They don't take the time to understand clients or alter their approach.
For most advisors, wealth management is the optimal
practice model. Not only are clients more satisfied and more loyal,
being a wealth manager results in the highest average income when
compared with financial planners, investment consultants and
broad-based advisors. Similar financial success has been recorded for
star specialists-but the opportunities for specialists are limited and
the technical requirements are exceedingly high.
Today's specialists focus on niche products with complex quantitative and regulatory facets, such as life insurance mechanics and hedging techniques. Without the skill set and the reputation to focus and excel in these areas, the wealth management model is likely to be the best option, as it provides ample opportunities to interface with clients, establish control and oversight of the investable portion of client portfolios and take the lead in coordinating the service components of relationships.
For the past several years, we have helped numerous advisors evaluate their business models and attempt a transition to wealth management. Our coaching sessions have revealed a number of important issues facing advisors that, when remedied, can help other advisors with a smoother and more rapid business transformation. Repeatedly we have observed frustration and aggravation on the part of the advisor who has failed to comprehend and embrace core aspects of the wealth management model. Three overarching principles define how wealth managers operate, and understanding them will provide a glimpse at the reality of life as a wealth manager.
Wealth managers are marketers, not salespeople.
Wealth managers are case managers, not independent practitioners.
Wealth managers are excellent cat herders.
Using blind case studies from our coaching practice, we take an in-depth look at these three issues that can trip transitioning advisors.
Wealth Managers Are Marketers
"Robert" is a very successful investment advisor. He is comfortable and adept at telling his story-how he works, his investment process, his background and credentials, his day-to-day responsibilities and so forth. His approach works very well as an investment advisor. However, in order to generate more business profits, Robert decided to become a wealth manager. The same approach to courting clients has proven to be a disaster for him in his new role. And he is not alone in this experience. In fact, the majority of transitioning advisors have had similar results.
In several research studies, we have seen evidence that nearly all types of financial advisors are focused on sales and marketing. In a practical sense, they have a sleeve of products and they spend their time trying to convince prospects to buy what they have. Most financial advisors have a canned presentation they use that provides an overview of the products and services they offer. A more sophisticated version of this sales approach is the use of an institutional-style pitch book. Regardless of the medium, this approach is a perfect example of an advisor-centric model. The flip side of this model is wealth management-a client-centric approach to providing financial solutions. In evaluating your approach think about the following questions:
Do you have an established presentation or pitch book that you use with every prospect?
How much do you know about the prospect and his/her needs before developing an overview of your background and services?
How do you extract pertinent client information, and what level of detail is required before you can create an overview document?
Are you willing to modify your approach to client meetings based on specific knowledge you have about individual clients?
How much do you know about the way clients process information, and how well do your materials reflect that?
The role of the wealth manager is not to simply sell a financial product to a prospect. Instead, a wealth manager's first concern is developing a comprehensive understanding of the client. Next they must match the right solutions to a client's needs and desires and ensure he or she receives an exceptional service experience. After that, product and service sales opportunities will abound. Making the transition is clearly a trade-off between short-term results and long-term success.
Empirical research tells us that the biggest obstacle for most advisors is being able to develop a viable, in-depth and holistic profile of their clients and prospects, and our coaching experiences have confirmed it. Sadly, this has not gone unnoticed by wealthy clients. In a recent study with 103 investors with at least $5 million in investable assets, we learned that many investment advisors fail to really understand their prospects before putting forth suggestions and solutions. All our survey participants had met with and received proposals from investment advisors they did not hire. Their reasons for not doing so are illuminating.
Of the 103 investors, 86.7% said their advisor did not understand them (Figure 1). A similarly high percentage (85.7%) thought the recommendations from the investment advisor were off the track. Yet only a handful (4.3%) said that they did not understand the recommendations, so it wasn't a matter of being baffled; they simply knew enough to realize that the recommendations were not right for them.
For many financial advisors, walking into an initial meeting without promoting their own products and services is a major change in mindset. In fact, the idea of not talking about yourself, your investment process or track record can actually be a little scary. However, as a wealth manager, the emphasis is on marketing and looking for ways to help clients with a broad array of financial capabilities. The old adage, "Selling is about me, marketing is about you," rings true. With wealth management, it is always all about the client.
