Five Key Wealth and Investment Management Industry Trends with Chip Roame

Jack Sharry: Hello, everyone. Thanks for tuning in to this week’s edition of well tech on deck. As our listeners know, I’ve been around a while and if I’m honest I’m not drawn to too many conferences these days too much of the same old same old. The only must see for me, the to Tiburon CEO Summits Chip Rome hosts each year. This spring’s Tiburon CEO Summit. By the time you have heard this will have taken place in Boston may one through three and we’ll have some 330 C suite level executives in attendance including my LifeYield colleagues and myself. The Tiburon CEO summits are who’s who of leaders driving our industry forward. And today we are fortunate to talk with Chip Rome, who is the Founder and Managing Partner of Tiburon Strategic Advisors and Tiburon CEO summits. Chip also sits on many wealth and asset management, annuity and fintech boards and has a good vantage point on where our industry is headed. As anyone I know. So Chip, welcome back to WealthTech on Deck.

Chip Roame: Great, thanks, Jack. Great to be back.

Jack Sharry: So Chip when we’re recording this, it’s before the conference, and you’ve been kind enough to share what you will be sharing with your colleagues at the conference. So my favorite part of the show the the whole thing is great, but my favorite is when you do the state of the industry address and that’s that highlight always highly for me, and I think we’re most highlighted of each Tiburon CEO Summit. So what are some of the key themes you’ll highlight in the upcoming and by the time we are listening to listen to what you have shared at the summit?

Chip Roame: Yeah, sure, Jack. So for my Tiburon keynote next week, I will really emphasize five themes, I’ll get them all out there for you, how target markets are evolving, who we’re going after, who we’re trying to serve, how offerings meaning products and services are evolving, how the channels are evolving, distribution channels are evolving, how the tactics are evolving, and then how the industry structure unto itself is evolving. So within reason, those big five themes will be the structure of my thoughts.

Jack Sharry: So let’s dig in. When do you start with whichever one you want to start with? I’m sure there’s probably a bit of a sequence to it all. Or maybe it’s all just one part of a mass of things. But please tell.

Chip Roame: Yep, I think in some ways, they kind of they feed each other, but let’s just do them in the order I sent him. And then so things. The first is the evolving markets, I think the big shifts going on, that I think industry players need to pay attention to. One is that the master fluid market has become larger than the high net worth market. And I think that gets overlooked, that’s one. Two is that the Gen X market is the fastest growing market in generations, and three women especially and to some degree, minorities are getting much more wealth. And so I think those are three fundamentally evolving, changing things about the target markets that industry players serve.

Jack Sharry: And what we’ll do with give the five when he go through them in a little more depth like you’re doing now. And then we’ll talk about how they all come together, because they’ll relate and impact one another. So what about the second one?

Chip Roame: Okay, yeah. So the second one is evolving offerings, meaning products and services that are being offered. Everyone knows the industry has moved to manage accounts that exchange traded funds have the highest flows. By far, there’s a lot of buzz about direct indexing, or personalized indexing. There’s a lot of buzz about ESG, or sustainable investing, a lot of buzz about alternatives. Collectively, none of those products have very big flows. So I think there’s a lot of journalism written about them a lot of conference presentations. But if you actually look at the flows of ESG, directly indexing and all, none of the flows are all that high. So just want to call that out.

Jack Sharry: Yeah, you know, this is what I love about the conference. Not only that, you kind of cut to the chase and tell the truth, which is called just facts and figures and data and so on. But I actually said to a colleague, as we were sitting there to your last conference, you had a similar observation at that point, the sort of specialty products of direct indexing, ESG, etc, that they had not really done much in the marketplace relative to expectations. And I said, wait to the next to run CEO Summit. He’s gonna say the same thing. I bet. That was my prediction.

