Wealth management: Why you should be your own CEO

Wall Street veteran Charlotte Beyer knows investing can be an intimidating experience. At Wharton, she created the first private wealth management curriculum in the country and dedicated part of her career to helping demystify wealth management for all. She spoke with Knowledge@Wharton recently to talk about the newest edition of her book, Wealth Management Unwrapped, which offers advice on good investment practices. Her goal is for everyone to take charge of their wealth, no matter how lavish or modest, to become the “CEO of my wealth.”

The following is an edited transcript of the conversation.

Knowledge@Wharton: We last spoke about Wealth Management Unwrapped in 2014. You have released an updated version of your book for 2017. How is wealth management today different than it was three years ago?

Charlotte Beyer: It’s very different on at least two or three fronts. First, we’re now seeing an increasingly active investor who is much more knowledgeable about what they want and what they fear. Second, the advisor community now recognizes wealth management is really about the individual and not just the investments. On the third front, there’s the whole issue of fiduciary, and that’s become the word that everybody says. … It really means trust. Those three areas of change, just in three years, are staggering to me.

Knowledge@Wharton: We keep hearing a lot these days about the emergence of wealth tech or the digitization of wealth management as a specialized area of fintech. Based on your more than 40 years of experience on Wall Street and then with the Institute for Private Investors, how do you think digitization has impacted investors and advisors?

Beyer: Enormously. The term that is often used in my industry of wealth management is robo-advisers. We see the big firms in the advisor world offering automatic investment allocation and so on, but it’s much bigger than that. That’s going to happen in all of the registered investment advisory firms, and it’s going to happen with the big firms. But what’s more meaningful to me is to see the increased use of artificial intelligence, machine learning, and even going beyond that where an individual can find out what they need to be looking at almost automatically.

“The adviser community now recognizes wealth management is really about the individual and not just the investments.”

There would be prompts and so on. Just like the internet of things, you walk down the street and your phone lights up and says, “Oh, you were looking for this, and it’s right in this store, and it’s on sale.” I see the same thing happening in wealth management. It’s going to happen much sooner than we think, and it’s going to be driven by the enormous interest by millennials in a more meaningful way to use their money.

Knowledge@Wharton: Which robo-advisor should high-net-worth investors and advisors be paying attention to? Also, do you believe that robo-advisors will be as disruptive as Google and Facebook have been to the media and advertising industries? Or will they be absorbed and acquired by traditional wealth management companies?

Beyer: I wish I knew the definitive answer to that. I think it could be the latter, but I believe that the spirit of innovation will mean that it’s going to be incredibly disruptive. The old-line firms may acquire a Betterment or a Wealthfront. They have acquired some of the smaller ones, but there will be a new innovator or a new idea coming up, and if the culture in the old-line firm doesn’t change and really know how to use it and keep advancing it, then the value won’t be realized.

Just like when I pay my bills, I wouldn’t think of writing a check. I do it online. Everybody does. I think that’s the basis for my feeling that the robo-advisors, in the larger definition, are not only disruptive, but they are here to stay and will be continually enhanced.

Knowledge@Wharton: The earlier edition of your book had a lot of useful advice on how to evaluate and select human advisors. Do you have any advice on how investors should evaluate robo-advisors?

Beyer: I do. In the early days of hedge funds, a hedge fund manager would say, “Well, we have this great black box, and you can’t see inside it because you wouldn’t understand it. But look at our record.” I’m afraid that in the robo-world, investors can be similarly fooled if they’re not careful. In my book, I have a list of questions to ask: Where are your algorithms coming from? What are your sources for the machine learning or the AI you’re using to tell me what I should be doing? When an automatic rebalancing takes place, what if it’s wrong? Because we all know that predicting markets is not a science. This will be an interesting evolution to see when the next market dip comes, what happens if your robo was a little bit wrong.

Knowledge@Wharton: What advantages do robo-advisors have over human advisors and vice versa? As there seems to be a shift from active to passive investment strategies, who do you think will perform better in this environment?

