In this episode of Cogcast, Michaela Morales, Cognito’s in-house wealth management expert, sits down with Toby Salinger, Chief Correspondent at Financial Planning, to explore the evolving landscape of wealth management. They dive into the rise of independent advisors, the ongoing wave of industry consolidation, and how private equity is reshaping the sector. Toby shares insights on the increasing integration of tax planning into wealth management, the game-changing role of AI and technology, and the latest investment trends in a volatile market. Whether you’re a financial advisor or simply interested in the future of wealth management, this episode is packed with valuable takeaways.
Transcript for podcast
Larissa Padden 0:06
Hello, and welcome to Cogcast, Cognito’s podcast, where we talk to journalists and media pros on everything that’s happening in the world of media and PR. I’m Larissa Padden, not your host this episode, but still a former journalist turned PR professional. Today, we actually bring you a conversation between Cognito’s very own Michaela Morales, our In-House Wealth Management Expert, and Toby Salinger, Chief Correspondent at Financial Planning.
The two met to discuss the current wealth management landscape ahead of Future Proof, the industry’s premier annual conference starting on September 15th, enjoy this fun episode.
Michaela Morales 00:46
Hi, Toby, thanks for being here today, joining the Cogcast. How are you doing?
Toby Salinger 00:51
Doing great, great to be here. Thanks for the opportunity.
Michaela Morales 00:55
Yeah, we’re really excited for this conversation.
I mean, as you know, we’ve seen so much go on in the wealth management space over the last few years. In particular, it’s evolved dramatically. What are some of the top industry trends that are on your mind that you’re reporting on for financial planning?
Toby Salinger 01:13
Well, we are talking a lot about the increasing intersection of tax and wealth management.
That’s been a big area of my coverage recently, where you see more wealth management firms embracing tax-related services, not necessarily tax returns and tax preparation, but the impact of investing on taxes and how to limit the amount you pay back to Uncle Sam at the end of the day. And I think there are a lot of advisors who are increasingly embracing that. Anyone who’s heard Jeff Levine speak has definitely been inspired to think more about that.
You see a lot of interesting news around certifications, particularly the American College of Financial Services has a new tax planning certification that’s starting up later this year. So I think that’s been a very big trend. Beyond that, a lot of the same trends that we’ve been seeing over the past decade or so remain important.
That’s the move over to advisory services, increasing consolidation, and all kinds of regulatory proposals to keep track of, even though after the Supreme Court term that recently ended brought a lot more uncertainty into that area. But I don’t think advisors are too unfamiliar with operating with a little bit of uncertainty there. So that will be interesting to watch as we move forward.
Michaela Morales 02:52
Yeah, absolutely. I’m looking forward to diving a little deeper into some of those themes that you just mentioned. I think part of the tax angle is particularly interesting as we’re seeing a lot of advisors want to offer that holistic package of advice for their clients.
Along those lines, one thing I wanted to talk about first was the rise of independence, right? So Schwab Advisor Services found in their supported independence study that advisors considering independence are more likely to join or affiliate with an existing REA or start their own firm. I’m wondering what your thoughts are on the rise of independence and the benefits or not it might bring to advisors.
Toby Salinger 03:34
Well, it really has to do with that individual advisor because I think intuitively we can all understand the idea of removing some burdensome tasks off of our plates.
And you see this increasing consolidation playing into that where firms are making the case to advisors to say, hey, maybe you don’t like doing payroll services for your business. We can take that off your hands. Maybe you don’t want to do compliance all day.
Most people don’t really like compliance. We can take that off your hands as well. And we can provide X, Y, and Z added services on top of it that helps you communicate your value to clients even better.
So we’re helping you do that, add new business and giving you more time with your existing clients. From what I understand, a lot of advisors really love that time with clients and they don’t necessarily love all of the time running a business. And so even though you continue to see hundreds of advisors, maybe thousands of advisors go independent each year from say wire houses or some of the other incumbents who are the largest firms in the industry.
I think you do see more and more of them who find appeal there in removing a lot of tasks off their plate. Now, having said that, there are advisors who love to be solo practitioners and they love to run their business. They love to manage their people.
They love to structure their approach the way that they want to. So there’s always going to be that subset of rugged individualists who want to run their business in exactly their way. And you also see the large firms that are feeding into the consolidation finding ways to try to be everything to them as well.
And they may be successful. There are some large enterprises that specialize in working with solo practitioners. So that’s a way that they can remove some of those burdensome tasks while keeping the equity in their business and maintaining their independence that way.