Chip Roame: Yeah, I think you’re right. I mean, basic facts. Again, you can use this but like, you know, basic facts, ETF flows, and in 2021, were the highest year 2021. There are about 900 billion last year 2022. With everything going on, we’re about 600 billion, then you look at the flows, direct indexing closer at eight oh, you know, ESG flows last year 3,000,000,003. We talk about these things more than the data suggests we should talk about them.

Jack Sharry: And to give context, Chip, when you say 3 billion out of what’s the total market, what are the total flows?

Chip Roame: 6.0 something it’s about 1.5 trillion per year net flows into any type of wealth management industry, about one and a half trillion per year. So 3 billion doesn’t even doesn’t it doesn’t deserve a decimal point.

Jack Sharry: So it’s tiny. The same with direct indexing. What’s the So to jump into my math quick here, add on to 1500.

Chip Roame: Think of it that way. 80 billion out of 1000 500 million or 1.5 trillion.

Jack Sharry: So tiny, tiny, so interesting.

Chip Roame: It’s just I think that’s what’s going on in the offerings area. In the channel area. I think the big aha for Tiburon right now is the dominance of Fidelity, Schwab, Morgan Stanley and Vanguard, those four firms have flows that dwarfs every other firms flows. And for some reason, again, doesn’t seem like wealth and investment management industry players are recognizing that that they each have an I could quote 2020 ones data or 2020, twos data, those were firms at the top of the leaderboard, both years, it’s in order, it’s Fidelity, Schwab Morgan Stanley, Vanguard, those four firms have the highest flows, hundreds of billions of dollars per year. Remember, the industry flows are about one and a half trillion. Each of those is in hundreds of billions and other firms are having huge negative flows or have flows of five or 10 billion, these firms have hundreds of billions of dollars. And we’re just not calling that out loud enough. We’re not studying Fidelity, Schwab, Morgan Stanley and Vanguard, they’re doing everything right now we should be spending more time figuring that out?

Jack Sharry: Well, if we could pause and just dwell on this for a little bit, because as you know, we you and I’ve talked about this, I’m most interested, because what stands out as prominent is that Morgan Stanley’s the firm in that list, of course, you would expect Schwab Fidelity and Vanguard to be in the top three. But there’s that third firm called Morgan Stanley, how did they get there? What’s your assessment? I wonder what’s going on there that they’re so prominent, and you mentioned other firms actually in the negative category.

Chip Roame: So I think the big aha for me is that the business models of Schwab, fidelity, Morgan Stanley, increasingly look a lot alike. If you think about like history, you know, fidelity was the grandfather in the workplace world, you know, big defined contribution plan administrator. And then here comes Morgan Stanley, valiant Solium capital by an E trade, both of which were big stock option plan processors, so it’s not 401k it stock options, but it’s the workplace is what it is, it’s how do I get leads out of the workplace, and then double that down with Morgan Stanley’s purchase of the retail portion of E-trade, which gets you leads coming out of a discount brokerage arm again, think about, it’s the same as Schwab, having a retail presence and sending advisor referrals off to independent RIA, right, Morgan Stanley can beat trade, you know, call centers and send those leads off to Morgan Stanley broker. So I just think if you really step back and forget about all the industry lines that we drew, at the end of the day, Schwab Fidelity and Morgan Stanley are looking a lot more alike than they are different. And I think that’s a that’s a good thing. And they’re at the top of the damn leaderboard. Let’s put it in perspective.

Jack Sharry: Yes. Yep. That’s fascinating. So tell us what about number four?

