4 post-beach takeaways from the world's biggest wealth fest

The Future Proof conference spanned four days last week and covered nearly every significant topic involved with wealth management — with enough time in between for a live music show.

Some 4,200 financial advisors and other industry professionals traveled to Huntington Beach, California, for the event launched three years ago by Future Proof founder Matt Middleton with co-creators from the registered investment advisory firm Ritholtz Wealth Management. Organizers call it "the world's largest wealth festival." Musical headliner Third Eye Blind followed in the footsteps of Method Man and Red Man and Big Boi as a sonic accompaniment adding to a massive outdoor event amid the palm trees and a steady sea breeze from the nearby beach. World renowned chef and humanitarian José Andrés made an appearance this year as well.

Besides the draw of those bold-faced names and live broadcasting setups for CNBC and Bloomberg News, Future Proof delivered on substance as well. Although collecting the key takeaways of every panel discussion may be impossible, some of the interesting subjects for advisors and wealth management professionals included: cash management strategies, estate planning for digital assets, the Fed's interest-rate cut, the business case for tax services, reaching clients on social media, how small firms can compete with giants, the demographic destiny of women in the industry, best practices in RIA compensation and donor-advised funds.

Scroll down the story below for more examples of the deep conversations last week at the stages by the beach.

Attracting the next generation of advisors

Young people including women and members of minority groups often have "had very little exposure to the world in which we live" in wealth management, said George Nichols, CEO of the training, certification and networking institution The American College of Financial Services.

"There are so many opportunities, there are so many jobs, there are so many skills," Nichols said. "And this is actually a cool industry to be in. You can have an impact, which is important to them. You can make money, but you can grow and experience things that are just amazing."

However, the industry is facing "a serious problem" based on the advanced age of many advisors and clients that effectively turns into "a tsunami" when taking into account how technology is changing clients' demands from wealth management firms, said Margaret Franklin, CEO of the training, research and networking organization CFA Institute. She recently spoke with "the chairman of one of the largest financial institutions globally" about that topic, Franklin said.

"Now you can look at that and say, 'That's really overwhelming,' or you can look at it as a significant opportunity," she said. "When you don't have diversity, you probably have a cultural barrier, and it's not intentional. In fact, generally speaking, it's quite subconscious."

READ MORE: 8 ways to invest in next-gen advisors — and your firm's future

Industry tailwinds and headwinds

The challenges facing wealth management reminded Jaclyn Stanton, managing director of wealth management technology and marketing firm F2 Strategy, of a story about a businessman who visited a wise sage at the top of a mountain in Tibet who told the entrepreneur that a straight line represents death and a squiggly one equates to life.

"You can't have growth without discomfort, and so, at Future Proof, get uncomfortable," Stanton said. "Go meet people. Go to sessions you don't think are relevant because they are. That squiggly line, ladies and gentlemen, becomes: growth, discomfort, growth, discomfort, growth discomfort. And the straight line — comfort, complacency — and we know where that leads, so get uncomfortable."

Stanton asked Lori Hardwick — board director with private equity firm Genstar Capital, a company with wealth management firms such as Cetera Financial Group, Cerity Partners, Mercer Advisors and Orion Advisor Solutions in its portfolio — what she thinks is the biggest tailwind that could help the industry.

"The biggest tailwind, I believe, is AI," Hardwick said. "I think there's a lot of technology at stake here. You're going to learn a lot about it today, but I think that's a huge tailwind for us."

The moderator asked panelists to identify the biggest headwind working against the industry as well.

"It's really hard to scale," said Shannon Eusey, CEO of Newport Beach, California-based RIA firm aggregator Beacon Pointe Advisors. "That's why you're seeing a lot of M&A in the space, because firms are having a hard time pivoting out of doing everything for their particular firm. If you're running a small RIA, that gets really hard. You're wearing the CFO hat, the COO hat, you're also in charge of bringing the most growth in your firm. So I think we have to focus on scale for the business."

When called to name a trend she expected to catch fire five years ago but never did, Dana Rhodes, the chief operating officer of Ann Arbor, Michigan-based wealth management firm Axtella, cited robo advisors.

