From DIY investing to delegation: the rise of managed wealth

The empowered self-directed investor reigned supreme online for more than a decade. This same investor is now discreetly entering the adviser’s office.

The era of the empowered retail investor, powered by commission-free trading platforms, r/WallStreetBets, and accessible market information, arguably culminated at some point between a meme stock boom and a cryptocurrency rally. Markets have always been prone to bursting bubbles, however, and the result is a newfound willingness to seek professional help. For the first time in memory, the world of wealth management seems to be responding to the call.

The DIY dream and its limits

For the self-directed investor, the 2010s were the best of times. Stocks went up, discount brokers cut fees to nothing, and educational content was everywhere on the internet. Investing in index funds made diversification effortless. This story is true to a certain extent, but it glosses over one key point: Easy doesn’t always mean resilient.

The bearish conditions of 2022 have proven just how difficult investing in good conditions can be when bad conditions arrive. All major asset classes were down during 2022’s correction, from stocks to bonds to cryptocurrencies, leaving investors no place to hide. Portfolios that had not been tested under stress were now under extreme pressure and broke down. Perhaps most important, however, is the psychological burden of witnessing your own self-managed portfolio go belly-up with no plan for how to react.

Volatility as a business development tool

As it happens, market volatility has proven to be one of the best tools in attracting wealth management clients. While the former is tranquil, the need for professional advice is a distant concept. When the latter strikes, it becomes very real.

The period of high volatility that started back in 2022, and which continues due to geopolitical splits, normalisation of interest rates, disruptions across sectors caused by artificial intelligence, and sporadic banking scandals, has ensured that investors no longer only fear losses but also make mistakes at critical times, leading to even greater losses.

It has long been recognised that the true value of an advisor was not so much in the technical expertise but in the psychological influence that prevents the client from making rash moves, like selling their assets at their lowest value. In such an environment, this is the premium service to offer.

Complexity: the other driver

It's easy to point fingers at volatility, but complexity might be the underlying issue at play when it comes to growing advisory demand. The investment universe is far broader than before, in terms of both quantity and complexity. What was considered advanced knowledge for a 2010 retail investor, such as stocks, bonds, and mutual funds, is now a small piece of the pie in an investor's toolbox, which includes private credit, alternative exchange-traded funds (ETFs), cryptocurrency, environmental, social and governance (ESG) rating methods, income from options strategies, direct indexing, and tax-loss harvesting algorithms.

Moreover, financial planning has become increasingly complex, requiring the integration of new legislation around pensions, inheritance, startup equity plans, international taxes, and regulations – all of which require a high level of expertise that the average individual simply doesn't have the time or resources to keep up with. Furthermore, the costs associated with making mistakes are higher, both in terms of financial impact and opportunity cost of poor decision-making.

Thus, it's not a lack of skill that causes even experienced investors to outsource their portfolio management efforts, but rather the inability to justify the mental strain required for such a task.

A new kind of client has entered the room

But the change isn't consistent. There's an emerging difference between the types of clients seeking managed wealth services now compared to past generations. Today's largest population of clients coming through the pipeline are millennials and early Generation Xers entering their high-earning years – and they come with a set of requirements informed by their experience in everything else using technology.

They want clarity where there is ambiguity, easy access to scheduled quarterly meetings, and pricing schemes that make sense. They're cynical of old-guard gatekeepers but willing to pay for value-add. Most importantly, delegation doesn't represent failure; delegation means maximising their attention, just like hiring accountants, lawyers, and therapists versus going at it alone.

The wealth transfer of hundreds of trillions of dollars predicted between the baby boomer generation and the younger populations over the next twenty years will only expedite this trend.

The industry's response: human + digital

Wealth managers have been far from inactive. A major shift in the structure of the industry has occurred, and the most pronounced of these trends would be seen in the combination of human advisory with technology. The pure-robo model – where the intermediary role of humans was supposed to be taken away – is today mostly an integral element of a larger platform, rather than a stand-alone business.

The winning formula here is one where the technology takes care of the heavy lifting, while humans deal with the relationship aspect, the interpretation, and all the nuances that cannot be resolved by an algorithm. The businesses that have bet on this approach are successfully managing to attract clients on both ends of the wealth distribution chain.

It is artificial intelligence that is now beginning to change the game for advisory. Scenario modelling in real time, natural language interfaces for financial planning purposes, and behavioural nudges based on predictions are starting to become everyday elements of the work done by forward-looking companies. By 2026, the advisor will be just as much an interpreter of AI as a portfolio manager.

Fee pressure and the value question

That doesn’t mean that there’s room for complacency. There will always be ongoing pressure on fees, especially from index funds and the lasting cultural imprint left behind by the 1% asset management fee world. The clients who’ve been conditioned by zero commissions and fee-free trading over the past few years aren’t necessarily going to take an old-fashioned fee structure lying down.

Those advisors who succeed are the ones who have made their value proposition visible. That means shifting away from using investment returns as the key measure – because beating a benchmark on a consistent basis is mathematically unlikely – towards delivering value through financial plan results, saving taxes, staying calm amid volatility, and accomplishing life goals.

Conclusion

The history of managed wealth is not a history of surrender. It is a history of coming of age, of recognising that in an environment of real complexity and real turbulence, the greatest value one can add through financial intelligence lies in knowing when to call in someone else's.

The DIY era served a salutary purpose in correcting excesses in the industry, which for too long had been able to shelter behind language and fees that were both unnecessarily complex and unnecessarily opaque. It raised expectations among clients, lowered costs, and demanded that the industry prove its worth. But it also demonstrated the shortcomings of the do-it-yourself approach in an environment of anything but simplicity.

What is unfolding is not the return to a previous era of paternalism. Rather, what is evolving is a client educated enough in the markets to pose the correct questions to professionals, and a profession which, slowly but steadily, has begun to meet those challenges.