Chip Roame: Yeah, so at number four, I think tactics, the two big tactics that were paying a lot of attention to, one is marketing and lead gen, and the other is technology. So on the marketing and lead gen, you know, the old methods of you know, custodian referrals or seminars at the local Holiday Inn or direct mail or community networking, or professional referrals from CPAs. These models have died. These models are not scalable, right, and the scalable models appear to be paid lead gen. So the firm’s like smart asset and Zoe financial that are selling leads that’s working for a lot of advisors, digital marketing of all forms, branded search unbranded search, SEO, advertising, every every type of digital marketing is in the workplace as I was referring to earlier. Yeah. If you think about the workplace strategy even more broadly, you’d argue that Fidelity has been there a long time, Edelman Financial Engines would be a managed account player in that space cap trust is a small plan administrator, you saw creative planning go by Lockton, you’ve seen numerous firms push into the workplace. So it seems like to me Jack, the three marketing and lead gen strategies that are working are paid lead gen digital and workplace and those are scalable, unlike traditional seminars and other things like that just are not scalable. So that’s what’s going on in marketing and lead. Gotcha. And it’s working. Yeah, it’s working. And those look at the firm’s that are at the top of the leaderboard, we need to move away from our opinion sometimes and look at the data right Schwab fidelity, Morgan Stanley and Vanguard to get in the flow. What are they doing is the question that what do I think or what quantification do I have to offer? I’m interested in what they’re doing because they’re getting the flows right.

Jack Sharry: Let me ask you about that. I’m curious because, you know, you for sure I try to do the same. I try to follow what’s going on in the press. And what I read and what I sort of feel by talking to people is there’s sort of at odds, us direct index you actually we had Matt Belnap from us really on a week or so ago, and they were saying said, I think everything has been said about direct indexing that can be said, twice. He was just making the observation, you know, They do research he said, It’s been said is they’re just you know, basically there’s not much more to be said. Curious, your opinion what is it that has the press the people that are promoting making guesses what this all about, like, here’s your opinion that we read all this stuff that seems like kind of BS. It’s like overdone like direct indexing is great, but it’s not it’s not the end all be all. So help me understand that.

Chip Roame: Yeah, I wouldn’t necessarily pick undirected, I think it happens with every trend, everyone gets so excited about new trends, and they just the traditional products very quickly think they’re gonna take over the world, etc, etc. You know, what I mean, direct indexing is an interesting thing. Let’s be clear. It’s an interesting thing. Like, you know, tax optimization and customization. But let’s be clear, you also end up with a brokerage statement that you own 9000 Holding, it’s a horrible experience, and no one seems to want to talk about that, right? Yeah. Do I really need my account customized? If I then have a huge tax headache every year? You know, I don’t? I don’t know. If people like to sensationalized new trends. I get it. Yeah, whatever. Yeah, I’m kind of I’m kind of the independent broker or whatever you want to call me. You know, like, I just, I just look at the data. I don’t you know, I’m not trying to convince someone of any story. I’m trying to look at the data and convince everyone what the data is.

Jack Sharry: Yeah, I’m worthy. Actually, one of the main reasons I enjoy your conference so much, or the Senate so much, is that BS is left at the door accepting some of it goes out in the hallway. And I’ve noticed I’ve been maker of some of that. So tell us more.

Chip Roame: The other big tactical one worth paying attention to is the technology evolution. So on the on the client facing side, you have personalization, you have AI, artificial intelligence and you have virtual delivery, all very important trends, changing how the world works, we at Tiburon believe what today, roughly people call hybrid digital advisors. So you know, the Fidelity or Vanguard or Schwab offerings, or Betterment has one of these offerings where you, you do have access to a human plus most of its virtual, right, I think those offerings are the ones that are working right now. And those firms have very big flows. So if you can personalize it, use AI delivered virtually fast that wealth is cleaning up in that space, you know, just kinda, there’s some really good growth stories in that. And then there’s the back end technology, where you just see in these platforms get so big. So whether it’s Orion or Investnet, or Investcloud, or Adipower, or whoever your favorite platform is, you know that every time is a new, cool financial planning software, CRM software, one of those platforms snaps it up. Yeah. And so you end up with these very, very large platforms that most advisors and wealth managers will run on some platform at some point?

Jack Sharry: Sure. So do we hit all five? Or do we have one more to go?

