Wealth Management Is Hot. Is It For You?
Wealth management is the phrase du jour. Across the financial services industry the term is being bandied about. Increasingly, everyone (from stockbrokers to life insurance professionals to private bankers) is calling themselves a wealth manager.
What is so interesting is that while more people are becoming wealth managers, the term itself–in many circles–is harder to pin down. A lucid definition of “wealth management” is quite often quite elusive. Different kinds of advisors seem to have a different take on what the expression means, as do many of the senior executives in financial institutions.
It is important, however, to sort out what this business model offers, so we can evaluate its effectiveness.
What is necessary is to achieve real clarity when it comes to wealth management. First, it is essential to precisely define just what it is. And, with that definition in hand, the bottom-line question is: “Does wealth management work?”
Defining Wealth Management
Very often “wealth management” is discussed in nebulous terms. It is said to have something to do with a more intense version of investment management or–closer yet–a “holistic approach” to serving the client.
However, while these concepts are not wrong they are of limited value in enabling any advisor to be more successful. Being more successful–in the final analysis–is why advisors are motivated to create a wealth management practice.
From an empirical perspective, defining wealth management is straightforward. Quite simply, wealth management is the cross-selling of services and financial products.
The point is that wealth management can be a different array of services and financial products depending on an advisors current portfolio of offerings. For example:
- For a stockbroker who presently provides investment management services, wealth management would be the addition of advanced planning services and life insurance products.
- For an accountant, who is offering tax planning services, the incorporation of investments and insurance in the context of advanced planning equates to wealth management.
- For life insurance professionals, wealth management becomes the inclusion of money management services and products.
It is therefore best to think of wealth management as a platform from which the advisor provides a number of interrelated services and financial products.
That is the easy part. We now come to the real crux of the matter: Is it a good idea for life insurance professionals to be wealth managers?
Does Wealth Management Work?
There is a lot of anecdotal evidence supporting the wealth management model. Most everyone from producers to senior executives at insurance companies can readily point to producers who have been successful adopting this approach. But, are these just isolated cases or is wealth management a viable business model for producers?
To answer this question, we empirically evaluated the matter. We directed our investigation at those producers who provide wealth transfer planning.
Our research sample comprised two matched sets of producers making between $75,000 and $100,000 annually selling life insurance. All the producers in the study generated their income through commissions on life insurance sales. A total of 266 producers (133 in each group) were followed over a two-year period. The two groups were matched statistically so we could compare apples to apples.
One group (Life Only) continued to exclusively market life insurance. The second group (Life + Investments) sold life insurance, but also sold fee-based asset management services in the form of a mutual fund wrap program or managed account program. The Life + Investments group saw their income shoot by the Life Only group. (See exhibit).