Wealth Managers Are Case Managers
With some practice, "Sara" has become very efficient at identifying the technical requirements of her clients that she does not have the expertise to address herself. Many of her clients with substantial wealth need to review and update their estate plans, and Sara is effective at motivating them to work with "Ted," a private client lawyer with whom she has a strategic alliance. Ted is a very capable trusts and estates attorney, but Sara finds that her clients are easily distracted and derailed from the primary mission when they work with Ted. He has trouble moving the process along and, as a result, Sara finds herself waiting months, until Ted has completed his work, before she gets in touch with the clients to implement the new plan.
Wealth managers frequently need to coordinate a number of specialists in order to provide clients with solutions. A "hand-off" to a specialist is a mistake, because it diminishes the central role the advisor can play and it eliminates regular client contact. Wealth management is an integrated approach requiring the wealth manager to facilitate every step of the process.
As specialists are needed, the wealth manager adopts the role of case manager to stay abreast of each client development. Some of the things to consider in this role are:
What is the client's perception of the process?
Does the client understand why the specialist has been brought in?
Do they recognize the value the specialist is providing?
Are the specialist and the client working well together?
Does the specialist understand his/her role in the process?
Do the specialists accept the difference between your role and theirs?
Have you established a communication hierarchy for interaction with the client?
The key to being a successful case manager is to keep the process on track and moving forward. Like a shark that stops moving, if the case stops proceeding it will die. Process becomes more complicated when multiple specialists are involved. For instance, if a tax accountant and a life insurance specialist are working on different aspects of the case simultaneously, there is a high probability that conflicts will arise and stall progress, leaving the specialists and the client disenchanted. The wealth manager will closely monitor and cultivate the process, helping the specialists to communicate frequently and develop productive working relationships. The wealth manager will also ensure that the specialist makes no recommendations to the client without previous vetting.
Coaching experience has shown that effective case management is a key to expanding client relationships. Because this role is demanding and consuming, we are seeing increased use of appointed case managers on the staffs of wealth management firms. These designated professionals focus their efforts on keeping the process moving forward and coordinating the specialists, which frees the senior wealth managers for precious client interaction.
Wealth Managers Are
Excellent Cat Herders
"Ryan" put together a top-notch wealth management team with careful deliberation and planning. He created a composite of his typical client demographic and a short list of the most common specialist requirements. Then he vetted specialists within his community and his network to find those he felt had the highest levels of knowledge and professionalism. It was a significant amount of work, and one of the by-products of Ryan's effort has been an increased focus on case management, so he and his firm get the maximum benefit from their team of specialists. The problem he is now confronting-a common one among wealth managers-is keeping all the specialists working as a team over time.
All active specialists should be top-of-the-line professionals and leading authorities in their respective fields. But this stature comes with several drawbacks that need to be managed -time commitment, sharing expertise without compensation and taking a subordinate role.
If they are as good as you need them to be, that also means they are in demand and may have time constraints. You need to establish your requirements of them up front and be sure they meet them in order to receive more business from you. They must:
be available to answer questions from you or the client,
be willing to help you become conversant in their area of expertise,
be willing to debrief you on all cases,
be willing to consult on possible cases without the assurance of a "green light," and
trust your initial assessment of client opportunities.
In effect, while you might be sharing revenue (or not, as is the situation with most lawyers), your specialists provide back-up and help the client achieve his or her agenda. This requires a lot of time on the part of the specialist without the guarantee of business or income. These professionals must be willing to do this without charging for all his/her time.
An all-too-frequent issue is that many specialists are successful and, over time, may have developed strong client relationships. This, in turn, can result in them wanting to direct the relationship or to insert more control and dominance in the process. In order for wealth management to work, there must be a clear delineation of the model, the roles of the team members and a willingness on the part of the specialists to be individual contributors restricted to their area of expertise.
Keeping your wealth management team together and operating smoothly can be a daunting task. And from time-to-time, some specialists may drop out or need to be replaced. Many successful wealth managers equate it to herding cats, and more of them are relying on other people to help oversee and motivate the specialists. A team of professionals is core to the success of a wealth manager, and that means making sure it runs smoothly at all times.
Our studies and our practical observation tell us that wealth management is a serious decision for advisors that can be disruptive to their business and difficult to implement. We know that nine out of ten advisors fail in their attempt to transition their business model, but with each failure we learn more about how to correct pervasive mistakes and identify key skills and critical issues. The wealth management model will continue to be the premier vehicle through which wealthy clients are serviced, and advisors will establish their expertise and increase their profitability. Future generations of advisors can benefit from the missteps of their forebears by using these findings to build skills, reorient focus and settle in to the role of wealth manager.
Hannah Shaw Grove is the author of
five books on private wealth and advisory practice management. Russ
Alan Prince is president of the consulting firm Prince & Associates.