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Wealth Management Firms Face Challenges as Business Matures

In a thoughtful article and white paper, Financial Network’s CEO Mark Hurley lays out the challenges for wealth management firms and provides insights into what may lie ahead for retirement plan advisors.

The wealth management business, which has grown from a cottage industry in the 1990s into one with $5 trillion in assets under management, is facing challenges over the next 10 years that will dramatically reshape the landscape. These challenges include higher costs, hostile regulators and aging owners.

There are currently three business models, says Hurley:
Evolving Businesses — 200 firms with +$6 million in revenue and high profit margins
Books of Businesses (BoBs) — 18,000 firms with <$3 million in annual revenue with no successor or strategic plan
Tweeners — 1,000-1,200 firms with $3-$10 million in revenue that, while better off than BoBs, have not matured beyond the founder-centric model

Hurley predicts that the Tweeners will be squeezed out, with almost 100 of them to be acquired by Evolving Businesses and the rest falling into the BoB bucket.

The five forces that will reshape the wealth management industry making it a more challenging market are:
• Fewer millionaires
• Aging clients with higher capital consumption
• Prolonged periods of low returns and lower risk assets
• Growing operating costs
• Aging founders

Many retirement practices have evolved out of wealth management businesses, with a select few part of a thriving practice that cross-sells and shares clients. With many health care advisors expected to be squeezed out due to the new exchanges and the challenges of Tweener firms owned by aging principals who haven’t developed a successor and are watching profits dwindle rapidly, are there opportunities for thriving retirement practices to acquire or partner with other firms to create fully leveraged practices?

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