Thinking And Acting Like A Wealth Manager It's the difference between offering products and providing solutions.
The following article is adapted from the authors' new book, Wealth Management: The New Business Model for Financial Advisors.
In past columns, we've cited our research to show that the wealth management model-offering a full range of brokerage, investment and advanced planning services and products in a highly consultative way-is not only what many affluent clients prefer but also a potentially more profitable way of doing business. We've also pointed out that wealth management is not for everyone; it may not be in sync with the way they do business, the wishes of their clients or their skills and knowledge base. To move from being a financial advisor to a wealth manager requires a seismic shift in the way that one thinks, works and interacts with their clients, prospects and fellow advisors.
For those ready to make the move and face the arduous work head-on, it's important to get an idea of how much ground has to be covered by comparing some of the characteristics of financial advisors and wealth managers (Exhibit 1)
Products vs. Solutions
The first point of differentiation-that financial advisors sell products and services and wealth managers sell solutions-may have been heard often enough to seem a cliché, but it concisely captures the difference between the two business models. A financial advisor may offer the latest mutual fund, a hot stock, or access to a highly regarded money manager. But each product is principally investment-oriented and represents a stand-alone, one-time sale largely driven by the client's level of investable assets.
For wealth managers, the client's long-range financial goals and needs, as revealed by a detailed and up-to-date financial and personal profile, lead to the choice of product. (The Whole Client Model, discussed in last month's column, is the key to that expanded understanding of each client.) And even when it is an investment option, it will not be selected and promoted solely on the basis of the client's investable assets or portfolio mix. In short, the product will be subsidiary to the plan.
This is a different way of going about, and thinking about, a client relationship. But once a client is seen as a whole person rather than simply an investor, the assets, as well as other opportunities, will follow. It is also in keeping with our research among affluent investors, which shows that they put the quality of the relationship above investment performance.
One other point in wealth management's favor: It's easier to exert control over a relationship than it is over investments. Even the most astute money manager can't outmaneuver a recession.
The Point Of The Product
Now let's take that first distinction, the focus on specific products, a step further. When an advisor recommends a product, he or she will lead with that product's benefits and why it works for the client. Further, the product will usually be promoted and sold separately, not as part of a holistic package.
A wealth manager has a more informed view of a client's total financial picture and a better understanding of his or her goals and limitations, and that understanding dictates which products come into play. As such, a product will be positioned, not promoted, as the next logical step in the client's ongoing agenda. Further, trust will be engendered as the client's needs and wants are put before products and services.
A Longer Menu
Because the products an advisor offers may have a limited scope-mostly investment oriented-there's a finite number of options to choose from. In contrast, wealth managers can offer their clients the same options, though positioned differently, and can also offer products and services that are not necessarily investment oriented, notably advanced planning options.
Wealth managers can deliver more products and services because they've cultivated a relationship where any of them may be appropriate at a given moment. A more detailed understanding of each client's financial and personal life leads to a longer menu. And because clients realizes their wealth manager understands them and are also aware that he or she is not pushing any one product or service, clients are usually more receptive to what is offered.