“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.