The Future of Financial Advice and Wealth Management
In last week’s podcast, I had the opportunity to interview Donald Calcagni, the chief investment officer of Mercer Advisors, a $10 billion fee-only, independent wealth management firm, as well as Jason Barg, a principal at Lovell Minnick, a financial services private equity firm. Barg’s background before starting at Lovell Minnick entailed covering financial services at Goldman Sachs in its investment banking division. Calcagni’s background is in the wealth management and financial advice segment, where he has spent the last 25 years, approximately half of which has been with Mercer Advisors.
We discussed general industry trends for financial advice and financial services, and the start of the conversation centered on the trends of advisors who are fiduciaries. Calcagni and Barg clearly have views that the future of advice is going toward non-commission-oriented advisors acting in a fiduciary capacity. Lovell Minnick is a large investor in Mercer Advisors, and Mercer has been growing both organically and through acquisitions that Lovell helped fund. Calcagni’s firm completed six acquisitions of smaller advisory firms in the last six months.
Barg mentioned that since the financial crisis, we have seen a migration of assets from the large banks to independent financial advisors and registered investment advisors—something Lovell Minnick expects will continue.
“Robo” Technology Trends
We discussed the trends toward digital advice. That’s a segment of the financial services industry Lovell Minnick has not yet invested in directly due to multiples on many of these venture-backed companies, but it does see tech solutions and offerings as critical investments in its portfolio companies like Mercer.
Calcagni highlighted how his firm is in the process of creating its own robo-solution, despite his belief that Mercer is not competing directly for the robo-oriented clients. Mercer Advisors’ average account size is more than $1 million, whereas the robo-accounts are not anywhere near those levels.
Lovell Minnick is an investor in active management companies through a portfolio investment in Matthews Funds, one of the better emerging markets- and Asia-focused active management houses. Calcagni and I both agreed the trends for active management are difficult, and a growing number of investors are adopting factor-based investment strategies in lieu of active management.
Mercer’s factor-based investment approach includes tilting portfolios to long-term factors it believes are rewarded in the academic literature—and that includes factors such as value tilts, quality tilts, small-cap tilts and high-dividend-yield tilts.
My discussion with Calcagni on the podcast was the first time we had met, but of course, given my own biases and the WisdomTree factor Indexes, we absolutely agreed from a philosophical standpoint.
ESG Mandates Growing
Calcagni made an interesting point that one of the factors his clients are increasingly looking toward is the ESG line of investing (ESG stands for environment, social and governance). Calcagni said that less than 10% of his current client base incorporates ESG mandates, but it is the fastest growing segment of his accounts. Calcagni takes the view that much of this ESG work will be customized to individual investor needs and beliefs—as he even sees his clients on the West Coast having different desires to tilt portfolios than people the East Coast.
Mutual Fund Industry’s Days Numbered
Calcagni believes the mutual fund industry’s days are numbered. As technology advances and the cost of trading decreases, Calcagni utilizes both separately managed accounts to replicate indexes like the S&P 500 at very low costs—so that he can do tax loss harvesting within the portfolios—and low-cost index funds as well. It was a bold statement but something he believes is already trending.
Other topics we discussed included:
- The case for private equity asset class generally, and financial services private equity that Lovell Minnick focuses on—how private equity firms enable companies to invest for the longer run compared to public equity markets
- How technology and the news spread can lead to behavioral investing challenges
- Implications for lower trading costs and discount brokerage fee cuts
- How alpha is becoming systematized in many areas, including alternatives and hedge funds
- How Mercer Advisors’ real value add comes from managing behavioral elements
Jeremy Schwartz has served as our Global Chief Investment Officer since November 2021 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity Indexes, quantitative active strategies and multi-asset Model Portfolios. Jeremy joined WisdomTree in May 2005 as a Senior Analyst, adding Deputy Director of Research to his responsibilities in February 2007. He served as Director of Research from October 2008 to October 2018 and as Global Head of Research from November 2018 to November 2021. Before joining WisdomTree, he was a head research assistant for Professor Jeremy Siegel and, in 2022, became his co-author on the sixth edition of the book Stocks for the Long Run. Jeremy is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” He received his B.S. in economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Jeremy is a member of the CFA Society of Philadelphia.