The future of financial advice and wealth management

More people than ever before, with more money than ever before, are seeking help to reach their financial goals and advisors are looking for differentiated ways to help them succeed while meeting them where they are and on their terms.

The size of the wealth management industry is large and growing, and as household wealth has quadrupled over the past 35 years, investable assets have outpaced that growth, increasing 16x. Yet, like other areas of financial services, fintech has only begun to take share. Currently fintech revenues are sitting at $245 billion, which represents 2 percent of the $12 trillion financial services revenue pool, and are expected to grow to $1.5 trillion by 2030. 

The wealth management industry represents $62 trillion in assets under management (AUM) and is expected to grow to $85 trillion in AUM by 2028. The industry is going through a significant transformation, driven by the Great Wealth Transfer, the emergence of augmented advice, and the rapid growth in alternative assets.

The wealth management industry, both startups and legacy players, is shifting from advisors recommending a traditional 60-40 investment portfolio to providing holistic financial guidance that addresses a wide range of topics, from financing home renovations to optimized tax strategies, estate planning, and more. The long-underserved mass affluent segment (individuals with $100,000 and $1 million in liquid assets), which accounts for approximately one-third of the U.S. households and investable assets, represents a large and untapped segment with massive growth potential for these broader offerings. 

At the same time, advancements in AI, particularly in large language models (LLMs), are automating an advisor's middle- and back-office tasks, enabling them to manage significantly more clients and expanding access to financial advice for the mass affluent through a growing ecosystem of AI-driven tools targeted at RIAs. For now,  having a human in the loop offers security and on-demand advice when they need it, but is no longer the first or only method of transacting.

The asset management industry has grown up to help investors navigate a two-sided marketplace between savers and investment instruments. But the current marketplace is fragmented and now largely outdated, ripe for innovation and ready to be transformed by AI. 

QED Investors has invested in several companies across consumer tech and wealth globally that address critical gaps in financial services. Its investments include:

• Albert, which blends AI and human advisory for personal financial management
• Atomic, which enables customer-facing fintechs and banks to integrate wealth management and trading into their products
• FreeWill, which simplifies estate planning and charitable giving; Warren, a Brazilian fintech democratizing investment management
• OpenInvest (acquired by JPM), a socially responsible investment asset management platform that aligns customer values with their investments
• CommonStock (acquired by Yahoo Finance), which promotes collaborative stock market insights.

These investments reflect QED's belief in the disruptive potential of wealth tech, and we’re excited to continue supporting the next wave of innovators shaping the future of financial empowerment. In this report, we share our point of view on the ongoing trends we are seeing and investment opportunities. This report is the first installment in a multi-part series where we delve into various facets of the wealthtech industry.

Market overview

Total household wealth in the United States quadrupled from $38 trillion in 1989 to $161 trillion in the first quarter of 2024. Investable assets grew almost 16x to $62 trillion during the same period of which roughly $30 trillion is managed by advisors.

The consumer side of the wealth management ecosystem comprises individuals and entities seeking financial guidance and wealth management services to help them achieve their financial goals while the supply side consists of advisors, asset managers, and asset management platforms. 

Demand:

The demand side of wealth management presents attractive dynamics with sticky customer relationships and an enormous scale of roughly $62 trillion in investable assets that are expected to grow at a 7 percent CAGR through 2028. The industry segmentation across household wealth buckets reveals interesting insights where both the top of the pyramid representing ~62 percent of investable assets is saturated with high touch services, and the bottom, with 63 percent of total households, have essentially no investable assets. The mass affluent segment, which accounts for approximately a third of the U.S. households and investable assets ($21 trillion), represents a large and untapped segment.

High-net-worth individual (HNWI) households represent 4 percent of the market and 62 percent of AUM, naturally making them the most attractive group for advisors. Seventy percent of HNWI and wealthy/affluent households use advisory services, which drops off as investable assets approach the lower bound.

Conversely, 80 percent of the mass affluent segment has never worked with a financial planner. Those who have are typically offered less personalized, higher-fee products, and individual advisor access is almost nonexistent. Given that existing wealth models are designed for high-net-worth individuals, the mass affluent segment of the U.S. wealth management market presents a greenfield opportunity. The challenge is to bring the same product breadth and customization that HNWI households have enjoyed to this market at scale.

Supply:

The supply side of the industry consists of advisors or advisory firms that offer personalized advice and strategies, turnkey asset management programs (TAMPs) that provide outsourced investment management solutions and asset managers such as Black Rock, Vanguard and Capital Group who offer investment management solutions.

Across the wealth supply chain, advisors and advisory firms are the key client-facing entities. The main advisory channels in the U.S. are Registered Investment Advisors (RIAs), Wirehouses, National/Regional Broker-Dealers (B/Ds), Independent B/Ds, Insurance B/Ds and Retail Bank B/Ds which collectively represent 330,000 advisors managing $30 trillion in assets. 

