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Practice Management > Building Your Business

Embracing Wealth Management

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“Wealth management” is such a hot topic these days that there’s a very real risk that the term itself will devolve into a meaningless, inconsistently defined buzzword. This article will focus on the truth about wealth management: what it is, what it is not, and why it is, in fact, the winning business model of the future that you should choose to embrace.

Three Business Models

Research by CEG Worldwide principals shows that virtually all financial advisors work within one of three business models: product specialist; investment generalist; and wealth manager.

A product specialist sells predominantly one type of product — mutual funds, managed accounts, annuities, municipals bonds, etc. — in order to meet client needs. If the product being offered is turned down, or just isn’t appropriate, a product specialist is quite comfortable with saying “Next!” and moving on.

Product specialists are single-focus prospecting and sales machines who tend to do fairly well in down markets simply because the state of the markets has little effect on their actions.

Next, an investment generalist follows a part needs-based and part multi-product approach. After briefly interviewing a potential client to determine his or her needs, a suite of products will be offered. If the potential client says, “I like these three, but not these two,” the investment generalist says “fine,” makes the sale of the three products, offers two alternatives for the refused products and moves on. Importantly, an investment generalist typically takes on all comers; that is, potential clients aren’t qualified by amount of investable assets or other general profile characteristics.

Finally, wealth managers follow a fully needs-based approach by establishing in-depth consultative relationships with affluent clients and then delivering customized solutions to meet a broad range of financial needs. The wealth management model is predicated on having affluent clients — people who can afford to pay for customized solutions to their financial goals and challenges. And the only way for an advisor to effectively design such customized solutions is to first spend a great deal of time with such clients in order to fully understand their financial needs.

More Than Financial Planning

By way of contrast, consider the failed financial planning business model (FPBM) of the 1980s (the wealth management model is sometimes said to be nothing more than the FPBM slightly updated). The first critical flaw of the FPBM was that advisors were taught to offer financial planning to anyone and everyone without any regard to their ability to pay for it. Wealth managers, instead, recognize that to be successful, they must offer an enticing value proposition to a large enough pool of potential affluent clients. In other words, the wealth manager seeks potential clients who are both willing and able to pay for the value that is being offered.

The second critical fault in the FPBM was that advisors were taught to be a “one-stop shop” and to “do it all themselves” — that is, to never send a client to another professional for fear that the client would somehow be stolen away. But the idea of a “one-stop shop” is fundamentally flawed, especially when working with the affluent. Just as affluent clients want their financial advisors to be top-notch experts in investment management, they also want their other advisors — whether in insurance, estate planning, banking or accounting — to be top-notch experts as well.

Having a license to sell insurance doesn’t by itself qualify you to handle the insurance needs of a wealthy client, and buying a $200 software program doesn’t qualify you to write an estate plan for someone worth $10 million. The heart and soul of wealth management, then, is being able to deliver a broad array of financial-related services to clients through the use of a trustworthy network of experts. As a wealth manager, you act as your affluent clients’ personal chief financial officer, ensuring that other experts in your network expeditiously address all of their needs.

The Winning Business Model

As the table above shows, wealth managers have higher average gross production and more assets under management than advisors using the other two business models, yet by far have the fewest clients.

By having fewer clients, and by having closer relationships with those clients, wealth managers also typically have a better quality of life. Wealth managers can move beyond just having practices, and can instead build businesses that not only can be run without their constant attention, but are worth far more.

Recent Trends

Just as specialists in almost every field tend to do better for themselves, successful wealth managers, as specialists in learning and serving the needs of the affluent, tend to have more financially and emotionally rewarding careers. Somewhat surprisingly, however, as the charts below show, the number of advisors who actually function as wealth managers (not those who merely label themselves as “wealth managers”) has gone down from 2001 to 2004, from 12.3 percent to 8.4 percent. How can this be explained and what does it mean? (Note that there was also a drop in the number of product specialists, which can be explained by legal, regulatory and compliance pressures on those who mainly sell a single type of high-commission product.)

Change requires commitment, dedication, and discipline, and as human beings we are most likely to implement change when we are in pain or when there is otherwise a real problem. If a problem fixes itself or the pain goes away, then we typically abandon our new course of action. Between 2002 and 2004 the financial markets substantially recovered from the earlier technology crash and bear market. It is not a surprise, therefore, that many of those who were attempting to transition to the wealth management model abandoned their plans once their circumstances improved.

In the long run, however, there is little doubt that the wealth management business model will prove the wisest choice for those willing and able to make the transition. Yes, you can make a good living making hundreds of cold calls and working sixteen-hour days, but whether or not you’ll enjoy it and live a long, happy life is another matter. So instead of spending your time with a $10,000 client to gain some immediate income, focus your efforts on developing affluent clients and working within the wealth management business model.

Moving to wealth management will give a focus to your prospecting, encourage you to develop an ideal client profile, force you to develop a reliable expert network, and teach you how to deal with and best serve affluent individuals. The transition to wealth management is certainly not for everyone. But if you succeed, not only will you make more money, you will build a business of far greater value and likely enjoy yourself a great deal more along the way.


PATRICIA J. ABRAM is a senior managing principal with CEG Worldwide, a research, training and consulting firm. She is based in Wellington, Fla.


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