Chip Roame: That was for beef. And then number five is the evolving industry structure. And what we mean by that we really think about three things. We think about where the venture capital is flowing, we think about where the M&A is happening. And we think about whether any IPOs are happening. So taking those in that or venture capital is pretty quiet these days. The venture capital that is happening is going to wealth tech right now. So still interesting. You know, the big raises work traditionally, the online advice firms or robo advisors and the online brokerage firms like Robin Hood, so the b2c stuff was working before now more of the b2b stuff is working, you know, in visor tech products, that’s where the venture dollars are going. The M&A is happening both in the wealth tech sector, as I was saying, like the Orion’s and invest, that’s buying up everyone, and then also in the RIA segment, but 850 transactions last year in the RAA segments, so a lot of activity there, then there is no IPO activity. IPO markets pretty quiet right now. Everyone knows CI financials trying to spin off their US business as an IPO. You know, theoretically, some of these big RIAS could go public down the way say, theoretically, some of the wealth tech companies could go public, you know, we’re watching focus go private right now, you know, so it’s not necessarily sure that everyone wants to be a public company. So IPO now a lot of activity, but you could theoretically see some IPO activity, but certainly there’s a lot of M&A activity in both wealth tech, and alright.

Jack Sharry: What are the things you said at the last summit, which I’ve quoted in many of the articles I’ve written and in podcasts said, you said at the last conference, we were together if you’re not maximizing retirement income, and addressing taxes, social security and health care, what are you doing, that’s what investors want. And one of the things that you’ve mentioned platforms a little bit earlier, and one of things that we see happening across the board is that firms are going really trying to add value to the platform to manage such things as taxes and risk and Social Security. And healthcare isn’t part of that just yet, but that’s a bit more complex, and probably a little further down the road. But certainly, it’s coming together in the form of a platform isation, a term I’ve just made up. But the idea is to have the platform really be multifaceted in terms of supporting the advisor. And it looks to me anyway, and I’d love your thoughts on this that the big RIAS can either build it themselves was there at least at Reddit, from the big ones like Orion best, etc? What’s your take on that you still hold true that if you’re not maximizing retirement income, etc, adjusting taxes, and so on? Is it a platform thing? And is that a trend? What do you see in terms of that platform as a nation I just mentioned,

Chip Roame: I think it’s definitely trend. So the way the way I think about it very deliberately, Jack is that if you’re serving the mass affluent market, then the issues are retirement income and health care, it’s helped them survive in retirement, that’s what you’re doing. Right? If you’re serving the massive flood, you’re serving the high net worth market, they don’t really have that same issue, they have more a diversification and legacy issue. So it’s more about, you know, taxes, or, you know, estate planning. So depending on which market you’re serving, I could say there’s slightly different platforms. But yeah, at the end of the day, this is a technology sale, it’s gonna be all these things will be delivered through technology, it is a platform.

Jack Sharry: And one of the things that we see that it’s one thing to say, oh, it’s all gonna be connected, integrated, and so on. But one of the things that’s often missed, and I have this conversation with the c-suite execs all the time. And that is, it’s one thing to say it should be coordinated, it’s quite different to actually do it. A lot of the work has been done over the past many years around data flow, just so the data is consistent. But when you’re coordinating risk and tax, and you’re coordinating Social Security, and you’re coordinating, you know, integrating with what to do about Roth conversions, and RMDs, and all this stuff, you got to factor to get it that retirement paycheck, or to deal with taxes, depending on where you are in the spectrum. What’s your take on that? Do you see that? Is that something that you follow? My observation is that firms are still trying to figure out and largely are still early on in the learning curve.

