Wealth Management And Advanced Planning

Advanced planning can boost profits and enhance client relationships.

Editor's Note: The following column is excerpted from the authors' latest book, Wealth Management: The New Business Model for Financial Advisors.

The last decade, with its unprecedented bull run, painful recession and seemingly nonstop stock market volatility, left many affluent investors looking for financial guidance. The elixir often prescribed, wealth management, may indeed be the best remedy for what ails those investors, but it's also often imperfectly understood and improperly administered.

Wealth management, simply defined, is the ability of an advisor or advisory team to deliver a full range of interrelated brokerage, investment and advanced planning services to affluent clients in a highly consultative way.

But there's far more to it than that. Wealth management centralizes and simplifies each client's financial life by making one general contractor or CFO-the wealth manager-responsible for the full slate of financial products and services. The wealth manager is also responsible for finding and vetting the specialists who are brought in to provide advice, products and services outside of the wealth manager's personal field of expertise.

Importantly, the broader relationship framed by wealth management is not inextricably linked to the ups and downs of the stock market, which tends to insulate wealth managers from being judged solely on the basis of their investment performance. Moreover, because the relationship is many faceted-it's about far more than investments alone-a stronger, more personal bond is created between the affluent client and his or her wealth manager.

And based on our extensive research-more than 40 surveys of affluent investors and their advisors during the last decade that have involved more than 18,000 respondents-wealth management is not only regularly more profitable than the more traditional approach toward financial guidance of one advisor for each product and service, it's also the model that affluent clients tend to prefer.

The Three Components Of Wealth Management

As noted, there are three components of wealth management. The first two, brokerage and investment management, are not only the foundation of wealth management but also the ones with which most financial advisors are familiar and comfortable. That's less the case with advanced planning, which covers wealth enhancement, wealth transfer, asset protection and charitable giving. And it's advanced planning that makes wealth management both increasingly attractive to affluent clients and viable for financial advisors.

Why Advanced Planning?

Of course, advanced planning is not the only set of services that one might add to brokerage and investment management. The other three candidates would be credit (including mortgages as well as personal loans and, for business owners, commercial loans), property and casualty insurance, and administration and accounting services.

The question, then, is how did we determine that advanced planning was best suited to the wealth management model, the skills of financial advisors and the needs of affluent clients? The answer: We conducted an extensive, comparative analysis of the four sets of services based on three variables: risk-adjusted returns, ease of integration and the relationship-enhancement opportunity.

What The Research Showed

In the course of that analysis, we surveyed 813 brokers and 593 independent financial planners who had adopted the wealth management model. With regard to each of the three variables, a rating of 1.00 was defined as an optimal (if, in reality, unattainable) rating. Here's what we found:

Perhaps most persuasively when it came to making the case for advanced planning, it offered the highest risk-adjusted returns, eclipsing even credit where there's always the risk of default or bankruptcy (Exhibit 1).