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.