RIA of the Future

The next generation of investors is on social media, in gaming, on Web 3 and in the metaverse: Advisers, get ready.

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On this episode of “On Purpose,” host Tyrone Ross envisions the future of the Registered Investment Advisor (RIA) industry. A shift in clientele is set to occur as the baby boomer generation passes the baton to the millennials. The wealth management industry, as it stands today, is not prepared for the millennial client of the future.

As phones continue to permeate more and more aspects of daily life, Ross says the RIA of the future is on the phone, on an app. Clients will hold their financial plan, estate plan and assets on-chain, all being navigated and altered from their phones. Gaming, the metaverse and Web 3 will be the topics of conversation with clients more and more as time goes on.

Ross expresses that one thing will remain true, no matter what: Clients will always need advice. They will always pay for advice. What does the adviser of today need to learn in order to be a successful adviser in the next five, 10, 15 years?

This episode has been produced, announced and edited by Michele Musso with additional production support from Eleanor Pahl. Our theme song is Walk with Swag.

Transcript

Welcome back to another episode of the “On Purpose” podcast. I am your host, Tyrone V. Ross, Jr., CEO and co-founder of Onramp Invest. Hope everybody out there is doing well. Fresh off of white hot CPI numbers. Inflation is the talk these days going into the holidays, supply constraints, so many different things going on out there. Crypto is moving along. We’re off the highs. I don’t know, last I checked, I think bitcoin was at like $48,000 or something like that. But this gives you an opportunity to kind of sit back and look at things, right, going into the holidays. Folks are winding down the year. It has been an incredible year for crypto overall but also crypto assets as it pertains to the wealth management space, a lot of news, a lot of funding, a lot of projects, a lot of announcements, big things happen. Which leads me to this, a conversation that I had with Adam Blumberg years ago, shouted out Adam last episode, we’ll shout him out again here, very instrumental to our space. And he and I had a conversation about it. We’ve been riffing on crypto man, I think going back to 2018, I believe, as far as it means for advisers, right, and in the things that are missing for advisers. And this goes back to 2018, I believe. And he wrote a piece as a result of that conversation, or conversations, if you will, on the RIA of the future.

And it got me thinking about that, because I’ve had conversations recently. Mainly of which, if you are on Twitter, I had a great conversation with myself and Michael Kitces on Twitter, a little bit of back and forth again, it was respectful. Love Michael, very important to our space and love his thoughts, but very thoughtful and pragmatic on what does crypto mean for the space? Right? Like, what does it mean? All of this decentralized stuff, all of this, you know, hype around DeFi and everything, like what does it actually mean for advisers to access it, get paid, give advice. And it got me thinking about this episode, right, like talking about the RIA of the future. What does that look like?

Now, I don’t mean the future as in 2022. I mean the future as in 2027. I mean, the future as in those of us that have been in the space for years, how we look at where things are going. And I want to start with, you know, just something, something that I tweeted yesterday, right, shout that Benedict Evans put out his annual report on the state of tech and everything. And he goes into the metaverse and Web 3 and all these other things. But he gave a couple of statistics on this slide. And the slide says “traction for software use cases,” right, 450,000 ENS domains, 200,000 OpenSea accounts, 10 million MetaMask monthly active users. Ten million. Three to four million addresses, and 60 to 70 billion linked to DeFi apps. I mean, that is where it starts. And so I tweeted: “Imagine building the future of wealth tech and ignoring this. Yikes. Building seamless interoperability between legacy and frontier finance will be the Holy Grail.”

What is not mentioned, there’s a few things. Between Coinbase and Robinhood alone, you have 90 million accounts. Right? I believe 60% of the accounts at Robinhood, actually trade some type of crypto. Right Coinbase is looking to become the bank of the future, almost 70 million accounts. But then you look at Uniswap and what Uniswap is doing in terms of volumes and revenue that is on par if not greater than Coinbase. I still think they may be less than 20 employees, who knows.

Decentralized finance, decentralized custody, decentralized exchanges, all of these things are going to determine how the RIAs of the future operate. And one of the things that you understand as you build in the space right now is there’s this walled garden, if you will, same thing that you have with banks in all large spaces, the RIA space is huge. Right? Ten trillion dollar space, 28,000+ RIAs, almost half of those SEC registered, meaning that they are 110 million or more in size, 90+% of all the assets in the space are held at RIAs that are 5 billion or more. It’s a massive space. Sixty million accounts, 330,000 individual investment advisers, astounding.

