From the March 2007 issue of Research Magazine • Subscribe!

March 1, 2007

Financial Advisor Global Reach

American culture and behaviors from movies to fast food, get exported every day -- and wealth management is no exception.

Of course, private banking, the precursor to modern-day wealth management, didn't start in the U.S. Bankers in Geneva became advisors to ministers and kings in the 18th and 19th centuries. By the 20th century, Geneva's private banks were specializing in asset management for the very wealthy.

This is the most probable basis for the adoption of private banking and family offices in the U.S. in the 20th century. Yet it's here in the U.S. that financial planning, or wealth management for the "semi-affluent," has taken root, ultimately being exported back to foreign developed and developing countries.

That comes as a result of the joint, post-World War II efforts of the Financial Planning Association and those U.S. wirehouses that ventured abroad. The first historical archive of the financial planning movement in this country, created by E. Denby Brandon Jr. and H. Oliver Welch, two of the first chairpersons of the Certified Financial Planner Board of Standards, includes financial plans dating back to the 1950s. However, the FPA dates the profession's formal birth as 1969, and we know that the College for Financial Planning opened its doors in 1972.

Meanwhile, Merrill Lynch, one of America's truly global wirehouses, opened its very first office outside the U.S. in Havana in 1941, says Daniel Cochran, Merrill Lynch's chief administrative officer for Global Private Client. "It was a small outpost, relatively close to home, that was followed by real global growth after World War II," says Cochran. In the '60s, Merrill opened offices in London, Geneva, Hong Kong and Singapore in rapid succession, serving the largely expatriate population left over from the war," he adds.

Today, Merrill has a presence in 37 different countries. The company views that presence as including either capital market activities, private client (wealth management) services, or both. "In some countries, such as Germany, we're only in the capital market and not the private client side of the business," says Cochran. All in all, about 11 percent of Merrill's total private client business originates outside the U.S., while on the capital market side, the number is closer to 52 percent.

Private client services are strongest in Geneva and London, says Cochran, and then one must go all the way to Hong Kong and Singapore to see major private client activity. "We've also had major initiatives in Canada and Australia," he says, "with success coming primarily in the affluent client segment, leading us to settle on business models directed at high-net-worth [$1 million to $10 million] and ultra-high-net-worth [$10 million-plus] clients." Two exceptions, says Cochran, are India and China, because those populations are big and the affluent segments are growing rapidly.

The exportation of wealth management services has been aided by the FPA, as well, especially since the inception of the organization in 2000 from the merger of the Institute of Certified Financial Planners and the International Association for Financial Planning. In spite of the "International" part of one predecessor's moniker, the FPA went through a period just after its formation where it questioned what it wanted to be, says Laura Brook, FPA Director of International Relations. "We were trying to be visionary, and in thinking about our international involvement and our role as a leader in the financial planning profession, we decided it was important to share and be involved with our sister organizations around the world," says Brook.

When Brook says "sister organizations," what she means is that various foreign FPAs are independent from the U.S.-based organization. "A foreign FPA might start when a group of planners contacts us to find out how to start their own FPA. For example, Australian planners started coming to the IAFP's conferences and [in 1992] modeled their own FPA after the IAFP here." None of these sister organizations have any formal ties to our FPA, claims Brook, just a common vision and the ability to grant the CFP mark. As evidence of their desire for a common vision, CEOs from four such organizations in Australia, Canada, Hong Kong and South Africa gathered in Denver in late January 2007 to meet with representatives of the Financial Planning Standards Board and CFP Board.

Merrill Leads the Way

Much as the FPA had to decide what it wanted to be, Merrill Lynch faced the same question, says Cochran. "We're a full-service, U.S. broker-dealer. Our mantra has been, 'how do we grow this business faster and bigger?' We've settled on both organic and inorganic growth models, so we'll be doing joint ventures and partnerships, as we have in India and Japan, and will be on the outlook for acquisitions as well." He says Merrill would like to do two to three times the business it currently enjoys outside the U.S.

Its options, it would seem, are to do new business in new locales or do more business where its presence is already strong. "Actually, we have a three-pronged plan," says Cochran. "In Europe, we want to grow where we already have a substantial presence, that is, in the United Kingdom, Italy, Spain, France and our Swiss bank in Geneva, which is 20 years old with $16 billion in assets." In these countries, Merrill does a thriving business in financial advisory, discretionary wealth management and wealth structuring, or trust and estate work.

"In the Asia Pacific, we'll focus on China, Taiwan, Korea and, of course, Singapore. And in Latin America, we're focusing primarily on Brazil. Our challenge will be to figure out how to implement local currency offerings and how to leverage our capital markets presence."

Merrill imprints its version of wealth management on foreign markets with one less competitive hurdle than it faces at home. "Independent advisory firms are not well developed overseas," says Cochran. "Our competition is largely international banks, such as Credit Suisse. And we don't really compete with other broker-dealers. Private banking is wealth management [in foreign markets]."

Penetrating these markets effectively means hiring locally. "While most high-net-worth clients speak English, we've found we're much more successful if we have local people advising and running our businesses locally," says Cochran.

And those locals may accrue some of their expertise from the networking experiences afforded them by membership in any one of 34 foreign country Financial Planning Associations. "We are happy to have the opportunity to network globally," says Brook. "The core philosophy of financial planning is the same all over the world."

Our FPA decided long ago that it made more sense to encourage the development of worldwide sister organizations than to solicit their members for membership in the U.S. FPA. "We don't want to compete for their memberships' dollars," says Brook. "We'd rather support them." One of the ways in which this happens is the U.S. FPA's licensing to sister FPAs content from the Journal of Financial Planning.

Our FPA is also creating a quarterly electronic newsletter to be shared with sister organizations. "It's something they can brand as a member benefit and send to their own members." Sister FPAs reciprocate by linking their websites to our FPA's site when its annual conference is coming up. In so doing, news of our FPA's conference goes out to over 40,000 planners in eight foreign countries, a subset of the 100,000 or so CFPs licensed in 20 countries.

Together, the FPA and firms like Merrill Lynch and UBS (see sidebar) are successfully exporting to the rest of the world America's peculiar brand of wealth management that extends beyond the private banking services required by ministers and kings of earlier centuries to encompass the needs of the merely affluent and semi-affluent, wherever they may exist in the world.

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Serving over 60 countries worldwide, UBS offers financial planning, portfolio management and assorted other services such as family business planning, art banking and gold and numismatics.

To be able to offer wealth management services to the citizens of so many different countries, UBS simplifies somewhat the portfolio management process. Foreign clients choose between six investment strategies with different risk-return profiles, and five reference currencies, namely U.S. dollars, euros, Swiss francs, U.K. pounds and Canadian dollars.

Although the fundamental financial planning process doesn't differ from one country to another, UBS' financial planning and wealth management experts design investment portfolios for foreign clients with potential tax effects in mind.

For clients desiring a customized planning relationship, UBS offers its Active Advisory service providing the foreign client with proactive advice and comprehensive portfolio monitoring in tune with their individual investment strategies, though without discretionary control. UBS' investment specialists screen the financial markets and develop information personally relevant to the Active Advisory client, as well as recommendations, all of which are in line with the findings of UBS Wealth Management Research.

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David Drucker is an independent financial advisor and consultant; reach him at www.DavidDrucker.com.

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