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Practice Management > Building Your Business

Alphabet Soup Decoded

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It is obvious to financial advisors and wealth managers that our profession has grown incredibly complex. What years ago was a business of rank-and-file individual stockbrokers or small, one-person financial planning shops has evolved into a profession focused on asset gathering and distribution, team-based consulting, relationship cultivation and holistic planning.

As the demands, regulations and expectations for the job increase, advisors are forced to continually upgrade their skills and knowledge. It’s no longer enough to just stay current. Successful advisors are lifelong learners who challenge the status quo and who recognize that competence, knowledge, trust and ethics are baseline professional assets.

It is not possible to define an advisor’s expertise and competence by one professional certification or designation. As advisor teams form based on specialties—portfolio management, asset allocation, alternative investments, legal, tax and estate planning, etc.—it’s essential that individual advisors focus on their strengths and move beyond the generalist approach that may once have been an industry standard. In common with other white-collar professional fields such as law and medicine, success through specialization requires credentialing, sometimes from multiple sources. Where is your focus? High-net-worth families and holistic advice? Constructing sophisticated portfolios for individual clients? Managing and selecting asset managers to grow your clients’ portfolios? One educational plan cannot accommodate all paths.

The financial advisory profession continues to shrink while the demand for our services continues to grow. Cerulli Associates forecasts advisor headcount to diminish through 2016 at a compound annual rate of 1.2%, meaning 18,600 fewer advisors in 2016 than in 2011. While many of these advisors are simply retiring, some are likely exiting the profession thanks to these increasing demands, and they’re not being replaced with enough able and willing younger recruits. Clearly we must have a better way to train and retain new advisors if our profession is going to meet the needs of the boomers and their successors.

Benefits of Adding Expertise

While some might think the term “wealth management” is defined too loosely in our industry, top wealth management producers earn more credentials—and more compensation—along the way. The path of lifelong learning is the path to greater client retention and business success.

In April, Aite Group, an independent research and advisory firm focused on the financial services industry, studied financial advisors and the impact certifications have on their career success. Aite found that professionals who have earned IMCA’s certified investment management analyst (CIMA) are more satisfied with their careers, gain more confidence after obtaining the certification, earn better compensation and manage more assets for higher-net-worth clients. Furthermore, 57% of CIMA professionals had at least one other designation, with the most common being a certified financial planner (CFP). Indeed, one-third of CIMA professionals surveyed by Aite also had a CFP designation.

Some other striking statistics of the value of CIMA, according to the study, include:

  • Solo and team practices with CIMA professionals manage twice the assets per client and generate twice the revenue per client compared to other practices.
  • Having more than one CIMA professional in a practice tends to open up the business to institutional clients (e.g., foundations, endowments and defined contribution plans). Practices with multiple CIMA certificants focus about 13% of their business on institutional clients.
  • Most CIMA professionals, 84% of those surveyed, own at least part of their practice, compared to 57% of other advisors.
  • Thirty-three percent of CIMA professionals surveyed earned more than $380,000, compared to 6% of other financial advisors.

Competition and the Need for Credentialing

Baby boomers and their parents have seen the creation of unprecedented wealth, and fortunes continue to grow as capital markets and business conditions rebound from the financial crisis. In fact, according to Spectrem Group’s 2012 “Affluent Market Insights” report, there are an estimated 1.1 million households with a net worth of $5 million or more in the United States. While that number might give the impression that there are enough clients out there for all practicing wealth managers to have vibrant practices, the truth is that the battle for such clients is as intense as ever.

“Competition for high-net-worth clients is fierce right now,” said Sophie Schmitt, a wealth management analyst at Aite Group. “Having a well-rounded practice is crucial.”

While most advisors start their careers with little expertise and small-asset clients, as they progress, the need and desire—not to mention the domain knowledge and personal skills—to service high-net-worth (defined as at least $5 million in household net worth) clients become paramount.

With this audience, a generalist approach will only take the relationship so far. Unlike mass-affluent clients, whose focus is mainly wealth accumulation, and whose ongoing needs generally include budgeting, investments, tax, insurance, estate and retirement planning, servicing the wealthiest clients requires more resources and specialties.

