The Changing Face of Wealth Management

What Do You Need to Be a Wealth Manager?

The Investment Management Consultants Association has a unique view into the changing wealth management landscape and what it takes to be a wealth manager now and in the future. IMCA is known for awarding the respected CIMA certification, but it also launched the Certified Private Wealth Advisor (CPWA) designation in 2007.

Executive Director Sean Walters said that for high-net-worth clients, “value” will become an increasingly important factor: “What’s the cost and what do I get in return” for wealth management advice?

CIMA saw a big increase in applications for its CPWA education classes in 2014—“up 34% over 2013,” Walters said, with 54% already being CFPs—for “a wealth credential covering all those topics related to a high-net-worth individual.”

Jim Dobbs, director of education at IMCA, said the CPWA coursework at the University of Chicago is “a natural extension of the CFP curriculum,” though not as broad, since CPWAs likely won’t be helping clients “pay off their credit cards.” For HNW clients “with $5 million to $10 million,” said Dobbs, who holds the CIMA, CPWA and CFP certifications, the more important issues tend to revolve around family dynamics and legacy planning, “moving from one generation to another.” While tax and estate planning issues are covered, so are “psychological issues,” Dobbs said. Then there’s behavioral finance—“for most of us as practitioners, it helps us help clients”—and alternative investments. “Wealth managers need to be competent in alternative investments,” Dobbs said. “It will come up with all their clients,” though alts may not be appropriate for all those clients.

Walters argued that the CIMA program also reflects the changing face of wealth management. “The core of investment management is becoming broader and more sophisticated,” and what CIMA has heard from its holders is that they want more education on alternative investing, behavioral finance and risk management. Advisors, said Walters, “are being paid to protect clients from all sorts of risks these days.”

So why are already experienced and certified advisors looking to get the CPWA certification? “Our chairman, John Nersesian [of Nuveen], would say that client expectations are rising and client sophistication is expanding,” Walters said. Advisors are seeking “more in-depth professional development” as well. Dobbs said, “You’re getting the tools to deal with what the high-net-worth client needs: unique situations [including] finances and family dynamics; asset protection issues will also be important.” Compared to lower-net-worth clients, “charitable giving will be very different.” Having a CPWA also makes an advisor a more valued member of a multi-disciplinary team, which often serves the HNW client. “There are a number of CPAs who come into our program,” Dobbs said, and having a CPWA allows an advisor to “talk to the attorneys and CPAs” on the wealth management team, “in addition to talking to the clients.”

A CPWA certification won’t necessarily “give you all the skills” of a CPA or a tax attorney, Dobbs said, “but you can acknowledge the challenges.” Further, if you “know there are some tax codes that affect a client selling a $20 million business and can raise those issues,” then the client will perceive your value more clearly. That may come in handy, Dobbs said, “when the robos start offering” services like advanced tax or estate planning, “when, and if, they start making money.”

Wirehouses, already heavily represented in the ranks of CIMA holders, are also embracing the CPWA designation, Walters pointed out. And as for the team approach to wealth management, Walters said, “Merrill Lynch is a firm that gets this. They’ve launched a client experience system incenting people to be part of a team around a variety of metrics,” with team members required to hold at least one of several advanced designations, including the CIMA, CPWA, CFP or ChFC .

How to Succeed in Wealth Management

Fidelity’s Oros said that in the new wealth management landscape, advisors “need to have a real business strategy, and to understand the unique requirements” of the evolving wealthy in particular. To reach the emerging affluent, he said, some advisors will need “help in effectively deploying their strategy,” and will need to develop a clear marketing approach, which might involve a “separate staff with a separate brand,” though it “won’t be the same answer for every firm.” (See “Getting New Clients.”) However, since the emerging affluent share so many of the same attitudes and behaviors of their older and wealthier counterparts, as the Fidelity study found, it may not be as difficult to serve this population. After all, he said, “They show a capacity to build wealth: 80% said they have ‘earned or increased assets on their own,’ so their self-made wealth suggests they will work hard and invest consistently.”

However, there is one big hurdle to overcome, Oros said. “They don’t necessarily believe advisors want them,” because they perceive advisors work with higher-net-worth people. “They’re sensitive to fees” as well, Oros pointed out, “so for advisors who want to work with this group, “you need to be willing to think differently” about your fee structure.

Is this a segment ripe for poaching by robo-advisors? “We found a pretty high recognition of digital advice” offerings among the emerging affluent, Oros said, noting “29% have some familiarity with robo-advisors and 7% are currently using them.” But investors in this group “still want contact with someone; access to a human,” he reported. That desire “is a big opportunity” for advisors, and Oros suggested “having a digital advice delivery be part of your segmentation.”

The leader of Schwab Advisor Services, Bernie Clark, in discussing the Q2 launch of SAS’ Institutional Intelligent Portfolios robo-advisor platform in mid-March, argued that having “an automated investment management offering will help existing firms to expand, serve existing clients, and will be transformative for the industry.” Moreover, he said that for advisors, having a digital advice offering will become the “price of entry for Generation Now and generations to come.” (See “Technology and Wealth.”)

Discussing asset management firms, Cerulli’s “High-Net-Worth and Ultra-High-Net-Worth Markets 2014” report argued, in Associate Director Donnie Ethier’s words, that while “the direct channel’s surge in the high-net-worth market share gains have stemmed in more recent years, providers continue to boost their high-net-worth capabilities and presence among younger, tech-savvy wealth creators. For wealth managers, they represent increasingly worthy competitors that will likely test traditional managers’ willingness, and aptitude, to adapt to next-generation investors.”

Jonathan Beatty, senior vice president of sales and relationship management at Schwab Advisor Services, said that “firms that rely on investment management” and seek to “differentiate by performance—well, that’s a challenging business proposition.”

He said that “over the last 10 years, advisors’ value proposition has evolved beyond investment management with additional services that the advisor provides to clients,” such as estate and tax planning, “providing services that are unable to be automated at the moment,” and “wrapping them around their investing capabilities.”

Successful wealth managers realize they “need to modernize the client experience” and emulate technology providers to “create more and more efficiency around portfolio management; robos are another step on that curve.”

Beatty recalled an advisor telling him he was concerned about how clients would feel about automated processes such as account openings that “take the paperwork out of” the client onboarding process. Beatty said he responded by asking the advisor if “operations was the right place to make relationships?”

“As affluency grows, complexity comes with it,” Beatty said. So when asked whether a solo practitioner could be a wealth manager, he said, “It really depends on how you define wealth.” But if you’re talking about “super affluent investors” who need everything from “property management to airplane management, you’ll need a team environment.”

“If you can create scale and efficiency around the processes every day to run your business, that frees up more of your human capital to focus on the client relationship,” Beatty said. As an industry, “we went first to operations. Now we’re looking at other ways to automate the relationship. The market will decide whether my version” of wealth management “is better than another.”