Goals-based Investing summary

Whether you’re a seasoned investor or relatively new to the topic, you might not know exactly who the key players in the financial-services industry are, and how their roles in wealth management differ. So, let’s start with a quick overview.

First, there are wealth-management firms. These include companies like Morgan Stanley and Merrill Lynch. Such companies carry out research and due diligence. They also provide support to financial advisors. The financial advisors themselves work for the wealth-management firms, advise clients directly, and may also use asset managers to provide investment advice. Then there are custodians. Examples include companies like Schwab and Fidelity. They provide custodial services, technology, research, and trading support. And finally, we have asset managers such as Blackrock, Fidelity, and JP Morgan. These companies manage money via mutual funds, exchange-traded funds (ETFs), hedge funds, and other structures.

Some of these companies also provide multiple services. For example, Morgan Stanley has retail and private-wealth divisions, but also has asset-management subsidiaries.

Over the last 20 years, the financial sector has changed considerably – and so has the relationship between the various companies within it. It’s also likely that it will change further over the coming decade.

Back in 1975, the founder of The Vanguard Group, Jack Bogle, created the first index fund. He was skeptical about the need for financial advisors and believed that investors could do just as well left to their own devices. Vanguard is now the second-largest asset manager worldwide with over $6 trillion in assets under management. After the general financial crisis, growth in do-it-yourself investment grew rapidly as investors began to question why they should use investment managers if they couldn’t protect them from market collapses. The use of ETFs accelerated after the crisis and advisors also began to use them more in building portfolios. 

And then came COVID-19, the pandemic that stopped the world. It ushered in not only health issues but financial woes. The markets became very volatile and uncertainty reigned. Investors, shocked by rising death tolls, also watched helplessly as their wealth plummeted.

Over the years, wealth-management practices have also needed to reinvent themselves in order to provide new services to their clients. This has required reskilling and training in order for advisors to understand issues such as estates, tax management, lending options, and charitable giving, for example.

Financial advisors needed to help their clients through these troubled times, and in innovative ways – through the use of technology to reach their clients, for example. In a post-pandemic world, it is still unclear how financial advisors will engage with clients in the future. What is clear, though, is that they need to rise to the challenges that the sector faces now and in the coming decade, evolve their approach, or risk being replaced by robots and AI and ultimately becoming obsolete.