3 Dimensional Wealth Planning may help the industry meet challenges.
"The best way to predict the future is to create it."
- Peter F. Drucker
We are at a "critical epoch" in the evolution of the
financial planning industry. In fact, right before our eyes, a new
industry is being created, one that will stand on the shoulders of
those who have come before in financial planning. This new profession
will address the needs of one's "total wealth," which includes one's
personal, financial and social wealth.
New standards and guidelines, along with curriculum
and professional designations, will be created to address the needs of
our 21st century clients.
In The Beginning ...
In the early stages of insurance and investments,
one could categorize the activities as "financial sales." We were
transaction-oriented, and the emphasis was on selling a product. That
was until about 1975. It was at that time a shift began from "financial
sales" to "financial consulting." While the results may have been
similar (i.e. sales were made), the methodology for arriving at the
sales was based upon a process.
Process Over Product
And so, the financial planning industry was
conceived. Many pioneering practitioners began their journey, with
little help from those who had come before them. It was a time of
exploration, a time of creation, a time of celebration. For the first
time, a practitioner was free to advise "with a purpose. " And the
results were amazing. Sales results rose as the planning process was
followed. But much was left to be discovered. While the gestation
period from conception to birth was relatively quick, it required the
foresight of many individuals to create the profession we see today.
In those early years, one could hardly call
financial planning a profession. It was lacking standards and
guidelines. It was lacking professionalism and professional
designations. Moreover, public acceptance was absent. The
institutionalization of the profession was yet to be born.
From 1975 to 2005, in just 30 years, our profession
has come to be respected among the top professions in the country. In
fact, last year it ranked as the second most desirable profession for
those entering the job market. And why is that? Why is it that in just
25 years, this profession has blossomed into a desirable, sought-after
career?
The reason, I believe, is that in Stage II of our
evolution, we found a new and fresh way to solve people's problems. And
isn't this the goal of business? Is the goal of business simply to make
a profit? I believe that the financial planning industry found a
creative way to solve people's problems, and in doing so allowed our
industry to become profitable and desirable.
I've been proud to be part of the individuals and
organizations that have laid the foundation for others to follow. The
creation of standards for our planning process was critical for
advisers to provide meaningful and comprehensive plans that would be
accepted by the public. Without these guidelines, our fledgling
industry would have been like a ship without a rudder. Without the
educational institutions to provide us with methods and tools to become
masters of our profession, our status in the community would have been
modest at best. Our newly created professional designations gave us the
expertise necessary to excel and a tangible way to display our
excellence.
Is That All There Is?
But after 30 years, "Is that all there is?" Is it
possible that professionals were meant to advise clients, in new
dimensions? I believe the answer is "yes." And I do believe that "the
best way to predict the future is to create it."
Rick Sidorowicz, 1 in his article "Life
Beyond the Sigmoid Curve," discusses what we see in Exhibit 1. "The
sigmoid curve is the S-shaped curve that has intrigued people
throughout history. The curve sums up the story and time line of life
itself; we start slowly, we experiment and falter, we then grow
rapidly, then wax and wane. It is the product life cycle; it is the
biological life cycle. It describes the rise and fall of empires,
dynasties, companies and individuals. It also describes the course of
love and relationships."
As we ride the life cycle wave of our industry or
own practice, we find three stages: birth, innovation and
commoditization. Each stage creates its own opportunities and
challenges. There are, however, two very important points on the
curve-"A" (just prior to the plateau) and "B" (just after the
plateau)-where change or action is crucial.
The Paradox Of Change
Sidorowicz puts it this way: "The obvious desired
point at which to start a new cycle is before the plateau (point A),
where you have the time, energy and resources to get the new launch
through the early stages of exploration and adjustment before the first
curve dips downwards. Obvious, yes, but not easy. That is precisely the
point that all indicators are pointing to continued growth and success.
Everything is fine1the formula works-it would be crazy to tamper with
proven success." So why, in an industry like ours, where we are
number two in desirable professions, would one dare think about a new
profession?
The Survey Says...
In a recent FPA survey,2 various segments (solo practitioners and ensemble practices) of the marketplace were analyzed.
I have summarized the findings in Exhibit 2, which
lead me to believe that as we enter the "next wave" that "Elite
Ensembles" and "Virtuoso Solo" practices will dominate the landscape
due to their profitability for the principals and marketability as an
exit strategy for their owners. While a relatively small number of
firms will be the "dominant competitors" and others will simply remain
small, the vast majority will and must become "niche competitors."
The question that needs to be asked and answered is,
"what niche is going to make me a formidable competitor in the future?"
But before answering that question, let's find out what our clients are
asking for and what they would like us to look like. US Trust Company
completed a survey4 in 2004 on high-net-worth investors that perhaps
will begin to shape the outcome to our "niche" competitor
question. The question US Trust posed was, "What are the most
important attributes when choosing a financial advisor?" Not
surprising to me, the number one answer was "trustworthiness." The
answer to their follow up question, "What professional advisor or firm
do you believe to be "trustworthy?" helps reveal just who will dominate
our profession.
