That's the cardinal rule of successful wealth management.
(Note: This is the second in a series
of articles about the risks, rewards and challenges of wealth
management, as well as the ever-changing tools of the trade.)
Last month, we delivered our update on the state of
wealth management, and the news was mixed, to say the least. While
recent research we've conducted shows that successful wealth managers
can increase their profitability by at least 35%, the vast majority of
people who call themselves "wealth managers" are in fact falling well
short of the mark both job-wise and money-wise.
This time around, we'll take a look at what many of
them are doing wrong-not getting to know enough about their affluent
clients-and what they can do to address the problem-employ a more
comprehensive information-gathering tool such as one we've previously
discussed in this column, the Whole Client Model.
There's no question that many financial advisors
want to become wealth managers. They're attracted by a business model
that's been shown to increase profits per client and help add more
affluent clients to their roster, most often through referrals from
accountants and lawyers who work with the wealthy. More importantly,
wealth management has proven to be what affluent clients want as it
gives them a level of personal attention that can go well beyond their
portfolios to encompass every aspect of their financial lives. They are
rich, they are different, and they wanted to be treated accordingly.
Still, as noted, most of the aspirants are not making the grade on
their way to wealth management. In fact, a recent study we conducted of
more than 5,000 professionals who called themselves wealth managers
found that only 10% actually fit the profile.
Where are they falling short? In our work with
financial advisors who want to become wealth managers, we've found that
far and away the biggest problem is a lack of in-depth client
knowledge. Why is that such a problem? Because in the financial
services industry, and indeed any industry, if you don't know enough
about your clients you're not only going to be hamstrung when trying to
make the right recommendations but, worse still, you may make
recommendations that are just plain wrong because of inadequate or
incomplete information.
A Comprehensive Profiling Approach
To reiterate, wealth management means being able to
address every aspect (or selected aspects) of a client's financial life
in a consultative way with a complete range of products, services and
solutions. And that means learning far more about each client, because
the more you know, the more opportunities you have to give your clients
what they want. And that's where the Whole Client Model comes in.
The Whole Client Model is based on fact-finding
methodology used by leading financial advisors. It leads to a profile
that encompasses the full array of individual client needs, including
wants, facts, figures, attitudes, perceptions, preferences, advisor as
well as nonadvisor relationships, social dynamics and thought
processes. It is also one of the key differences between the typical
client/financial advisor relationship and the client/wealth manager
relationship. And with more and more advisors aspiring to become wealth
managers, it's a good time to revisit and review this essential tool of
the trade.
So where does that information come from? As we all
know, in the financial services world fact finders come in every shape
and form, but most of them have one thing in common: They focus on
assets, not the client. To create a more comprehensive and actionable
fact-finder, we distilled the components of the client profile into
seven categories (only one of which is assets). Here's the broad
rationale for each of those seven categories:
Vitals: Provides wealth managers
key demographic information about the affluent individual.
Goals: Enables wealth managers
to focus on those actions that will achieve the client's "true" agenda.
Relationships: Lets wealth
managers know not only who's important to the client, but how they're
important. This line of questioning often provides insight into who
might-or might not-be involved in the estate planning or business
succession.
Assets: This is the most
straightforward category and the one that the greater majority of
financial advisors are both most familiar and most comfortable with.
Advisors: An often overlooked
but critical category, this provides insight about structuring a
relationship with an affluent client as well as to which other
professionals might be involved in selected discussions and processes.
Process: This is where wealth
managers uncover the ways that a client wants to relate and work with
them.
Interests: This last category
can prove instrumental when it comes to crafting various wealth
management solutions, identifying commonalties that foster rapport and
probing charitable intentions.
With that framework, here are some sample questions.
Keep in mind that the questions will vary from client to client or may
be adjusted and elaborated upon as one progresses. Also, all of the
information need not be educed at one meeting; more often than not, it
comes out over the course of several interactions. Indeed, the
fact-finding process itself can be as important as the information
gathered, as it gives the wealth manager one or more opportunities to
connect with their affluent client. Finally, some people in our
industry may not be comfortable with this far more intimate approach,
whatever the potential payback. If that's the case they may not be
suited to become wealth managers, as it hinges on a far higher level of
client interaction that, in turn, leads to more business per client.
Exhibit 1: Sample Questions
Vitals
How old are you?
What is your total net worth?
What is your average annual income?
Goals
What are your professional goals?
In what ways do you feel
obligated to your children, your spouse, other family members, friends,
society and the world at large?
What are your quality of life desires (houses, travel, boats, cars) ?
Relationships
Which family member
relationships (spouse, children, brothers/sisters, parents, etc.) are
most important to you and why?
What is your religious orientation (and how devout are you)?
What pets do you have?
Assets
What does your investment portfolio look like today?
How are your business interests structured?
How do you make money today (and how is that likely to change in the next three years)?
Advisors
Who are the other advisors you work with and what role does each advisor play?
Of late, how frequently have you switched advisors?
What were your best and worst experiences with an advisor?
Process
How many annual contacts are optimal and in what manner (face to face, phone, e-mail)?
What security measures are you
using to protect your personal and financial information?
Who else should be involved in the planning process?
Interests
What are the your favorite activities, TV programs, movies and sport teams?
Are health and fitness important to you (and, if so, what's your regimen)?
What charitable causes do you donate to? Volunteer for?
What's the payoff for all this hard work? First, a
wealth manager will have the in-depth information to make targeted
recommendations of products, services and strategies on the client's
behalf. Further, as noted, as a result of the process itself the client
also will be aware of a level of interpersonal connection. That, in
turn, leads to an environment of trust and confidence that's vital to
successful wealth management. Finding out everything you can about your
client is not the norm nor is it easy. But wealth management won't work
without it.
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.Note: This is the second in a series of articles about
the risks, rewards and challenges of wealth management, as well as the
ever-changing tools of the trade.)