And you look at the average age of the principals of these firms is 64. When you have 70 million Gen Z, the oldest being 24, your youngest Millennials are 27, or so, oldest being 40. The wealth management space is not set up to deal with the client of the future. And man, is that an incredible opportunity. So there’s, again, so many different inflection points, right? In the future, Gen Z, I believe, is expected to account for 40% of all consumers. They learn and get access to things through social media. There is a changing of the guard here. And when you add in gaming, which is astounding what you’re seeing in gaming, there is data that continues to come out that is just incredibly astounding, on gaming, right? Deloitte put out a piece, right, in 2022, gamers will likely spend tens of billions of dollars on virtual currencies, which they then use to purchase game related artifacts and capabilities that only exist virtually. So now what happens again, the era of the future in five years, a client walks in and says, “I have a portfolio of NFTs, it’s worth $5 million. I borrowed against it, I took that money and paid down my student loans. I had a little extra. So I’m staking, you know, some ETH at Coinbase. And then I have a BlockFi credit card. And then I have a plot of land and Axie Infinity that’s worth $1.5 million. And also have all of these different protocols where I yield farm and I have assets on-chain, how can you help?”

Five years from now, that is the reality. Five years from now, those oldest Gen Z will be 29, 30 years old. The oldest millennials will only be 45. The youngest millennials will be in their early to mid 30s. There’s not an RIA in a country that is set up to handle that. It is all happening away from the RIA space. And if you look at those that have been in this space now, a Coinbase, a Gemini, folks that were there early, they’re realizing how self-custody is important. Now there is a complicated and complex way that these protocols and crypto operate right now that the average person is unable to deal with. That is going to be solved over the next five years. It’s still for the tech forward, if you will. So I think what’s very important is to understand this is happening faster than ever. And the “We’ll sit and wait” approach is probably not going to work here. You have to be where they are. They are on social media. They are in gaming systems. They are on Web 3. They are in the metaverse.

And it’s very important that everyone understands that now creating that link to where they are, and bringing that data back into where traditional custodians, vendors. aggregators, consolidators, all of these things, they need to be able to see that information so that they can one, market to this core group of new clients. How long will the wealth management space continue to slosh around money from the same group of baby boomers fighting over the same assets? Meanwhile, Gen Z right now, was responsible for $600 billion of spending for their families. And at some point, alone will be $44 billion in spending power. The demographic shifts, the technological advancement, the rallying of community and different causes. A generation that is the most, and I don’t say diverse and inclusive, but representative, and equitable. One piece of advice. So I believe the RIA of the future, does very well on planning fees for an adviser to be able to plan and work with that client that walked in with that portfolio that I mentioned.

Also, it’s very important to understand that the AUM model will be challenged. Will it go away? No. But, a study this year, a survey rather by J.D. Power this year, 74% of millennials would prefer to pay the full service wealth management via a one time fee for service model. And 73% said they prefer recurring fixed fee or subscription, almost three quarters. Now, what’s gonna happen to the traditional wirehouse adviser, or broker dealer? Well, let’s talk about it. One of the things that we know, right, RIA channel is continuing to gain advisers. Right, the wirehouse advisers are leaving, right, 1,700 have left in the last few years, that’s more than any period since the financial crisis. And what happens there are so many different things. Traditionally, when you leave and you move, you lose roughly 30% of your clients. Now, that hasn’t inherently been a bad thing, because you could decline that move with you. And then if you do go independent, you make more on your dollar. But that 30% of assets, when traditionally 20 to 40% of a client’s assets are held away from the adviser anyway. And you look at how crypto is held away, mainly right now. There’s a very interesting mix here where advisers that are working with a client and giving them advice, doing planning, charging them some type of flat fee.

Very flexible billing models will be able to move in the universe, or the metaverse if you will, with that client. And the client is going to want an adviser that is knowledgeable, that is flexible, that meets them where they are and that is in the palm of their hand.

Which leads me to believe that the RIA of the future is in a phone. “Tyrone, what do you mean?” Here’s what I mean. Clients are going to find, speak with, sign up for, pay for services through their phone. All through their phone. They’re going to open accounts. They’re going to fund accounts. They’re going to trade accounts. They’re going to move from firm to firm and from game to game and from protocol to protocol, from blockchain to blockchain with their own ID, all on-chain, their financial plan on-chain, their estate plan on-chain, their assets on-chain. And they’ll be able to do this all from their phones. Heresy? Yes, I’m talking about 55, 65 year old clients.

