (C-AA), increasingly endorsed by the WM industry, is more than half a century old. Its origins lie not in the needs of WM clients, but in asset pricing and financial markets. Despite the powerful forces driving this process, there are significant unintended consequences. C-AA frame-work (a) neglects individual client needs, (b) is structurally passive, (c) leads to systematic client under-investment, and surprisingly (d) reverse-solicitates clients leaving them in charge of portfolio risk and return. While C-AA might fit some clients some of the time, it certainly does not fit all clients all the time. Unless WM comes to its own methodology, clients continue to be lost in miss-translation into C-AA, and the industry itself will morph into a shadow passive industry.