Chip Roame: Yeah, I think that really, it’s interesting that this gotten no attention for a couple of decades. You know, we all lived in the accumulation world for a couple of decades here. And now we’re living in that accumulation world. And I think that’s putting the attention on this. So I don’t think they’re insurmountable problems. To me. These are technology solves, you know, it just takes time. It just it’s kind of a relatively new issue to the industry. And you’re getting people focused on it as baby boomers are aging, and now heading into retirement becomes the de cumulation phase. And you need to build the technology for that. So I don’t see him as insurmountable problem, I see him as newer problem.

Jack Sharry: So what else have we covered that you want to make sure our audience is aware of because you have a real good sense of where we are now where we’re going, what else is on your mind as you will have spoken to your colleagues at the Tiburon SEO Summit?

Chip Roame: So I’m probably 90% done with my slides through next week at Tiburon, I’d say the big three i has for me. One is the dominance of Fidelity, Schwab, Morgan Stanley and Vanguard and spend why we don’t spend more time analyzing literally everything they do, because they have all the flows. Right? That’s one. Number two is who’s winning in marketing and lead gen and, you know, some firms are really cleaning up in this paid leads, certainly lead gen. Some are cleaning up in digital, some are cleaning up and workplace, you know, so I just think listening to people babble about professional referrals or community networking or whatever just are not leverageable scalable strategies. And the third is hybrid delivery. If you look at the flows, these hybrid firms are getting more flow. So I think the Tiburon data says that hybrid advisors, meaning like the, as I said, Vanguard with a person on the phone, or Fidelity with the person on the phone, or Betterment with the person on the computer, that hybrid delivery is about 2% of advisors getting about 22% of flows. So that hybrid thing is working right now. And we’re not talking about it enough. So I think that COVID has kind of ruined our ruins the wrong word COVID has lessen the need for local proximity, you know, I just think Value advisor can be anywhere and you can work on Zoom, and that’s perfectly fine. That changes the game quite a bit. And I think we’re gonna see this flow through the industry debt over the next five or 10 years.

Jack Sharry: Yeah. What are things before we look to sign off here? What do you have for our audience that may not be familiar with sort of the broad outlines of what you do at the CEO Summit might be useful to free people to understand that various speakers topics, even maybe just a flow, that not necessary by detail, but just you know, what’s covered there, I can do up to you to do a better certainly, in terms of kind of people who are doing the talking and then what takes place is also a healthy dose of breaks, which I find to be the most useful because you have some great conversations, but maybe share with our audience what the CEO Summit looks like.

Chip Roame: Here’s a 62nd pitch what it looks like. So at the end of the day, Tiburon focuses on the wealth and Investment Management markets. That’s what we believe we’re addressing big part of that as well. Tech these days. Tiburon Summit is two days long. We do it twice a year. It’s really made up of my keynote presentation, we give out the Tiburon awards like Bill McNabb, who is a CEO of Vanguard for a long time. We’ll be back as a prior award winner this time, have a little fireside chat with him. We have some Tiburon talks that are akin to TED Talk. So we’ll have McKinsey partners or government regulators are people like that in for 1520 minutes. And then we have 14 panels of five CEOs, each with a facilitator and so we have 60 CEOs on the stage every time and speakers are only allowed to come back once every two years. So it keeps all the content fresh. There’s always new speakers up there very difficult. Jeff, for me is finding 60 New CEOs every six months when I can’t use the 240 that I just used over the last two years. So it’s a high powered group of senior executives focused on wealth and investment management. And I believe a lot of the important networking happens in the hallways, I believe the sessions drive the conversations, but I think a lot of high-level meetings happen at Tiburon. I’d say a lot of M&A activity goes back to Tiburon hallway conversation. So that’s kind of Tiburon make up? Do? Don’t do it twice a year.