At the top of the list in Exhibit 4 is the CPA. Does
this mean that if you are not a CPA that your future is bleak? I think
not, but study the rankings. It does indicate that commission sales
representatives are at the bottom of the list, and fee-based
practitioners are towards the top.
At The End Of The Day ...
On January 27, 2005, in a presentation by
Christopher Barnett of US Trust Institutional to a group of CIMA
designees, Barnett's closing slide recapped their survey with a short
list of concerns and wants by the affluent investors. My interpretation
of his data is summarized in these two words: "family first." Our
clients and prospects want to know the answer to these questions. How
will terrorism affect my family? How will the rising cost of education
affect my family? How will the rising cost in health care and my
increased life expectancy impact my family? How will the uncertainty of
the long-term return on my investments affect my financial independence
and my family? To whom can I turn when seeking someone who will be
trustworthy and provide my family the time and attention that they will
need in making decisions in the future? Who will help my family
manage our "total wealth?"
The Evolution Of Wealth Management
We have arrived at the "critical epoch" in the
financial planning industry, the year 2005; the place on the Sigmoid
Curve that demands new and better ways to serve our clients. If we do
not embrace this opportunity and evolve to the next stage as
professional advisors, we run the risk of failing to become that niche
competitor in the marketplace. What will this new "Stage III" in our
industry look like?
In Stage III of Exhibit 5, the focus will no longer
be simply on "Financial Wealth." A broader definition of wealth will be
embraced and the integration of one's "total wealth" will be the order
of the day. This will require a great deal of interdependence, with
multidisciplinary practices capturing the lion's share of this
marketplace. Clients will no longer be satisfied with "knowledge" but
will demand "wisdom" from their trusted advisors. We will be entering
the great "wealth transfer" generation. However, the emphasis will no
longer be on solely adding to one's financial wealth, but on wealth
preservation. A return to "values" as an integral part of a family's
wealth will move to the top of the list for those who seek to grow and
perpetuate functional families. The movement towards "fee-based" and
away from "commission-based" will escalate, especially as we integrate
one's intangible wealth into our "total wealth" plans. Success will
take on a new meaning and the quest for significance will be "the road
more taken." No longer can our wealth be viewed in only one dimension.
We must think and act "three dimensionally" to truly be the
professional advisors our clients are looking for.
Stage III-"3 Dimensional Wealth" Manager
So after 30 years, the time has come to create a new
breed of advisor. From "financial salesmen," to "financial
consultants," to "total wealth" managers; it's time to launch a new and
fresh approach to wealth. I have come to the conclusion that wealth has
three specific components: personal, financial and social. Each
dimension is a measure of wealth in its own right.
As we all know that water exists in three different
and distinct states. But the chemical composition is the same whether
it is steam, water or ice. The same is true with wealth. It comes in
three different and distinct states-personal, financial and social.
It is only when we begin to view wealth in its three
dimensions, or states, that we can become "total wealth" managers.
Clients must come to understand that a transfer of capital from their
personal financial statement to a charitable trust is not a loss of
assets. It is the same asset in a different state. A transfer of
capital from one's personal financial statement to pay for a family
vacation is not a reduction of one's assets, but a transfer from the
"money bank" to the "memory bank." Just as with H2O, the molecules are
not lost in a conversion from one state to another; each dimension of
our wealth, when transferred from one account to another, does not
diminish in value either.
In fact, a transfer from one dimension of your
wealth may in fact enhance your wealth. A transfer from your financial
to social wealth may create new tax benefits. The creation of a "Family
Legacy Manuscript," designed to preserve and protect your personal
wealth, may have more value than the offsetting reduction in your
financial statement to pay for it.
3 Dimensional Wealth
What is "3 Dimensional Wealth?" It is the total
measurement of one's life. "3 Dimensional Wealth "will take your
clients on a journey that will help them define, articulate and
integrate all three aspects of their wealth. By synchronizing the
dimensions of your clients' wealth-that is, shaping and aligning all
three dimensions-their final destination will be a more satisfying and
fulfilling life with lasting significance.
As financial advisors, we have a significant impact
on the whole family. Our advice will affect the relationship between
spouses, between parents and children, and between siblings. With sound
financial advice, we begin to see how all three dimensions of one's
wealth are impacted. So rather than dabble on the fringes of "total
wealth" management, we need to pursue the process that defines,
articulates and integrates all three dimensions of one's wealth.
But why do we need to address all three dimensions of one's
wealth? With only 24 hours a day, each dimension is competing for
your time and attention.
Unless each of these dimensions is purposefully
defined, frustration, confusion and inertia will result and ultimately
lead to problems, as illustrated in Exhibit 7.