Unfortunately, there are three factors that are going to strip away a lot of this inertia:
First, technology is increasingly dehumanizing the wealth manager client experience. Clients do not have to talk with anyone at the firm and can still instantly see how their investments are performing, whether they are still on track to meet their goals, etc., by just going online. And unless there is some big change in their lives, there really isn’t a reason to meet often with their advisor. At the same time, clients are being bombarded by ads from various robos offering to do for free the preponderance of the value-add their wealth managers currently provide – i.e., managing their investments.
Second, client needs are far from static. As Professor Laura Carstensen from the Stanford Center on Longevity has pointed out, the perspectives of individuals often change immensely as they age. Those clients who in their 50’s, were focused primarily on building sufficient wealth to meet their financial goals, turn 60 and are now suddenly obsessed with finding meaning, purpose and belonging in their work and lives. Sure, money is still important but, so long as some personal minimum threshold is met, the client’s primary focus is on fulfillment.
Finally, at some point in the near future there will be real competition in the industry not just for new clients, but also for existing ones. While there is some client poaching today, it has largely been driven to date by poor investment performance. In the future, however, it will be driven by other firms marketing services that clients need or want and that their current advisor does not provide. (Or that the incumbent firm fails to make clients aware it can provide.) And even long-term clients – who never complain but are noticing that others are willing to do for free largely what their wealth managers charge them for – may decide that they have outgrown their advisers and need to move to another firm that better understands where they are at that point in their lives.
Consequently, many of the best firms have decided both for business reasons and how they view themselves that it is very important that they be able to provide truly comprehensive, holistic advice to clients over the life of a relationship. As noted in earlier articles in this series, many are expanding their value-added to help clients create capital as well as more efficiently consume it. They also are improving their investment function to include things that neither robos or clients on their own can do – i.e., direct private investing, strategies that generate tangible social benefits that can be quantified, and more.
More importantly, they are rethinking the client experience they provide. They recognize they will need to anticipate – rather than just react to – what individual clients are going to need. As part of this, some utilize software that tracks online whether a client or a family member is getting married, divorced, sued, promoted, fired or bought out -- all events that trigger major changes. And rather than waiting for a call, they go to the client with a plan to address the necessary issues, many of which the client has no idea are even things he or she should be worried about. (Does this sound at all familiar to what advisors do at the beginning of a relationship?)
They also understand that, because the priorities of individual clients are going to evolve over time and that many are going to wake up one morning and be unsure what they want to do with their lives, their ongoing advice has to anticipate these changes. And long before such a moment arrives, they have had many discussions with clients that include potential alternatives that will help them to better navigate this natural life passage should it occur.
None of this is surprising if you study any other service industry. Overall client experience is almost always one of the biggest determinants of whether organizations are the long-term winners and losers. But far too many wealth managers today are able to make a lot of money by simply investing big up front in the client relationship while not providing a boatload of incremental value added thereafter. And one day many of their clients are going to turn to them and ask “Why do I continue to pay you all of this money?”
Mark Hurley is the founder of Undiscovered Managers and co-founder of Fiduciary Network.