The Role Of Stress Testing
The idea that a financial advisor or any professional can bring “new” wealth management solutions to a client is increasingly limited. This is more the case going up the wealth spectrum. There is pretty much nothing billionaires or their teams of advisors, for example, have not been shown (see sidebar).
This does not mean that—when it comes to wealth management—everything the ultra-wealthy are doing is the “best” thing for them to be doing or the “best” way to get the results they are looking for. When potential issues and concerns are uncovered, even billionaires with their legions of advisors are often very willing to engage in stress testing some or all of their wealth management solutions.
The same is even more evident among the less prosperous. Overall the ultra-wealthy, as well as the merely wealthy and affluent, likewise want to make sure their wealth management solutions are going to enable them to achieve their goals and objectives. When stress testing is properly introduced, they also are generally very willing to stress test their wealth management solutions.
Done well, stress testing provides incredible value to any client. However, only the more sophisticated clients such as a large percentage of the super-rich tend to initiate stress testing on their own. Currently, for the great majority of the ultra-wealthy, professionals such as financial advisors need to set the stress testing process in motion.
Initiating stress testing is usually quite easy when financial advisors are centering their discussions on the human element. In contrast, discussions about wealth management strategies and products from investment portfolios to estate plans will occasionally elicit some interest but fail to get the strong positive reactions and desire to move forward as discussions where the focus is on the human element.
Making the human element center stage is actually quite easy. There are highly developed profiling and framing systems, interactive dialogues and questioning protocols and behaviorally oriented decision trees that financial advisors can use to move from concept to stress test. In fact, the use of these tools and behavioral strategies makes the decision to stress test, as well as all follow-through activities, including adjusting their wealth management solutions, flow easily for most clients.
High-End Technical Proficiencies
Although successful stress testing hinges solidly on the human element, it would be a mistake to overlook the need to have high-end technical proficiencies. An aspect of stress testing is being able to dissect the wealth management services and products a client has and conduct comparative analyses with other possible solutions.
Sometimes these analyses are simple because the wealth management solutions are not complex. However, especially when it comes to the ultra-wealthy, the analyses tend to get quite complicated. Being able to take any wealth management solutions apart and provide viable alternatives does indeed require a high degree of technical proficiency.