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.
Falling Short
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
3. They are not project managers.
Now let's take these three issues one by one, beginning with a client's uniqueness.
Many financial advisors use a static process when working with clients, affluent or not. Tried and true, it's hampered by being premised on the importance of a client's assets and investments, not their entire financial life, with its myriad implications. Admittedly, "unique" is a word that's bandied about ad nauseum by advertisers and shills in our business, but it takes on real legitimacy and resonance within the context of wealth management. First, clients, especially affluent clients, want to think of themselves-and want to be thought of-as unique. They don't want to be one of the pack and they don't want off-the-shelf solutions that imply they're not unique. Furthermore, through the lens of wealth management, they are unique. How many clients on a financial advisor's roster, for instance, are 55, twice divorced, childless, have $35 million in highly concentrated stock, haven't updated their life insurance policy in 17 years, own a Cezanne, don't have an heir, plan to move to Pago Pago, hang-glide, and want to establish a charitable foundation for inner-city artists? It's that level of detail, uncovered by the Whole Client Model, that makes the affluent client truly unique and dictates the right combination of products, services and solutions for the wealth manager to deliver. And that level of detail cannot be fit into the traditional fact-finder or entered into a computer program that will spit out a solution. Indeed, a wealth manager may have to call in his or her entire team of specialists to brainstorm a solution. And what's the payoff for all the extra research and collaboration? A more precise solution or suggestion, a more binding relationship and the potential profit from a much longer menu of customized products and services.
Solutions Not Products
Part and parcel with the concept of client uniqueness is the idea that solutions, not products, are the answer to each client's needs. Research has shown that affluent clients can be suspicious of larger financial services firms because they think that products are being pushed on them, regardless of whether or not they're the right products, to meet quotas or satisfy management. Simply stated, for some financial advisors, the products and services come first and then a client is found; for wealth managers, the client comes first and then a solution is found.
Project Managers Wanted
Lastly, there's the idea of project management. A financial advisor would not typically manage an integrated and highly complicated process that involved the input and expertise of a number of other advisors. But as we all know, and as the thumbnail of our hypothetical client demonstrates, affluence brings complexity. And no individual wealth manager, however talented, is going to be able to address every aspect of an affluent client's life. In fact, each financial professional has a core strength, be it investment or insurance or estate planning, and that skill should not be abandoned once he or she becomes a wealth manager. In many cases, it's what attracted clients in the first place, after all. That's where the team of specialists already mentioned comes in. The wealth manager must oversee the team, keep it focused, and get its members to think-and brainstorm-on behalf of each client in question. The team, in turn, allows the wealth manager to deliver-and be remunerated for-solutions that he or she might not have previously been able to offer, and also to get referrals from members of the team to serve as a specialist for another wealth manager.
In conclusion, wealth management is profitable and it's what affluent clients want. But it's not an easy transition to make. It calls for a level of interpersonal contact that not every financial professional may be comfortable with. It means building and managing a network of specialists that can be called in to address the specific needs of affluent clients. And it requires letting go of the traditional mindset that has been the norm for our industry for many years, and understanding that each client is unique-and that each client has a unique range of needs waiting to be met.
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.