While wirehouses such as Morgan Stanley (who offer a range of financial services in addition to wealth management) represent a third of assets managed, advisors and revenue, their market share continues to decline each year. Many of these firms’ advisory services are packaged through different products, so advisors earn commission on product sales in addition to advisory fees. National and regional broker-dealers manage 15 percent of AUM. They offer wirehouse services but at a smaller scale and typically operate through smaller branch networks in local communities.

By design, RIAs solely focus on providing the best financial advice and have a fiduciary duty to act in the customers' best economic interests. This is in contrast to the wirehouses where other motivating factors such as sales commissions or fees may come into play. In fact, advisors have grown increasingly frustrated within the wirehouses, due to the lack of tech-first solutions and the requirement to cross-sell products. RIA independent advisory firms represent 27 percent of total assets managed by financial advisors in the U.S. and are the fastest-growing segment of the market. 

Key trends

The wealth management industry is undergoing a fundamental transformation. The ‘Great Wealth Transfer’ is underway, with $84 trillion expected to change hands via inheritance over the next two decades as baby boomers transition and more than 70 percent of recipients (millennials) expected to change advisors. In addition, tectonic shifts are underway on both the consumer and advisor sides of the wealth relationship. 

On the consumer side, the first major wealth tech innovation came about with robo-advisors that democratized investing for the mass affluent ($100,000 to $1 million in net worth) previously not served by incumbents. A growing segment of consumers now find themselves in a middle ground: they've outgrown robo-advisors but are reluctant to engage with traditional, legacy financial advisors.

Future generations are digital natives, and consumer preferences are shifting toward a digital-first, self-service-style approach to wealth management that still involves a human in the loop. This differs from the traditional approach, where most advisors maintain high-touch relationships with their clients through in-person meetings and frequent phone calls. Gen Z favors text messaging over face-to-face interactions or calls.

The pandemic has accelerated the shift to virtual delivery. Moreover, with the advent of technology, the nature of advice sought is changing. As robo-advisors help automate saving, investing, and diversification through a simple solution, customers are becoming more savvy about wealth management and will require advisors for holistic financial advice and to address questions on tax-advantaged strategies, estate planning and alternatives.

We also see that the mass affluent is price sensitive when it comes to the percentage of AUM fees charged by the industry and prefers a flat subscription fee. The concept of flat fees better supports the notion of holistic advice versus AUM fees, which are more appropriate for managing investments in one's portfolio. As such, we believe that the future of financial advice and guidance is tech-enabled, personalized and on-demand where users have access to low-cost platforms that help them get the specific answers they need whenever they want. 

The 60/40 portfolio, once the standard for balancing growth and stability, is being reimagined as investors shift toward alternative asset classes like real estate, private equity, and commodities to seek higher returns and reduced volatility compared to traditional investments. Private market assets under management have totaled $13.1 trillion, growing at an impressive annual rate of nearly 20 percent since 2018.

The expansion of the alts asset class will be accompanied by a major overhaul of the underlying digital infrastructure to help streamline investor onboarding, modernize back-office operations, and enhance data analytics capabilities leading to more informed investment decisions. Additionally, the development of standardized data frameworks and advanced analytics tools will provide investors with deeper insights into private market performance, fostering greater transparency and accessibility. These innovations are anticipated to democratize access to alternative investments, enabling a broader range of investors to participate in this evolving asset class.

From an advisor standpoint, there are a different set of dynamics at play. Over the past decade, assets under management by financial advisors in the U.S. have more than doubled. However, the average financial advisor is nearing retirement age, and many are seeking to leave wirehouses in pursuit of higher payouts, greater autonomy, and access to improved technology and services. This shift has led to a growing trend of advisors transitioning from large banks and wirehouses to independently run practices. 

Most advisors spend 70 percent of their time on manual back-office tasks as they deal with incredibly slow customer onboarding, account migrations, compliance checks and traditional paperwork across multiple, disparate systems. RIAs are sorely lacking tools: 75 percent don’t offer digital communication beyond email, 62 percent do financial planning manually (e.g., Excel) and 36 percent still use paper forms.

In some cases, advisors are limited in the financial products they can offer clients due to their firm's archaic processes and don't have access to the marketing tools and know-how required to grow. Financial advisors that incorporated digital tools saw a 77 percent increase in client retention and 50 percent of HNWI and affluent clients say their primary wealth manager should improve digital capabilities across the board. 

AI will help reduce time spent on administrative tasks and there will be a proliferation of AI-based advisor tools startups selling into RIAs. LLMs have advanced to a point where they can automate a significant portion of financial advisors' middle- and back-office tasks. As a result, market forces will eventually enable a given advisor to work with an increasing number of clients than they currently do by leveraging AI-powered tools, thereby creating more opportunities for the mass affluent to seek financial advice.

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Market map 

We categorized wealth offerings into three categories: 

1) Direct-to-consumer platforms

While the advent of direct-to-consumer (DTC) financial platforms and Robo-advisors such as Robinhood, Cash App, and Wealthfront has accelerated the trend of self-directed financial activity, these platforms do not address holistic financial planning needs. As such, there has been a surge in next-gen wealth management and financial planning platforms (Facet, Range), PFMs/wealth aggregators (Monarch, YNAB, Origin), and modern RIAs (Farther, Savvy).

