Wealth Management Industry Destroys $400 Billion in 2020

2020 again demonstrated that RIAs, Private Banks, independent Broker Dealers, Wealth Management platforms and financial firms can’t provide quality advice to everyone profitably. Few customers want to pay for it, and many investors don’t trust financial advisors. Meanwhile, traditional forms of asset allocation advice are costly, inefficient, and impersonal. We estimate that retail investors lose more than $400 billion annually in advisor fees and portfolio inefficiencies. This value destruction is both explicit in typical 1% or higher advisory fees charged and implicit in 0.5% or more asset allocation inefficiency.  Moreover, these costs are in addition to other contracting frictions, product commissions and costs. To serve a broader audience, advisors put investors in cookie cutter, one size fits all “model portfolios,” which in turn commoditizes their own service and expertise. Model portfolios also fail to account for personal investment views, preferences, and limitations. Worse still, clients rarely know how inefficient their allocations really are and have no objective means to measure and value advisor performance.

Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech ActiveAllocator.com, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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