This segment of the market often includes executives and owners of large corporations, both closely held and publicly traded, whose concerns go beyond those of someone who might have built wealth simply as a successful career employee and diligent saver. Issues at this level will include wealth preservation and distribution, complex tax, estate and business planning, multi-generational wealth transfers, and hedging of concentrated stock positions. For these clients, multiple points of expertise and credentialing across a wealth management team are needed.

The Real Definition of Wealth Management

An important part of serving high-net-worth clients is understanding what wealth management requires in terms of skill and intangible qualities, as well as credentials. Unlike doctors and lawyers, who generally have a narrow focus to their practice, it is unclear on the surface what specialization options are available to financial practitioners. On the other hand, for practitioners who have a particular focus in mind, the opposite problem might exist: The number of credentialing programs can be overwhelming.

When doctors or nurses elect to specialize in a field or discipline, many choose to pursue a voluntary certification path. They know that the certification they ultimately select will effectively measure (and convey to the outside world) their competency in this discipline, because all medical certification bodies meet prescribed standards for personnel certifiers. The Investment Management Consultants Association (IMCA) applies the same standardized processes as these medical certifications when we set competency standards for investment advisors (CIMA certification) and private wealth advisors (CPWA certification).

Per these standards, when IMCA set out to define the appropriate body of knowledge for private wealth advisors, we commissioned an exhaustive study of advisors who serve high-net-worth clients. These 400 advisors represented a variety of professions: accountants, financial planners, investment advisors, estate planners, private bankers and trust professionals, etc.

This job analysis study created a curriculum of topics and a comprehensive examination for the certified private wealth advisor (CPWA) designation. The certification addresses the knowledge and skill competencies that are most relevant to serving high-net-worth individuals in a financial advisor capacity, including:

Human Dynamics. This portion of the curriculum is focused on understanding the relationship between advisor and client. A team that puts ethics above all else, is competent in academic behavioral finance, and is comfortable understanding family dynamics sets a strong foundation for a practice.

Wealth Management Strategies. The heaviest weighting of the CPWA program is technical knowledge and skills in tax, portfolio management, risk management and asset protection strategies and techniques.

Client Specialization. Successful practitioners who serve high-net-worth clients must understand the unique challenges and issues of closely held business owners, public company executives or wealthy individuals entering or in retirement.

Legacy Planning. This portion of a practice is as much philosophical as it is technical. Charitable planning, estate planning and wealth transfer not only involve extensive legal craft, but thoughtful discussion and advice before the first document is ever drafted.

Through internal research from IMCA, whose board of directors I chair, we have found that our membership is asking for education in areas beyond the technical aspects of their job. They want to know the most effective way to communicate with high-net-worth clients; it’s about dealing with emotions. We also found that good advice will rely on good partnerships with the right service providers. Lastly, on the topic of communication we were told that it is also important to use the right medium, whether it is web seminars, conference calls or something else.

In choosing the appropriate certifications, advisors must seek actionable knowledge. Financial theory might make for great debate, but may not always be practicable. Advisors should walk away from a class or conference and be ready to use what they’ve learned with clients when they return to work. For instance, there is a changing definition of risk moving from standard deviations to viewing risk as the potential loss of capital. As the job and financial markets get more complex, advisors must have the tools and be able to use them in making the complex simple.

The Need for Third-Party Regulation and Verification

While earning rigorous credentials as an advisor is extremely important, professionals must navigate a literal alphabet soup of options and determine which ones suit their career goals and will carry legitimacy with clients and peers.

Similar to higher education, where thousands of colleges of varying quality and prestige dot the American landscape, within the financial services industry there are more than 140 different certifications and designations. Significant differences exist between certificate programs, certification programs and university degrees, and they should not be considered equal when establishing financial advisory expertise. Some credentials take months and even years to attain, yet others can be completed in one weekend or simply bought and paid for.

The best way to determine legitimacy, value and authenticity of credentials is through a national or international standard designed for organizations that certify individuals, according to the American National Standards Institute (ANSI). The CIMA certification is accredited by ANSI. Fewer than 5% of certification bodies in financial services have completed any accreditation process for their respective personnel certification programs.

Getting certified takes time and energy, so it is important to choose the right program that fits your practice. Regardless of how one strikes the balance between lifelong learning and financial practice, the end game always comes back to why advisors enter the business in the first place: the clients. Finding the right mix of certifications and conveying the complexities of the job in a thoughtful manner will serve them—and you—best in the long run.


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