That's the cardinal rule of successful wealth management.
(Note: This is the second in a series
of articles about the risks, rewards and challenges of wealth
management, as well as the ever-changing tools of the trade.)
Last month, we delivered our update on the state of wealth management, and the news was mixed, to say the least. While recent research we've conducted shows that successful wealth managers can increase their profitability by at least 35%, the vast majority of people who call themselves "wealth managers" are in fact falling well short of the mark both job-wise and money-wise.
This time around, we'll take a look at what many of them are doing wrong-not getting to know enough about their affluent clients-and what they can do to address the problem-employ a more comprehensive information-gathering tool such as one we've previously discussed in this column, the Whole Client Model.
There's no question that many financial advisors want to become wealth managers. They're attracted by a business model that's been shown to increase profits per client and help add more affluent clients to their roster, most often through referrals from accountants and lawyers who work with the wealthy. More importantly, wealth management has proven to be what affluent clients want as it gives them a level of personal attention that can go well beyond their portfolios to encompass every aspect of their financial lives. They are rich, they are different, and they wanted to be treated accordingly. Still, as noted, most of the aspirants are not making the grade on their way to wealth management. In fact, a recent study we conducted of more than 5,000 professionals who called themselves wealth managers found that only 10% actually fit the profile.
Where are they falling short? In our work with financial advisors who want to become wealth managers, we've found that far and away the biggest problem is a lack of in-depth client knowledge. Why is that such a problem? Because in the financial services industry, and indeed any industry, if you don't know enough about your clients you're not only going to be hamstrung when trying to make the right recommendations but, worse still, you may make recommendations that are just plain wrong because of inadequate or incomplete information.
A Comprehensive Profiling Approach
To reiterate, wealth management means being able to address every aspect (or selected aspects) of a client's financial life in a consultative way with a complete range of products, services and solutions. And that means learning far more about each client, because the more you know, the more opportunities you have to give your clients what they want. And that's where the Whole Client Model comes in.
The Whole Client Model is based on fact-finding methodology used by leading financial advisors. It leads to a profile that encompasses the full array of individual client needs, including wants, facts, figures, attitudes, perceptions, preferences, advisor as well as nonadvisor relationships, social dynamics and thought processes. It is also one of the key differences between the typical client/financial advisor relationship and the client/wealth manager relationship. And with more and more advisors aspiring to become wealth managers, it's a good time to revisit and review this essential tool of the trade.
So where does that information come from? As we all know, in the financial services world fact finders come in every shape and form, but most of them have one thing in common: They focus on assets, not the client. To create a more comprehensive and actionable fact-finder, we distilled the components of the client profile into seven categories (only one of which is assets). Here's the broad rationale for each of those seven categories:
Vitals: Provides wealth managers key demographic information about the affluent individual.
Goals: Enables wealth managers to focus on those actions that will achieve the client's "true" agenda.
Relationships: Lets wealth managers know not only who's important to the client, but how they're important. This line of questioning often provides insight into who might-or might not-be involved in the estate planning or business succession.
Assets: This is the most straightforward category and the one that the greater majority of financial advisors are both most familiar and most comfortable with.
Advisors: An often overlooked but critical category, this provides insight about structuring a relationship with an affluent client as well as to which other professionals might be involved in selected discussions and processes.
Process: This is where wealth managers uncover the ways that a client wants to relate and work with them.
Interests: This last category can prove instrumental when it comes to crafting various wealth management solutions, identifying commonalties that foster rapport and probing charitable intentions.
With that framework, here are some sample questions. Keep in mind that the questions will vary from client to client or may be adjusted and elaborated upon as one progresses. Also, all of the information need not be educed at one meeting; more often than not, it comes out over the course of several interactions. Indeed, the fact-finding process itself can be as important as the information gathered, as it gives the wealth manager one or more opportunities to connect with their affluent client. Finally, some people in our industry may not be comfortable with this far more intimate approach, whatever the potential payback. If that's the case they may not be suited to become wealth managers, as it hinges on a far higher level of client interaction that, in turn, leads to more business per client.
Exhibit 1: Sample Questions
How old are you?
What is your total net worth?
What is your average annual income?
What are your professional goals?
In what ways do you feel obligated to your children, your spouse, other family members, friends, society and the world at large?
What are your quality of life desires (houses, travel, boats, cars) ?
Which family member relationships (spouse, children, brothers/sisters, parents, etc.) are most important to you and why?
What is your religious orientation (and how devout are you)?
What pets do you have?
What does your investment portfolio look like today?
How are your business interests structured?
How do you make money today (and how is that likely to change in the next three years)?
Who are the other advisors you work with and what role does each advisor play?
Of late, how frequently have you switched advisors?
What were your best and worst experiences with an advisor?
How many annual contacts are optimal and in what manner (face to face, phone, e-mail)?
What security measures are you using to protect your personal and financial information?
Who else should be involved in the planning process?
What are the your favorite activities, TV programs, movies and sport teams?
Are health and fitness important to you (and, if so, what's your regimen)?
What charitable causes do you donate to? Volunteer for?
What's the payoff for all this hard work? First, a wealth manager will have the in-depth information to make targeted recommendations of products, services and strategies on the client's behalf. Further, as noted, as a result of the process itself the client also will be aware of a level of interpersonal connection. That, in turn, leads to an environment of trust and confidence that's vital to successful wealth management. Finding out everything you can about your client is not the norm nor is it easy. But wealth management won't work without it.
Hannah Shaw Grove is managing
director and chief marketing officer of Merrill Lynch Investment
Managers. Russ Alan Prince is president of the consulting firm Prince
& Associates.Note: This is the second in a series of articles about
the risks, rewards and challenges of wealth management, as well as the
ever-changing tools of the trade.)