Introducing Capital Idea

I’ve spent almost 20 years in or near the business of wealth management. I’ve sold life insurance at RV shows and built multi-million-dollar financial plans. I’ve trained hundreds of financial advisors; I’ve led the operations of a a multi-billion dollar wealth manager. Since making CultureCraft, my consulting firm, built for businesses that command trust, I’ve sat with leaders in independent wealth, fintech, custody, and asset management.

This time has afforded me two things:

• Perspective – I’ve seen a lot of sides of the industry in a short time. I’m naturally curious, so my great search for “why” the industry behaves as it does and what assumptions and incentives drive its growth have led me to very unexpected and enlightening conversations.
• Marginality – As time has passed, the industry has grown insular, with some of its most recognized voices serving more as cheerleaders than stewards of a shared future. I’ve intentionally steered clear of this kind of role because the wealth industry, like all powerful trades, is prone to stagnation and groupthink. When the ongoing conclusion from some corners is, “If only everyone knew how great we are,” you should know there is a problem.

I’ve sprinkled this perspective in my public writing and CultureCraft’s various publications for years. But I’ve avoided addressing the industry directly and providing a targeted resource for it until now.

A Moment Like This

It’s hard to look at the fundamentals of the wealth and wealth tech space and scream “Crisis!” Margins remain high, consolidation is still producing big payouts for those wanting out, and there are more new entrants to the field each year—2x the number of closures or consolidations by some estimates.

But profit margins, multiples, and churn are all lagging indicators of a category’s health. Leading indicators offer a different story:

1. Toxic talent culture: What often gets framed as a “talent shortage,” even by industry standard Cerulli, is masking something else. 72% of new entrants to the field wash out.[1] Advisors who cut their teeth in the 90s blame this on the softness of Millennials (and now Gen Z) and that they aren’t “motivated enough” to do what needs to be done. The accuracy or blindness of this perspective is irrelevant. We are now in the second generation of “these terrible young people don’t have what it takes.” Until the industry addresses talent development, training, mentorship, and a dramatically different way to develop leaders (servicing your small accounts will not cut it), this problem will persist and snowball.
2. Wealthtech stagnation: For the past 10 years, the advisors and their platforms leaned heavily on the ecosystem of wealthtech to accelerate their ability to scale, serve more client with less effort, and continue to expand their presence in the larger financial services space. Now as executive turnover heats up and the platforms drastically slow their innovation, the value proposition fades to “Meh.” More importantly, wealth as a larger sector can no longer depend on its tech vendors to differentiate it. The sea of sameness has taken over wealthtech, presenting a massive risk for advisors who still aren’t addressing the elephant in the room:
3. Anything but organic growth: RIA organic growth is non-existent to negative, and has been for half a decade. In the hushed halls of conferences, you can hear the whispers grasping at what will happen when market performance and consolidation stop propping up stagnation. PE will continue to make money off inorganic growth, but the industry is more than its PE base. The platforms and trades love to talk about AI (a fantasy), embedded finance (a banking solution), and interest rates, all to avoid the larger question: where is this industry going, and how will it earn its place in the conversation 10, 15, or 20 years from now?

 Financial fundamentals (how investors make money) differ dramatically from category fundamentals (what keeps an industry relevant and growing). In wealth, the gap between the category fundamentals and the investor fundamentals continues to widen. And it’s the one thing we should be repeatedly talking about.

Enter Capital Idea

 No newsletter can save the world. (Shocking, I know.) But it can create a conversation. The experiment of Capital Idea may last a month or a year or a decade. Regardless, I want those of us invested in the future of wealth to shift what we talk about and how we talk about it. Rather than repackaging one more Kitces report and calling it news, I wanted CultureCraft to do what it does best, this time, specifically for wealth: 

• Notice the trends as they are happening
• See the connections between culture, social norms, leadership, and business outcomes
• Address opportunity from the bottom up:
  • Category quality and direction (where the industry is heading)
  • Category positioning and competition (how individual businesses are navigating the category)
  • The friction of innovation and culture (how fresh perspective and generational leadership changes are altering the playbook for how to win)
  • Leadership quality and human risk destabilizing every firm

Each week (more or less), Capital Idea will do some or all of the above. Working from the conversations we are having with industry leaders, the subtext in trade headlines, and the results of our ground-level work with advisory and tech firms, you’ll get access to fresh thinking and what I hope to be a community of people asking better questions.

 Make sure your email preferences with CultureCraft include “General Insights” and “Wealth and Wealth Tech” to get the full monty of what we have to offer.

 As my teenagers say, “That’s Cap,”

 Nick Richtsmeier
Founder, CultureCraft
Giver of Damns

[1] Barrons, Here’s How Bad the Financial Advisor Talent Shortage Is, June 26, 2023