Jack Sharry: Yeah, I can underscore that I actually was involved with another organization we were talking about it was during the height of COVID, where we couldn’t get together, I actually referred to a segment that they offered called Hallway Conversations did virtually. But that has always been the most important part of any conference. And certainly the CEO Summit, is the top of the list is the hallway conversations in many, which I was not expecting many, which I frankly, plan want to make sure that I talk to certain people and certain people want to talk to me, it’s all part of the deal. But a lot of them are just surprises like, Oh, really you do that? I didn’t know you do that? You know, it’s just one of those kinds of conversations. You’ve heard of one another, but didn’t fully understand what it was they do, or how they did it and where there might be a fit. So I found them to be enormously valuable in terms of business opportunities going both ways.

Chip Roame: Yep. You know, they’re beginning at Tiburon. And if you notice, it was it was two thoughts that I had. One was that I had met a lot of industry CEOs that were in different channels are different ways that I hadn’t been in, I had been a Schwab executive. And, you know, I knew discount brokerage and mutual funds, supermarkets and IRAs, and then I’d meet some person who runs an insurance producer group, I’m like, Oh, my God, I’ve never heard of you, you know. And at the end of the day, they’re thinking about all the same issues you are, and it’s just Yes, putting those eclectic group of CEOs who do different things, but you’re kind of focused on the same wealth and investment management industry, but you come at it from different angles, putting them in the same room together. So that was the beginning of Tiburon was every conference I spoke at was, you know, all mutual fund people are all annuity people are all broker, dealer, people, whatever. And all they do is repeat the same things to each other over time with different shakes set up, talk to a lady or a man who does something quite different than you is doing quite well. And you say, Wow, okay, I can learn from them. That was the beginning of February. And it seems it’s I like it’s humble.

Jack Sharry: Yeah, it must have been osmosis, because I didn’t do this directly. But when we started this podcast, we’ve kind of become a sort of a virtual, I don’t wanna say we were virtual version to run to run as its own thing. And something, you know, wholly committed to attending two times a year, because I think it’s so important. By virtue of the fact we have conversation with CEOs about what they’re doing. And then other CEOs or c-suite level folks listen in, it’s kind of become a bit of a town square, where you get to talk about what you’re interested in. And then you get to hear about what your peers, your, your competitors, your colleagues are talking about, it’s really been fascinating as Riley Etheridge, a good friend who’s at Capital Group these days said to me, so I can’t believe your guests share everything, like their strategy so openly as it really what it comes down to. People love to talk about what they’re passionate about, which is, what they’re doing and why they’re doing it and how it’s working. And I know I’ve been the beneficiary of those hallway conversations where people are talking about just that. Yep, exactly. Yeah, Chip. It’s been a real pleasure to spend this time with you, as always, and by the time this comes out, we’ll have spent a lot of time last week, if you will, talking about what’s going on in the world. So one of my favorite questions is you have a fascinating life. You were just sharing before we went on air. What do you do outside of work that you were excited or passionate about? People might find interesting or surprising, right?

Chip Roame: So I thought about this when I had attend Jack because last time you had me on, I think I talked about the Tiburon impact adventures when we build houses in Mexico. And the skip and Chip excellent adventures with my buddy skips twice. We started up outdoors hiking group or whatever. So I figured I couldn’t repeat those. So I tried to think of something else interesting. So something I do is I spend four months a year outside the US two months over the Christmas holidays down in Australia, and then two months every summer at a new location in Europe. So when we’re recording this, I’ve just come back from Australia a couple of weeks ago, missed all the rain in California this winter came back to a beautiful spring here. And just after week after Tiburon here we will move to the Amalfi Coast in Italy for two months through the summer. So that’s actually to be honest with you. So yeah, kind of 2-10 weeks or two and a half months each twice a year. So try to spend some time just living life.

Jack Sharry: Yeah, smart. Very smart. I’m envious. So Chip, thanks. This has been great love to get your thoughts and perspective on it all for our audience. If you’ve enjoyed our podcast, please rate review, subscribe and share what we’re doing here at WealthTech on Deck. We’re available wherever you get your podcasts. Chip again. Thank you. It’s been a real pleasure.

Chip Roame: Thanks, Jack. Glad to be with you.