View From the Top: The Durability of Wealth ManagementView From the Top: The Durability of Wealth Management

Gregory J. Fleming, President, Morgan Stanley Wealth Management

I joined Merrill Lynch in 1992 as an investment banker and eventually served as the firm’s president and chief operating officer from 2007 to 2009. At Merrill, I witnessed firsthand the power and durability of the wealth management business.

Wealth management permeated every aspect of Merrill Lynch’s culture during its heyday as an independent company. The commitment by financial advisors to always place clients’ interests first was strictly enforced by successive generations of management who came up through the retail branch system. They understood the power of a business model built around helping working families benefit from the wealth-building effects of long-term investment. Clearly this business was a major attraction for Bank of America’s executives when they acquired Merrill Lynch during the global financial crisis in 2008. They were looking to the future, not the past.

James Gorman was looking to the future as well when he spearheaded Morgan Stanley’s acquisition of Smith Barney in 2009. Morgan Stanley had already entered the wealth management business with its 1997 merger with Dean Witter, but it lacked scale. Smith Barney changed that. 

The two powerful forces that are changing every aspect of our lives, technology and demographics, will also change the wealth management business profoundly over the next quarter century. But they will do so in unconventional ways. 

For example, in 2000, the first dot.com revolution was peaking. Personal computers and early mobile devices were disrupting every industry, and market valuations of tech companies were going through the roof. Financial advisors were rendered obsolete by investors who would get rich through cheap online trading.
The so-called retail brokerage business as we knew it was a thing of the past. 

Or so we thought. The tech bubble burst, and between 2000 and 2002 the NASDAQ lost almost 78 percent of its value. This was just a warm-up to an even larger crisis a few years down the road, when the exploding credit bubble at its peak would destroy approximately $15 trillion in household wealth. All of a sudden, the idea of having an old-fashioned financial advisor was looking pretty good to a whole generation of reformed day traders. 

Today, a second technology revolution is well under way, supercharged by the millennials—those born between 1981 and 1995. This is the first generation that has grown-up fully immersed in a digital world.

In 2040, the millennials will be fully in charge. Ranging in age from 40 to 60, they will occupy the C-suites of corporations, preside over universities and lead as technologists, engineers, scientists, artists and military commanders. They will manage their wealth differently than the generation before them. Many will choose to handle a portion or all of their investment activity digitally. Most will use mobile devices to make deposits or payments, view account balances, move funds between accounts or access market data. And, as their wealth increases and they begin to engage in the complex issues around generational wealth transfer to their own children, most will have a flesh-and-blood financial advisor.

The successful financial advisor of the future will serve the millennials on their terms. S/he will be fluent in the latest technology and work for firms that are willing and able to make the significant ongoing investments needed to remain technologically up to date. But tomorrow’s financial advisors will be supported by technology, not supplanted by it. They will remain as valuable to their clients 25 years from now as they were when people like Charles Merrill, Dean Witter and E.F. Hutton, operating by telegraph wire, started bringing Wall Street to Main Street. You can bet on it.