Learning to manage solutions for unique clients.
(This is the third and last article in a series about the risks, rewards and challenges of wealth management.)
In our last two articles, we saw that many financial advisors aspire to be wealth managers-and why not? Wealth managers, our research shows, make at least 35% more than their advisory peers, and their affluent clients are more satisfied. However, the majority of those who want to join the ranks of wealth managers are falling shortænine out of ten, according to our research, or 4,500 out of the more than 5,000 that we surveyed.
There are plenty of reasons for the high failure rate, including the fact that many would-be wealth managers don't learn enough about their clients to cultivate the consultative relationship that's at the heart of wealth management. Thus the Whole Client Model, a profiling tool discussed in our last column, which can uncover the personal and financial information that's the grist for the wealth management relationship. But there's yet another constraint that's keeping financial advisors from joining the wealth management fold: The fact that, even after changing their title to wealth manager, they still think like financial advisors.
What does that mean? It doesn't mean, first of all, that financial advisors don't know what they're doing. Far from it. However, for those who want to make the move to wealth management, they have to free themselves of some of the professional habits and approaches that are successful for financial advisors but that don't work for wealth managers. They have to adopt a wealth management mindset.
Wealth Management Defined
Before we look at that mindset, let's once again set the stage by defining wealth management-and remembering that the definition is not static but evolves along with the changing needs of affluent clients (indeed, that's one of its key benefits).
Wealth management means addressing every aspect of a client's financial life in a consultative way with a complete range of products, services and solutions. Generally speaking, those products, services, and solutions fall into three broad categories: investments, life insurance and credit. But the list can, and will, change from client to client and from wealth manager to wealth manager.
That all sounds relatively straightforward, but there's plenty of fine print. A wealth manager also has to have an in-depth understanding of each client to ensure that any suggestions are on target and customized, and that means a personal relationship well beyond the industry norm. Furthermore, because the personal and financial lives of the affluent are so complicated, a wealth manager cannot be expected to be an authority on every subject. However, he or she can have a broad working knowledge of the issues and, more importantly, a team of specialists to summon on a client's behalf as needed. The goal of the wealth manager is to become the client's go-to person, the CFO who has a hand, and a financial stake, in every decision.
As we've noted in the past, that's a lot to ask of any one person, and it's hardly a surprise that many well-intentioned advisors have fallen short in their efforts to become wealth managers. But it's easy to be drawn in by the benefits, which can include more satisfied clients, more revenue per client, and, through references from high-end accountants and attorneys, new affluent clients.
So where are the would-be wealth managers falling short? Based on five years of working with affluent advisors and their clients, we can pinpoint three problems that are holding them back:
1. They fail to recognize that every client is unique;
2. They try to solve problems with products, not solutions; and