The article below is from our BRIEFINGS newsletter of 15 October 2018:
Briefly . . . on How M&A, Private Equity and Tech Are Reshaping Wealth Management
A confluence of factors, ranging from a surge in M&A and private equity deals to the interest-rate environment, is generating growth in the wealth management industry. We sat down with Goldman Sachs’ Chris Keogh, Midwest region head of Private Wealth Management, who explained why the Midwest, in particular, stands out.
Chris, set the stage for us. What factors are driving the broader growth in wealth management today?
Chris Keogh: The wealth management industry is highly correlated to the M&A market. Thanks in part to the low interest-rate environment and the search for returns in recent years, we’ve seen public companies and private equity firms turn to acquisitions and mergers for growth. This has created a knock-on effect in the wealth management industry as the families or individuals who sell their businesses to acquirers come into new liquidity and have to seek help managing their wealth.
Why is the Midwest an area of strong growth?
CK: A big part of the M&A activity that we’re seeing stems from PE firms buying up industrial and manufacturing companies – many of which are based in the Midwest. In the first half of the year, for example, M&A activity in the Midwest – in terms of the number of announced deals and the value of those transactions – has been greater than in any other part of the US. And private equity firms can achieve economies of scale by buying multiple small companies in the same market and merging them.
And how has that affected your business?
CK: For our part, we’ve increased hiring of private wealth advisors and are looking for talent in more places. Historically, we’ve hired advisors straight from business schools, but we’re now making more experienced hires. These people may be former lawyers, accountants or come from other walks of life, but they all have an interest in working with families over multiple generations and have a genuine interest in markets and investing. We’re also changing the way we work with these clients to keep pace with changes in the broader wealth management industry. The younger generations in these families will have expectations shaped by technology. To be sure, robo-advisors – which rely on data and algorithms to provide online financial plans and asset allocations – are gaining traction, especially among younger, tech-savvy investors. But that’s not to say that computers will replace the need for human advisors. Consumers’ lives and the investment environment have only become more complicated and uncertain. We’re seeing an evolution where advisors are using technology and data analytics to add more value, and we’re aiming to do the same by tapping into the broader intellectual capital and investment intel across Goldman Sachs.