Now imagine that 25 year old right now, 25 or 20 years from now? What do we think the financial services space will look like? Ten years from now when our 20 year old is 30, what do we think the financial services space will look like? When you start to look at all of the future products, services, trading, lending, borrowing, microloans, everything that is being built on Ethereum and everything on Polygon and Solana. Decentralized wireless networks like Helium. Games, Axie Infinity. It is incredible what is happening here. And they all have Coinbase accounts and Coinbase is just going to become this massive marketplace of everything. The RIA of the future has to be, has to be, in a client’s phone. You will have to be there, you will have to be mobile first, you will have to be video, you will have to be on-chain, you will have to be knowledgeable on crypto networks, you will have to have a flexible billing model, you will have to market on TikTok and Snapchat and Instagram, you will have to change what conferences look like.

Right now, they just don’t have to, but they’ll have to. There is a new wave of investors coming in that has a very high bar, but the bar that never changes is when I need help. When I really need help, I don’t have a bar. If I’m suffering some pain, or if I’m out of breath or I have a family issue, all I’m struck by fear of not having money or inheriting a bunch of money, or new family, or new job, position and I just simply need help. The bar is low and there, my friends, lies the paradox.

This whole thing, the RIA of the future is like the RIA of the past and of the present, for this reason: The “I” will go from “independent” to “independent thinker,” registered independent thinking adviser, because clients will always need advice. They will always pay for advice. But what they won’t pay for is the “set it and forget it,” the “we know more than you so let us help you,” they know more than any advisers. There will be no “we can do this for you and you can’t get this anywhere else,” won’t be that either. It’ll simply be “Mr. And Mrs. Client speculated, Mr. And Mrs. Client got paid. Mr. And Mrs. Client got an airdrop, Mr. Mrs. Client played-to-earn. Mr. And Mrs. Client inherited. Mr. Mrs. Client have been holding.” There are so many folks that are going to be the crypto nouveau riche, if you will. They are a new breed, an expectation of investors that everyone should get excited about. But one thing that will never change is human psychology and the ups and downs of life, and the ups and downs of the market.

That advisers, the best advisers, registered independent thinking advisers, can now help this group because the old playbook is out of the window. They didn’t read “The Intelligent Investor.” They didn’t read “A Random Walk Down Wall Street.” They didn’t take the traditional route in a series seven in the 63 in the 66. In the CFP and CFA and they didn’t go to Wharton. They went online. They went to Discord. They went to Telegram. They were on Twitter. They were on TikTok. They were on Snapchat. They were in guilds. If you don’t know what guilds are, look up guilds. They were part of DAOs. See where I’m going with this?

The RIA of the future must adapt quickly to that. That is where the space is going. It is alarming that so many smart, powerful, connected people are not moving with an alacrity. That shows the urgency of how quickly the entire RIA space has changed. It’s astounding to me. Because it’s the same until it isn’t. “Ah, it’s the same as discount brokers. It’s the same as robo advisers. Oh, it’s the same as the invention of the ETF?” Okay. 10 million daily active users? On Metamask. Okay. So I digress. But I will say half of all of the RIAs have been created since 2013. So that leads me to believe that the new RAS that have been created are started by younger advisers, who will seize the opportunity to grow their practices in a major way, by embracing this wave of change.

There will be millions and millions and millions of lives changed by this. There will be hundreds of thousands of newly minted millionaires and accredited investors, if you will, that are going to need help. There’s a reason, shout out to my CoinDesk family and DCG family. Those folks now are looking to create wealth management firms for the crypto rich. It’s a massive opportunity. There’s a reason why we started a referral program at Onramp. There’s a reason why I continue to get prospects even though I don’t actively practice anymore. They want help. They want to work with an adviser who understands the space and is just open to “Hey, can I talk to you about this stuff?”

So here is where I will take the first step off the soapbox. There is one way those stuck to traditional realms, thought processes, technology, playbooks will survive. And it’s not by changing their minds. It’s by opening their minds. The proverbial phrase “This time is different.” It’s true. This time is different. It’s very different. And if I am the principal at any RIA right now, I am losing sleep to see how the entire space is being disintermediated right in front of my eyes.

Second foot off the soapbox. Anyway, before I go, I’m sure you all will hear from me again but if I don’t, Happy Holidays, love and light to you all. Also, if you haven’t already, please sign up for the CoinDesk Crypto for advisers newsletter. Shout to everybody over there CoinDesk and the work that they’re doing to help advisers get their clients caught up here and everyone who is on the advisory Council. Shout out to Foster Wright and everyone that works on a Bitcoin FA conference. Lastly again if you found any value in this whatsoever, run over to nokidhungry.org, help me, help Onramp, help CoinDesk end child hunger in America. That is our responsibility especially during this time of year where there are so many of us going without, and as I mentioned at the opening, the cost of food and energy and everything being so high. I appreciate you all for listening. I will catch you on the next one. We got some really cool guests lined up. Until then, be well, love and light to you. I appreciate you.