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What Makes the Top Wealth Managers Tick?

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2010 is a landmark year for the financial industry–given ongoing tumult in the economy and markets and legislation that is emanating from Washington. Change may be the watchword for this year and next–and registered investment advisors (RIAs) will feel it along with nearly every other financial services entity. For RIAs and broker/dealers, these will be the most fundamental changes since the Securities Exchange Act of 1934 and Investment Advisers Act of 1940.

Regulatory uncertainty was cited as one of “three most critical risks to your firm” by many RIAs who completed the 2010 Top Wealth Managers annual survey. Perhaps the biggest change will be if brokers who provide advice to investors would have to do so under the fiduciary standard, as RIAs do under the Investment Advisers Act of 1940.

For, this is a landmark as well: it is the 10th anniversary of the annual Top Wealth Managers survey. This year there were 52 questions on the survey, and we appreciate the time participants took to provide the candid answers to those questions. This assures that we have the most current, comprehensive information about RIA firms. All in all, 348 firms qualified to be part of the Top Wealth Managers rankings, which are based on firms’ average assets under management (AUM) per client.

This year, we deliver a new Top Wealth Managers section with Philip Palaveev’s Special Report and analysis, our exclusive survey findings, profiles of Top Wealth Managers, and a new way of looking at our rankings. In addition to the classic rankings for this annual survey by average AUM per client, there’s an interactive database that will enable you to see firms sorted by many different attributes, including total AUM, average AUM per client, city or state, year the firm started, minimum fee or alphabetically. And, we’ve provided active links to participant firms’ Web sites.

The Top Wealth Manager rankings range from Athena Capital Advisors LLC, a multifamily office with an average $105, 805,381 per client, to The Mutual Fund Store, a franchise network of fee-only RIAs with an average of $171,012 per client. But total AUM is a different picture: the highest total AUM for the group belongs to GenSpring Family Offices, with $17,967,269,369 in assets; the smallest in the group is the $50,374,218 in total AUM at Loretta Nolan Associates LLC.

Critical Risks to Clients

When we asked, “What are the three most critical risks to your clients now?” there was one undercurrent running through many of the answers: uncertainty. Uncertainty about taxes, estate plans and interest rates has made it challenging to plan or to allocate assets in the classic ways. Estate planning was unexpectedly thrown up in the air by the failure of legislators to enact laws governing the estate tax by the end of 2009, eliminating the estate tax in 2010, changing the basis calculation and, of course, the estate tax comes roaring back at the stroke of the new year 2011.

Clients are also concerned with job loss, continued volatility in the markets and economy, outliving retirement savings, and helping the next generations deal with wealth in responsible ways. These issues are among the ones that “keep clients awake at night,” and they keep advisors awake at night too.

Critical Risks to Advisors

In addition to what worries clients, advisors are concerned with continued uncertainty in the markets and economy, recruiting and retaining talent, managing growth, succession planning, and technology risks, like keeping up with technology or integrating the disparate systems across vendors, but disaster recovery and identity theft. RIAs also are concerned about whether to allocate for inflation or deflation and the low interest-rate environment.

Primary Investment Goals

“Wealth preservation” is the “Primary investment goal of the majority of clients,” according to 65% of Top Wealth Managers, followed by “capital appreciation” as the primary goal for 28%. Four percent of participating RIAs say “income” was their clients’ primary investment goal.

Due Diligence

Due diligence is another item firms are paying close attention to. After the Madoff and other scandals in the past two years, as well as complex investment products that snagged many investors (collateralized debt obligations or auction rate securities come to mind), many Top Wealth Managers take no prisoners when it came to due diligence, with 63% conducting due diligence in-house, while another 30% had a belt-and-suspenders approach, using a combination of in-house, third party and platform providers’ due diligence services.

Important Services to Clients

We asked participants to rank the “services that are most important to your clients.” “Investment management” was the top-ranked service, with 72% of Top Wealth Managers ranking that the number-one service for clients. Tax planning was clearly important as well, with 54% ranking tax planning as number two or number three.

Estate planning was ranked as the second- or third-most important service by 46% of participants, and risk management was ranked number two or three by 29% of survey participants.

Family Offices

Family offices comprise 15% of the Top Wealth Managers for 2010. Most of those, 93%, are multifamily offices, reflecting a trend for single-family offices to join forces with other either multifamily or single-family offices, as scale can help manage the costs of running family offices. Multifamily offices can also provide career paths for wealth advisors and investment managers within the larger organization–helpful in retaining talent. And there is also the potential for shared wisdom and networking among the peer families served by multifamily offices–which can help retain client families.

Read much more about the 2010 Top Wealth Managers and our new, interactive rankings.

Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.


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