2) Enabling infrastructure

Custodians are a critical piece of RIA infrastructure and govern the visibility an advisor can offer their clients. While the likes of Schwab, Fidelity, and Pershing dominate the custodial space, newer, modern players like Altruist have captured the long tail of breakaway advisors, becoming the third largest custodian based on the number of firms.

The widespread availability of APIs and the rise of embedded wealth platforms such as Atomic Invest enable fintechs and FIs to offer advanced wealth management capabilities, from custom indexing to bond laddering, in a fully automated and scalable manner.

At the same time, companies like Capitalize, Manifest and Beagle are building workflows to modernize the movement of retirement accounts across the system. Companies like Canoe and Arch are revolutionizing the alternative investments sector by automating data extraction and management processes, thereby enhancing efficiency and accuracy for investors. 

There has been a surge in electronic trading of corporate debt and fixed income; however, the infrastructure to enable this shift has not entirely kept up. As a result, companies like Moment, which enables the embedding of fixed-income investments, and Open Yield, which powers an equity-like trading marketplace for bond trading, have emerged and are making fixed-income investments more accessible.

3) Advisor tools 

We are seeing an influx of AI-based tools across the advisor’s workflow that are expected to scale advisors’ capacity and address the evolving needs of the customer in areas such as customer prospecting (Catchlight, Cashmere), sales enablement (Nitrogen, VRGL), onboarding and account admin (Dispatch) and ongoing client management (Jump, Zocks).

Areas of interest 

We are most excited about the opportunity for the mass affluent to seek holistic financial advice through next-gen wealth management platforms, the ability of AI to improve advisor efficiency and expand retail access to advice, and companies modernizing the underlying alts infrastructure.  

Next-gen D2C wealth management for mass affluent: 

The mass affluent is a distinct segment that falls outside the scope of traditional business models and solutions in the industry. This long-underserved segment is becoming a competitive arena for financial institutions (see UBS’ recent announcement to expand its wealth arm to the mass affluent segment). Effectively capturing the mass affluent market requires scalable tech-driven strategies that seamlessly integrate digital efficiency with personalized service.

There will likely be a winner offering a next-gen consumer experience with a fee-for-service model targeting households within the mass-affluent segment. Currently, there are solutions targeting the $2 million+ HNW segment, encompassing 5 million households and over $38 trillion in assets under management. With the advent of AI-enabled advice, we see an expansion opportunity enabled into the mass affluent category, representing 43 million households and ~$21 trillion in AUM. These markets also present interesting cross-sell opportunities for products such as life insurance, mortgage and margin lending.

AI-based applications in wealth: 

We believe the future of wealth management will remain centered on advisors armed with much better technology and the way to win is all about empowering advisors with better tools. Advisors at traditional firms spend around 33 percent of their time meeting with clients and prospecting, and tech-enabled services have the potential to drive that number up to 90 percent. We are particularly enthusiastic about AI-driven solutions that empower advisors to maximize efficiency, prospect and serve more clients, seamlessly integrate with existing tools and workflows, and ensure adherence to regulatory and compliance requirements. Through our research, we found that the average advisor can take on a maximum of 80 clients - imagine being able to service 1000s of clients through the power of AI. Expanding this further, AI-based tools designed with fiduciary principles, mathematical transparency, and outcome-based accountability—can potentially expand this trend to infinity and fully democratize high-quality financial guidance for all investors alike.  

Alts infrastructure: 

The number of companies going public has declined recently, with global initial public offerings dropping by 45 percent between 2021 and 2023. Companies are staying private longer due to stricter regulations, abundant access to private capital, and the ability to avoid the pressures of quarterly earnings expectations that could potentially trade off long-term growth initiatives. This, combined with retail inflows into private markets, investor demand for higher yields and diversification has resulted in rapid growth in global private market AUM, expected to grow at a 9 percent CAGR (twice the rate of public market AUM) to $60 trillion by 2033.

However, as the alternative assets industry has expanded across private equity, venture capital, real estate and hedge funds, its supporting infrastructure has struggled to keep pace and is hindered by outdated, labor-intensive systems and poor user experiences that cannot scale to meet the demands of investors at large. There is an opportunity to digitize the user-facing aspects of the process such as fundraising, onboarding, capital calls, K1s etc., and create a unified system of record for alternative assets data that would enable quick automated analysis of fund performance across several funds (vs. asset managers manually extracting info from PDFs to analyze performance and repeating this process every quarter). 

By leveraging advanced technologies, firms can streamline operations, improve data accuracy, and provide better services to investors. This transformation is not only necessary to support the industry's growth but also to meet the evolving expectations of investors seeking greater transparency and efficiency. Imagine having a toolkit for private market investments that mirrors the capabilities of evaluating investments in and the performance of public stocks.

As a firm, we are excited about investing in companies building tools to modernize and improve the infrastructure layer of alternative assets. These innovations will drive the next phase of growth in the industry, creating significant value for investors and stakeholders alike.

We’d love to hear from you if you’re building in this space, have any thoughts or want to compare notes! You can email me here or email my colleague Laura Bock here.