On the road to becoming a wealth manager, nine of ten have lost their way.
(Note: This is the first in a
series of articles about the risks, rewards and challenges of being a
wealth manager, as well as the ever-changing tools of the trade.)
With another new year underway, those of us in the financial services business once again got the chance to take stock of where we were, where we want to be-and the sometimes yawning and seemingly insurmountable gap between the two. And for many in our industry, we have been measuring ourselves of late on the progress (or lack of progress) we've made toward adopting a wealth management platform and becoming a wealth manager.
As a concept, a platform and even a buzz-phrase, wealth management has captured the attention and imagination of the affluent and, consequently, of financial advisors. And rightly so, given its considerable profit potential. As a result, it can sometimes seem as if every financial advisor and broker styles him- or herself as a wealth manager these days in the hope of moving upscale, client-wise, and landing more high-end business.
But while the motivation, logic and profit potential behind a move to wealth management can certainly be compelling, our research shows us that for the vast majority of those calling themselves "wealth managers" only the title has changed; the way they do the business is the same, and it remains a far cry from wealth management. In fact, of the more than 5,000 financial professionals we surveyed who called themselves wealth managers, only 10% actually made the grade based on our definition (see below).
Wealth Management Defined
What happened? In next month's article, we'll take a closer look at what went wrong by examining what we see as the three critical failure factors of would-be wealth managers. First, however, we have to step back and consider just what wealth management is, not only from our standpoint but from that of the wealthy clients who clamor for it. It's even more relevant now that firms, both legitimate and otherwise, are offering financial professionals the chance to take a course and become an accredited wealth manager.
It should be allowed, however, that the term "wealth management," which trips off the tongue so often at industry conferences, in the board rooms of private client firms, in trade and mainstream articles (including ours) and in front of affluent clients, isn't easy to define with any degree of precision. Over the past year, we've often begun seminars and other sessions by asking the audience how they define wealth management. And we've found that most financial advisors tend to equate wealth management with investment management, often tax-efficient investment management. We've also heard other, more esoteric definitions that have included the signs of the zodiac and a range of spiritual forces (the new age school of wealth management, apparently).
For us, wealth management is very straightforward, and later in this column we'll back the validity of our definition with profitability figures based on it. From the client's perspective, wealth management means addressing every aspect (or key aspects) of a client's financial life in a consultative way with a complete range of products and services.
But it is, of course, more complicated than that. A wealth manager has to be able to educe from his or her client enough information, both financial and personal, to make sure that any products, services and solutions offered are on target, and that goes far beyond the typical client/advisor relationship. (Two columns from now, we'll discuss the tool that wealth managers have developed to learn more about their clients, the Whole Client Model). Furthermore, because so many possible solutions might be offered, and because no one individual can be an expert in all of them, a wealth manager also has to be able to find, and coordinate, a team of financial specialists whose expertise can be marshaled on a specific client's behalf.
That's a tall order, and makes it understandable why so many aspirants have fallen short. Wealth management requires a different mindset, new resources and an interpersonal style that not everyone is comfortable with.