So I think a lot of these dividing lines that used to sort of determine whether an advisor was called independent or not are sort of blurring. And that’s something we found when we did our feature just a couple of months ago on the meaning of independence and how that’s really shifting and how it’s really up for debate. And in speaking with about a dozen experts, advisors, and entrepreneurs, we really found that there’s such a divergence of all of the things involved with that.
That word independence is very appealing to everyone. We’re Americans. We love to declare our independence. But when you get down to the nitty-gritty details of running a practice every day, there are a lot of different factors that really enter into that equation.
Michaela Morales 06:46
I couldn’t agree more. And I think we’re seeing a lot of that just in play with the rise and success of a lot of the hybrid RA firms and different affiliation models that we’re seeing in the industry.
You touched on consolidation a little bit. I think we’ve seen a lot of that. And M&A volumes have been rising in 2024.
And we’ve also seen a lot more private equity firms enter the space. What are your thoughts on the industry consolidation that we’re seeing?
Toby Salinger 07:16
Well, everyone I’ve spoken to in the past six months to a year has said that we’re still in the early innings of this. And I certainly have seen no let-up in announcements of M&A deals.
I apologize. Sometimes I can’t quite respond to all of them. And I can’t quite cover them.
There’s never enough time in the day. I’d love to cover every single M&A deal. But when there are over 300 a year, then I would just be an M&A reporter and not able to cover anything else.
But it’s really something where this is a fragmented industry. All of the analysts who take a look at wealth management, they’re always describing it as fragmented and that the major area of differentiation is big versus small. And there are some subtleties within that.
As I mentioned earlier, you can sort of find ways to be small while being with a big firm. And advisors are really doing a good job of filling out what that means to them. But the private equity investors keep crowding into the space.
It’s a very appealing industry for investment. Advisory fees are sticky, as they say. I feel weird when they call it that, but that’s how they describe it. And the reason is that’s recurring revenue that comes in every quarter. And investors find that very appealing. That’s a reliable stream of revenue to build from, to grow even more.
And I think that’s why you continue to see these new consolidators popping up. That’s the other trend. Besides getting all the M&A deals in the inbox, a new firm is launched with backing from a private equity investor and they’re ready to do deals.
They want to do deals. So I don’t think that’s going to be letting up anytime soon. There are about 30,000 RIAs out there.
Fewer than 10% of them have at least $1 Billion in client assets or more. But you see these large platforms getting to 100 Billion, 200 Billion, 300 or more. And the reason why is people want tasks taken off their plate.
Investors want reliable revenue and clients want these services. They’re very valuable services to clients. When you can work with a personal financial advisor who can help you work towards your financial goals, that’s not a service that’s going to be going away.
If anything, most of the experts say that more and more people are going to want that moving forward. So I think that’s why you see so many people saying that, hey, as many deals as there are, there are going to continue to be deals moving forward.
Michaela Morales 10:12
Yeah, and we see these larger firms continuing to compete with one another.
I think the benefits of scale and distribution will be really important as these firms continue to grow. I think we would be remiss not to mention some of the advancements in technologies that we’ve seen in recent years. From your conversations with wealth managers, how are you seeing them implement advancements of technology, whether that be AI or different automated systems?
Toby Salinger 10:42
Well, there are a lot of different ways.
Particularly with AI, I’ve spoken with some innovative advisors who have found ways to just make so many tasks quicker throughout the day. I was speaking with one, for example, just the other day, Rianka Dorsainvil. She’s an amazing advisor, operates a completely virtual practice, and she’s been doing that since well before the pandemic.
She told me when she has a client meeting, she now has an AI tool that is there transcribing the meeting, summarizing the meeting, and drafting an email reviewing the meeting for the clients. She used to do that herself and work with a staff, a team to do that, and it would take about two or three hours. Now she says it takes about five minutes, five or 10 minutes to go through the draft of the email, make some changes, and that has really helped her workflow.
So you see things like that on a day-to-day basis. But then when you bring up scale, you think about these larger firms and all kinds of ways that they can start leveraging them. I’ve seen a lot of Chatbot tools that have been helpful for firms, say, working with 401k plan participants.
They have a question. That Chatbot can track down the answer, track down resources to rely on. It could be financial advisors or tax professionals themselves using these Chatbots too.
There are some really specialized ones. These are not like ChatGPT. This is not like me going into Google, finding chat GPT and popping something into it and then posting it online or something.
No, these are much more sophisticated. They’ve got millions of documents that are in their libraries. And so financial advisors, tax professionals who are looking for answers can dive into these documents without having to say, read 100 pages.
