The Truth About Wealth Management: Part I of II

But for those who are already aware of the onslaught of full-service brokers into their market, growing into a family office-like shop is perceived as a necessary defensive measure rather than a proactive strategic business decision. Too paranoid? Perhaps not. The latest research from AdvisorBenchmarking.com shows that 23.4% of advisors lost 3.4% on average of their clients to a full-service broker in 2002, up more than one and half times from a year ago. The Merrill Lynches of the world, with their armies of estate planning experts and executive-compensation consultants, may appeal more to a retired business owner than would a single practitioner with a slim array of offerings. Of course, customized service and personal attention is the key differentiator for such a single practitioner, but for even the biggest wirehouses, gaining such an attribute may not be too far out of reach.

As such, of the 410 firms (63% of the total universe surveyed) with two or fewer service offerings, 19% have indicated plans to add one or more new services to their practice, ranging from estate and tax planning to trust services and bill payment. Now get this: for those 19%, the average client loss to full-service brokers in 2002 was 5.78%, 1.7 times higher than the universe’s average, as displayed in Chart 3 linked below.

http://www.investmentadvisor.com/images/PE0203chart3.gif

A coincidence? We think not. It is this growing competition from full-service brokers and others that is driving these firms to expand. And though the majority of firms participating in the survey still do not have plans to incorporate more services, more than 26% have rated “competition from full-service and discount brokers” as a top business threat, up from 18.1% a year ago. Don’t get us wrong, within this challenge lies a great opportunity for firms to evolve into true wealth managers. A recent survey by J.P. Morgan showed that clients of advisors who offer three or more services were significantly more satisfied than clients of advisors with fewer than three service offerings.

So what does it take to become a wealth manager? The challenges are many. In our next issue we will examine the various obstacles facing advisors, as well as the options available to them in incorporating comprehensive wealth management into their practices. Until then, advisors who are considering wealth management should recognize the main drivers behind this trend and pursue their ambitions accordingly.