Private-Equity Investment in Wealth Management: Pros and Cons

Private-equity firms have been increasingly investing in the wealth management industry, bringing both benefits and drawbacks to the table. According to Barron’s columnists, PE sponsors have received mixed reviews for their impact on practices and clients. One concern raised is that PE backing can result in more pressure to cut costs during market downturns. However, some industry executives argue that PE sponsors have helped by professionalizing their firms, enhancing governance, and providing the necessary capital for growth.

In other top wealth management news this week, Charles Schwab’s CEO, Walt Bettinger, experienced a pay cut in 2023 as the brokerage firm faced a hit to earnings. Bettinger’s total compensation dropped to $23.9 million from $24.4 million the previous year. Similarly, CFO Peter Crawford, COO Joseph Martinetto, and founder Charles “Chuck” Schwab also saw decreases in their total compensation due to reductions in incentive pay.

Additionally, financial advisors are facing the challenge of helping clients navigate divorce. In a Barron’s Advisor Big Q, four advisors shared their strategies for handling this difficult situation, emphasizing the importance of listening attentively to clients, remaining neutral when advising both spouses, and recommending therapy to cope with the emotional trauma of divorce.

Furthermore, the power of a tax-efficient portfolio was highlighted as a key strategy for financial advisors. While many money managers focus on pretax returns, it is crucial to consider after-tax returns. Structuring portfolios to generate long-term capital gains and planning for changes in tax laws, such as the expiration of certain provisions of the Trump tax overhaul, can help improve after-tax returns for clients.

Amidst these industry developments, Edward Jones is undergoing significant changes, including the introduction of team-based advisory services and upgrades to technology tools to enhance client service. Similarly, wealth management trailblazer Ron Carson is stepping down as CEO of Carson Group, with former LPL executive Burt White taking over the top position. Carson’s transition to chairman reflects a strategic shift for the firm as it continues to grow and evolve in the wealth management space.