They can get to the relevant portion of whether it’s the US tax code, state law, or various types of regulations. They can get right to what they’re looking for. And so the smarter firms are going to find ways to do this in a variety of areas.
And it’s, again, something I think we’re just on the starting point of the iceberg. And we’re certainly making a big deal about it at Financial Planning. I’m not sure if you’ve heard, but later this year, we’re having a whole conference about AI and its applications to wealth management.
It’s called Advise AI. That’ll be in October in Las Vegas. We’ve got a lot of great speakers lined up and more to come, so stay tuned.
But it’s just fascinating to think about the possibilities there and the challenges, because there are some problems with some of these AI tools. There has to be some human guardrails there. You can’t just put something into ChatGPT and just send it to clients.
I can’t write stories that way. I’m pretty glad I can’t write stories that way. But there has to be a human behind the wheel somewhere, just verifying a lot of things in order for it to work.
There have been some problems with some of the Chatbots at tax preparation software firms. There was a Washington Post story earlier this year just about how they were not answering questions correctly and not filling out the paperwork correctly in some cases. And of course, TurboTax and H&R Block, they responded and they’re working on it.
It’s under development. There are companies that are starting up the want to do tax preparation using AI. So it’s early days here.
And there’s a lot to think through. To mention the environmental impact, it takes a lot of energy for some of these solutions to be working all the time. So there’s a lot to figure out.
And we look forward to seeing the industry figure it out in a way that can help more people reach their financial goals.
Michaela Morales 15:07
Yeah, it’s definitely a lot has evolved over time. And I think we’re only at the tip of the iceberg.
It’s super interesting to think about. We’ve also seen a few of the larger firms hire some chief innovation officers and things like that to kind of oversee some of these transitions. So definitely something to keep an eye on.
I want to pivot a little bit. There’s a lot of uncertainty in the market right now. I’m curious as to what kind of investment trends that you’re talking to wealth managers about that might be hot right now, or you’re considering as good recommendations while you’re writing for Financial Planning.
Toby Salinger 15:46
Well, I always rely on the financial advisors for the best recommendations, of course. And the types of things they say are stay the course. And there will always be volatility. You’ve got to stay on track with your long-term plan. In terms of solutions that seem to be popular right now, I am hearing a lot about bonds. I hear about bonds. I talk about bonds. I guess that’s why not everyone wants to talk to me all the time. But bonds are something that, where people see some potential appeal.
They had a historically bad year alongside stocks in 2022 and for most of 2023. But now there are a lot of inflows into fixed-income products. It’s an area where active management is still considered valuable, where you have some savvy investment managers finding the types of investments that the computers aren’t able to.
So I think fixed income is certainly an area we’ve been hearing a lot about. Private credit, of course, is always expanding in the past couple of years. A lot of alternative investments and how that might fit into the portfolio.
I think most people say, you should keep that concentration to about 5% or 10%. But there are some very interesting products that are coming online and interesting asset types for advisors to think about with clients. And of course, in thinking about taxes, you know, it’s not what you earn, it’s what you keep is what they all say.
So there can be some investments that are more tax-efficient than others. And I think financial advisors and their clients are trying to find those together.
Michaela Morales 17:44
Yeah, I think that’s a great overview.
Definitely seeing a lot of the same in terms of the people I’m speaking to. I think all of the themes we just discussed will be front and center at the upcoming Future Proof Conference happening in September in California. I know you’ve attended in the past and you have colleagues that will be on the ground there this year.
What are you looking out for? What are your team looking to hear from leaders on the ground at Future Proof?
Toby Salinger 18:16
Well, it’s always interesting to hear what Josh Brown is up to and Barry Ritholtz as the organizers of the, the advisor organizers of the conference. I think a lot of advisors, planners, wealth management professionals out there are always interested to hear their thoughts on, you know, the current market, the industry trends, everything that’s shaping wealth management and all of the important issues that are involved with it.
I think what I find the most interesting about it is just the great mix of people it brings together, whether in terms of position in the industry, a lot of asset management firms, a lot of financial advisors, a lot of all kinds of people who are involved with personal finance in some capacity.
When it’s outside, it’s a completely different atmosphere than you find at pretty much any other conference. And so I think what I’ll be most interested to hear is what are the new startup businesses that are talked about? What are the investment trends that really seem the most interesting? What are the practice management topics that are the most important to financial advisors? I think that was one of the most memorable panels a couple of years ago when I went and there was a lot of discussion about planning out your day and the most efficient use of time, the best way of spending your day to help your clients and make sure that you and your team are as productive as possible. So it’s all kinds of things.
