Client-By-Client Decisions

Furthermore, the products, services and strategies-financial and otherwise-that a wealth manager might use will vary greatly from client to client. That is both the challenge-it's hard to cover so much ground-and the premise; wealth management assumes that every affluent client is different (a distinction clients encourage and embrace, after all) and should therefore be treated differently.

That said, based on our research of the most successful wealth managers, the products and services they generally provide fall into the following three broad categories:
        Investments, including brokerage, fee-based accounts and derivatives;
        Life insurance for estate planning, business continuity and corporate benefits; and
        Credit, from mortgages to business loans to personal lines.

Within each of these categories there's a great deal of variability. Any individual wealth manager must make business decisions concerning just what to provide and how to provide it. That decision will be based on current client need as well as the type of clients a wealth manager wants to get. So wealth managers might want to offer direct private equity investment or meeting facilitation for family office members, for example, not because they need them for their current clientele but because they'd be attractive to the kind of clients they're looking for.

The Consultative Approach

As noted, the consultative approach is a defining attribute of wealth management. In other words, wealth managers are truly client-centric. That means meeting a client without having any preconceptions about what financial products and services are appropriate for that client, even if that meeting was called to address a specific need; because the wealth manager is consultative, the first objective is to know and understand the client and find out what's important to him or her on a number of fronts, finances being just one of them. So, to narrow our definition somewhat, wealth management means delivering the right financial products, services and strategies to each individual client in a consultative way.

The Rewards Of Wealth Management

That sounds like a lot of work-and it is. Making the change can be daunting, and some financial professionals may not have the time, interest or inclination to remake themselves. However, our research has shown that the wealth management platform, as we've broadly defined it, is not only more profitable for its practitioners but more appealing to affluent clients. In other words, a successful wealth manager can make more money per client and make the client happier at the same time-quite a twofer.

By way of comparison, the other financial business model that can be extremely profitable is that of a specialist, a content or product expert brought in by advisors to address a specific need or situation of an affluent client. A derivatives expert brought in to hedge a concentrated stock position is an example of a specialist, as is a life insurance expert who could help a client move from private placement variable life insurance to a more traditional life insurance product. However, while there's no denying the profitability of this model, it too has it drawbacks: a strict focus on a single discipline that may not be to the taste of every financial professional, and perhaps more problematically, lean times. That derivatives specialist, for example, can become very lonely during a bear market, whereas our research has shown that wealth managers tend to be unaffected by market downturns (or upturns, for that matter). The business of a wealth manager is broad, high-end and consistent.

Look To Current Clients

Wealth management has another key benefit: It can help financial advisors get more business from their current clientele. Put another way, a wealth manager's success does not hinge on finding new clients (though it does depend, of course, on demonstrating to existing clients how you've changed for the better and why that's a good thing for them). As just one example, it's common for a wealth manager, but less so a financial advisor, to help affluent clients solve problems that result in liquefying assets, such as real estate and art works, that then need to be invested. So the wealth management approach often results in having more assets under management.

As might be expected, wealth management can also be an excellent source of new and wealthier clients. Those referrals, however, are less likely to come from the clients themselves than from the accountants and attorneys with whom wealth managers interact on their clients' behalf.

Enhanced Profitability

In the past, we've cited extensive research in this column showing that wealth management is not only more profitable but also less vulnerable to stock market swings. Here's some new evidence. Financial advisors who were coached on a one-to-one basis to become wealth managers increased their profits by at least 35% within the first year, after expenses and including the cost of coaching. To put it into hard figures, if the financial advisor made $250,000 the year before becoming a wealth manager, he or she made $337,500 the year after. And that 35% is the starting point; it was not uncommon for financial advisors to increase their incomes by 100% or more. And, importantly, their existing clients said they were more satisfied and felt as if they were being better served.

It's Not for Everyone

One final note. In the same way that wealth management is not the right-or only-choice for every financial professional, it's also not right for every client; it's better suited for the more affluent ones because of the range and complexity of their financial lives and options. Based on our experience working in the field, it's the rare affluent client, about one in 50, who doesn't benefit from wealth management, a good incentive for those financial professionals who want to make the move.