"We thought this was going to be this big thing," Rhodes said. "Everybody was going out and exploring solutions. I know some of you may have implemented a solution, but it never really took off. And I don't know if maybe we were before our time, or if it's not ever going to take off, but that was mine."

READ MORE: Wealth tech's shortcomings — and its potential for industry disruption

Tobias Salinger

Investment strategy

The Fed's interest rate cut of 50 basis points certainly consumed much more time last week at Future Proof than any perceived threat from robo advisors. Rather than worrying about the possible cuts, advisors and their clients may want to consider their position against any potential volatility in bonds tied to mortgages, said Nancy Davis, the managing partner and chief investment officer of asset management firm Quadratic Capital Management.

"A better way to help diversify your portfolio is to just be aware of what type of corporate risk you have, whether it's stocks and your corporate bonds, but then add other things that are non-correlated assets. And one of the things that I particularly like in fixed-income portfolios is volatility," Davis said. "That's one big thing people just don't think about, but every single financial crisis we've ever had, it always comes back to mortgages."

In terms of equities, legendary stock picker John Rogers, the co-CEO of asset management firm Ariel Investments, explained why his firm is so bullish on Sphere Entertainment, the parent company of the Sphere event venue in Las Vegas and MSG Networks.

"The stock seemed extremely, extremely cheap. It seemed like it was being given away. As we did our homework, we got quite excited about it," Rogers said, describing his company's due diligence tour of an early prototype. "It was magical. You walked in and said, 'They are transforming the way you're going to be able to experience entertainment.'"

READ MORE: The non-financial reasons clients hire, keep or fire financial advisors 

Managing an advisory practice in noisy times

In an uncertain and rapidly evolving business, successful firms often run into questions about their ownership structure when they reach more than $1 million in annual revenue — and especially when they top more than $3 million, according to Michael Kitces, the planning entrepreneur, writer and podcast host who's co-founder of advisor billing software AdvicePay and RIA platform XY Planning Network, as well as the head of planning strategy for St. Louis-based RIA firm Buckingham Strategic Wealth.

"Suddenly, now we can't just say, 'Well, we all kind of take our pro rata share of the profits,' because our roles start to specialize. You do most of the growth things which we wouldn't be able to survive without, but I'm the one that actually runs everything behind the scenes," Kitces said. "So your role is really important. My role is really important. But we do different roles."

For client-facing advisors, one issue stems from simply making sure that the customers are present in conversations with their planner, according to Erin Wood, the senior vice president of financial planning and advanced solutions with Omaha, Nebraska-based RIA platform and aggregator Carson Group.

"All of us have a very similar problem," Wood said. "We're all tired, we're all overwhelmed, we're all making massive amounts of decisions every day. We actually make 35,000 decisions every day. That's every two seconds. So think about that: every two seconds, whether you're conscious about it or not, we're having to make a decision. We're also overwhelmed by our technology. We look at our cell phones every seven minutes. I see some of you doing it right now."

Many advisory firms are juggling those distractions against their goals for the long term. 

Josh Brown, the CEO of New York-based Ritholtz, and Michael Batnick, managing partner with the firm, asked Peter Mallouk, the CEO of Overland Park, Kansas-based RIA aggregator Creative Planning, about the nature of the wealth management business.

"Scale begets scale, and a lot of people in the audience are trying to be entrepreneurial and break away and start their own thing," Batnick said. "You've been there. You've done that. What words of caution or advice would you have for people that are thinking about getting into the knife fight?"

Brown added some context.

"I've heard you say this is a business of compounding advantage," Brown said. "Once you have an advantage, you're going to have more advantage as time goes on."

Mallouk's answer came down to the fundamental reasons that drive people to hire a financial advisor.

"You guys know, and I think everybody here that's successful knows that people make decisions about money two ways," Mallouk said. "They're aspirational. They go, 'I want to be with the best firm. I want the best advisor. I want the best platform,' all that stuff. Or they're fear based. They're going, 'I don't want to lose my money. I don't want anyone to steal my money.'"