Beyer: The active versus passive debate is the overlay on all of it, as you so rightly point out. For most investors, it makes much better sense to have some combination of passive. It’s ETFs, and it’s index, and I’m sure there will be yet another product that will take it even further. In my mind, the advantages of the robo are the same advantages of technology in any area. I can turn the air conditioner on in my home when I’m 50 miles from home. That’s an advantage. It’s the same thing with the robo. I can alter my investment goals as life changes for me. In the robo-world, that will be known and anticipated and asked about. In the world of humans, humans are busy doing other things. They may forget to ask me something that the robos will.

Knowledge@Wharton: One advantage that the digital wealth management platforms offer is their appeal to millennials. My impression is that advisors often focused on baby boomers, who are either retired or close to retirement, because they have more money than millennials. How should older advisors engage with tech-savvy millennials? How can registered investment advisers (RIAs) become better informed about technology and innovation?

Beyer: I’m not going to be very optimistic on that one. As a baby boomer myself and a technophile, it’s not easy to learn new tricks. The millennials do it intuitively. They’ve grown up with this.

The other major challenge is the baby boomer RIA is much more comfortable with the norms and the culture, the language, the method of communication of their cohort, so to speak. Millennials, I believe, want something different. They always want to do something different from their parents, right? But it’s even more pronounced today because they see the efficiency of different ways of communicating. You wouldn’t ever dare send an email to a millennial. They don’t read their emails. You wouldn’t dare have a three-hour meeting with them. It’s too long.

“Many children who’ve grown up with … substantial wealth haven’t learned the joy of struggle.”

The millennials will be the driving force, and the baby boomer advisor will do well to hire enough millennials in their own firm so that it becomes a diverse group, not the gray-hair speaking. The millennials are the children of current clients. They’re the grandchildren of current clients. Ignore them at your peril.

Knowledge@Wharton: One of the biggest challenges that millennials face is learning about managing wealth, especially if they happen to be born in well-off families. One of your chapters deals with whether being born into wealth is a blessing or a curse, and what parents should do about it.

Beyer: It can be both. One of the pieces in that chapter talks about how it’s mighty hard for the acorn to grow in the shadow of the mighty oak. It’s a Hungarian proverb. In my experience, many children who’ve grown up with enormous wealth or substantial wealth operated somewhat at a disadvantage because they haven’t learned the joy of struggle, the joy of reaching beyond your grasp. The parents who allow that self-sufficiency and working at a job — not just going on a philanthropy vacation, but really working and struggling to accomplish something — those children and those parents see the incredible rewards later on.

In terms of learning about money and learning about wealth management, the overarching trend is millennials want money to have meaning. As (investment consultant) Charley Ellis so beautifully put it, “The way you spend your money is the ultimate manifestation of your most deeply held values.” Millennials get that much more intuitively. They’re not as materialistic or commercially thrown off and lured by all the things. They want meaning, and they want purpose. It’s why impact investing is on such an enormous tear right now. It’s not the false siren of doing good by your investing. It’s a much more disciplined look at how can my investments more closely align with what I value?

Knowledge@Wharton: I’ve heard it described as the two-pocket mentality versus the one-pocket mentality, which used to be that one pocket was for your business and the other for philanthropy. Increasingly, people are starting to realize that it’s all the same pocket.

Beyer: It’s equivalent to that double bottom line concept people talk about in business. You may be making a fortune, and your bottom line might look fantastic, but if you haven’t focused on the other aspects of business — like the motivation and engagement of your employees, the motivation and engagement loyalty of your customers — it’s a flash in the pan. It’s not going to last.

Knowledge@Wharton: What advice would you offer to young women about how they should manage money, especially at a time in life when they may not have a lot to invest?