It’s such a huge event. There are so many different subject matter experts who are there. And I think you could go to pretty much any of the panels throughout all of the days there and just get a lot of great takeaways for your business.
Michaela Morales 20:16
Yeah, I think we’re all really looking forward to that. I hope the listeners will find the Financial Planning colleagues of yours that will be on the ground. Do you want to name anyone in particular they should look out for?
Toby Salinger 20:28
Sure, sure.
Managing Editor Cat Auer will be there. She’s great. Please say hi if you see her.
I’m not sure if we’ll have our own tent again this year. We have in the past, but we just might. So look out for that blue Financial Planning tent over by the other media.
Come over, say hi. We’re always looking to speak with experts, advisors, everyone in the field. We’ll have some free copies of financial planning, I’m sure, on hand.
And we’d love to make that connection. So come by, introduce yourself, and tell us what we should be covering more. We always love to hear that.
We want to know what is top of mind for everyone in the field, so that we can do as good of a job serving you as possible. So come say hi to Cat, and maybe we’ll catch up via email down the line.
Michaela Morales 21:28
Sounds good, sounds good.
And I know Financial Planning has done a few recent features of note. You were recently at the Invest STL Rooted program, and you have a couple of features coming out as well. Do you want to tell us about that?
Toby Salinger 21:42
I’d love to, yeah.
Invest STL is a nonprofit based in St. Louis, and their Rooted program is a really interesting one for financial planners across the country, because they’re testing the impact of financial planning on wealth building and displacement prevention. So they’re working in an area of St. Louis called the West End. It’s a great area.
It’s right by Wash U in St. Louis, for those familiar with that renowned institution. And so predictably right now, there is a lot of gentrification. And the concern is that long-time residents will be pushed out of that area as the rents rise and other challenges come in that we’ve seen kind of across the country.
So what Invest STL is doing is providing grants of $20,000 to invest with pro bono advice from volunteer financial planners. And a lot of experts I spoke to really describe it as kind of the first test of its kind to see the impact of receiving this financial planning services. You know, a lot of times people who don’t have the means aren’t able to hire financial advisors and financial planners.
So this is going to be an interesting test to not only provide a grant, but require the grant to be invested either in renovating a home in the area or opening an investment account or starting or adding onto a business. I think it’s going to be fascinating to see how this develops in coming years and what are the scalable solutions that come out of this program. So we did a big feature on it and I was really proud to make that live just a few weeks ago before we recorded this.
Coming up soon, we have our annual independent broker-dealer issue. That will be out in mid-August. I think that’s about when this will be running.
We call it the IBD Elite Study. And this year we’re going to be exploring that topic of big and small and think about whether there is space for these independent wealth management companies that are in fact competing against some of the largest companies in the space and whether there is still room for that in this day and age. Hint, there might still be.
And after that, we’ll have our annual RIA Leaders ranking. That’s our ranking of the largest fee-only RIAs across the country. We are always excited about looking at that.
We have our own proprietary formula. We work with the data partner and they call through all the company’s SEC disclosures to just track which are the largest fee-only RIAs. So I think we get a lot of interest there.
I’m still working on coming up with the feature idea. So stay tuned for that. I’ve got a couple of months to work with luckily there, but that is a really fun feature to do as well.
At Financial Planning, we’ve been around, it’s hard to believe since 1974. For a long time, we were under the umbrella with what was the forerunner to the FPA before we split off around the year 2000. And so we see the RIA leaders as kind of our contribution to this conversation that is always taking place among advisors on what does the fiduciary duty mean? How are planners applying that to their day-to-day? And what are the key issues that shape the future of financial planning? So we take a lot of pride in that.
And as I said, we’re always interested in ideas. I can’t respond to every single email, but I do a decent job, you have to say. Maybe not the best, but I respond to as many as I possibly can.
And I so appreciate everyone who speaks with me for stories and the PR professionals like yourself who help set up those interviews so that we can share those insights with our audience. It really is a great privilege to be able to do that every single day and we want to do it as well as we can.
So let us know what we should be covering. Let us know if we fell short in some area. Let us know of a topic that we should be thinking about right now as we think about everything that relates to money.
And you know, hint, almost everything relates to money. So come find us. Thank you so much for having me on today, Michaela. It’s been a great session and just hope you enjoy Future Proof and everything else coming up later this year.
Michaela Morales 26:52
Thanks, Toby. It’s been a pleasure. Love the insights. I couldn’t recommend to other PR professionals working with you and Financial Planning enough. So I’m happy we had the chance to sit down. Thank you again.
Toby Salinger 27:07
Thank you. Best of luck.