From the June 2008 issue of Research Magazine • Subscribe!

How Will Advisors Handle Change?

Pick up any newspaper or magazine and the headlines are daunting -- Credit Crisis...U.S. Recession...Economic Slowdown. These are challenging times. And while the view on the Street is that the long-term drivers of global growth remain strong, the near-term disruptions are taking a toll on the average investor. Fortunately, at Merrill Lynch, our wealth management business has been relatively resilient in the face of the current environment. One reason is the dramatic change in how our financial advisors interact with their clients.

Thirty years ago, when the first issue of Research magazine hit newsstands, FAs were stock pickers. They were independent practitioners who tended to spend their days cold-calling clients and recommending stocks. This was a transaction-based business. In boom times, this strategy worked. But when times were bad, and stocks went down, clients would simply retreat from the markets and, in some cases, miss out on even greater opportunities down the road.

Flash forward 30 years and we have evolved to what is now a relationship-based business. The global marketplace is far more sophisticated and complex than ever before. Consequently, so too are the needs of our clients. People are living longer, fuller and more active lives. As a result, the way advisors engage with their clients has evolved as well. Today, wealth management is all about partnership. Clients need someone who understands the totality of their needs and can develop an innovative, long-term approach to help them achieve their goals.

At Merrill Lynch, we refer to our FAs as essential partners. As I like to say, they have a seat at their clients' kitchen tables, and are involved in all of the important investment decisions in their clients' lives. I have always believed that if you sell someone a financial product, as soon as a better salesman comes along or the market shifts, they will leave you. But if you become a partner in fulfilling someone's dreams, you begin a relationship that will last a lifetime.

Shifting GroundIf the past is any indication of the future, there's no question that the pace of change for our industry and clients will continue to accelerate. Advancements and investments in technology worldwide will, more than ever, have profound implications for the wealth management business. This will impact the way in which we interact with our clients and the way we evaluate and tailor our products and services through cutting-edge data-gathering and analysis programs.

Clients' needs and behaviors are changing as well. According to the Merrill Lynch and Capgemini 2007 World Wealth Report (WWR), client demand for specialized products and services has increased significantly over the last several years. Take, for example, environmentally and socially responsible investments (SRI). Thirty years ago, who would've guessed that, by 2005, $1 out of every $10 invested in public equities in the United States would be in SRI?

Perhaps even more powerful than changing attitudes are changing demographics. The Boston College Center on Wealth and Philanthropy estimates that as baby boomers continue to age, $41 trillion of wealth in the United States will change hands by 2052, giving a whole new urgency and level of importance to multigenerational planning.

Global ReachWe're also seeing an incredible amount of wealth creation overseas. For example, the WWR found the number of high-net-worth individuals (more than $1 million in investable assets) in Latin America grew by 10.2 percent, in the Middle East by 11.9 percent, and in India by 20.5 percent. In comparison, growth in the United States was 9.4 percent.

As all of these trends play out, firms need to be well positioned if they are to capture a growing share of this increasingly sophisticated market. FAs need to be expert in building long-term, lasting relationships, but also in building practices that are flexible, global, holistic and team-oriented. These FAs will require the support of powerful financial services organizations. They will need to bring their clients the full breadth of expertise, products and services, including in-depth knowledge in areas such as research, global markets, investment banking, traditional banking and alternative investments.

Successful firms will have the scale and resources to keep pace with the rapid advancements in technology. A commanding global footprint and a brand that transcends borders and cultures will be the price of admission for firms that play to win. For those firms that get it right, the opportunities are limitless.

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Bob McCann is vice chairman and president of Merrill Lynch Global Wealth Management.

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