Beyer: There are lots of apps out there and firms that are happy to help them, and I think some of them are doing a very good job of combining education with investing. But I’ve heard it said often that the best way that a man becomes a feminist is by having a daughter. The moment that daughter begins to grow up, and the dad sees the good and the bad of what’s going on out there in our culture, in our media, he becomes a feminist, a male champion.

“The overarching trend is millennials want money to have meaning.”

Women are increasingly feeling their own power, but culturally it’s going to take time for that courage and that confidence to be full throttle. I was very blessed, and I’m very grateful that I learned that early on in my career, but not every young woman does. I have young women I mentor who still encounter horrendous issues in the workplace. But learning about wealth management is something that’s probably going to happen sooner than the incredible cultural change we might need.

Knowledge@Wharton: Are there any tools you recommend to help young women to manage their wealth better?

Beyer: I don’t like to mention names because I haven’t done the due diligence, but there are companies out there that you can put in $5 a week and buy stocks. There are companies that not only are saying, “Come and be a client,” but they’re saying, “We’re going to teach you.” They’re pretty easy to find on Google, and you can take a look at them. There are plenty of tools. The question is whether a young woman takes the time to do it. My book is trying to encourage people to realize they don’t have to become a technical expert. They merely need to say, “I am the CEO of my wealth, even if it’s modest, and I need to step up and make sure I know who I’m hiring.” Common sense is very important here.

Knowledge@Wharton: You have a new chapter in your book about women and their wallets. Do you think women investors face different challenges in managing wealth than men do?

Beyer: It’s more of a scientific challenge. Women tend to live longer than our spouses, and it doesn’t show any signs of changing. But the other huge change is that, in many cases, women represent the primary breadwinner in the family, and there are certainly more two-income households. In a recent study by Columbia University and Barnard College that Andrea Turner Moffitt talks about in her book, Harness the Power of the Purse, almost two-thirds of women consider themselves the CFO of their own family.

The piece in the “Women With Wallets” chapter that I emphasize is that women want to feel comfortable with whom they’re working with, so I give a list of questions and concerns. A firm they’re interviewing should distinguish between the different types of investing and goals that different women might have. A newly widowed woman shouldn’t be stereotyped right in there with a young career woman who’s single. Nor should an advisor be so nosy as to ask, “Do you plan to get married and have children?”

Knowledge@Wharton: How do you keep up with all the innovation that is going on in wealth management?

Beyer: I’m an avid reader, and I have all my social media alerts coming to me, besides just the regular daily news. Then there are a lot of very smart people who blog and write and are looking over the horizon at the future.

“It’s not about the money; it’s about what we do in our life to bring that joy.”

The other way I stay current is I love to stay involved with younger women. The mission of my foundation, Principle Quest, is to support women in innovative mentoring and educational formats. By staying in touch with these younger women in their 20s and 30s, I am always struck by how much I have to learn, how they view the world, how they look at their wealth, how they look at relationships. That’s an enormous boon for me, on a personal level, to stay in touch with these women.

I just had a big celebration last weekend where 54 of the women who’d been on a Principle Quest retreat came to a big party, and they brought their spouses or boyfriends and partners. We danced. We had fun. But at the core of that is young and old need to learn from each other. In our society, we’ve become so polarized. The diversity of age and ethnicity is so vital to a common understanding and progress on wealth management, or in any area.

Knowledge@Wharton: There’s so much innovation and disruption in wealth management. What do you think will change, and what will remain the same?

Beyer: I believe the balance of power that has been so skewed toward the provider of the product or advice will tip, and maybe tip too far the other way. We all know CEOs who are too autocratic, don’t listen, don’t hire the right people. If that happens, where the investor gains too much power and is not self-aware enough to realize the need to have balance, that would be one big change. But I think it’s going to be technology and its incredible gift to having the human brain and the way we interact much stronger in the areas that we need it to be strong in — whether it’s planning, setting goals, specifying outcomes. In the end, wealth is really something that should bring joy. It’s not about the money. It’s about what we do in our life to bring that joy.