Current Research – Wealth Management

It has become a truism that wealth managers generate greater success than do other types of financial advisers, and that advisers therefore should move toward the wealth management model. But the term “wealth management” is omnipresent in today’s financial services industry, as is “fee for service”, and as was “holistic”.

Considering the sober start to the 2008 investment year, it’s probably wise to reconsider your own wealth management offering and how well it is performing for your firm and your clients.

Our international partners, CEG Worldwide LLC, have recently publicly released new research from a study of over 2,000 advisers (“Best Practices of Elite Advisers: The Wealth Management Edge” Patricia Abram, John Bowen, Russ Alan Prince 2007 The findings provide interesting benchmarks to compare your own results against.

First, a definition

Despite the millions being spent by institutions on marketing themselves as wealth managers and training their aligned advisers to be ‘wealth managers’, wealth managers are those advisers that:

  1. Use a consultative approach to establish client relationships (just filling in a fact find is about as consultative as ordering a hamburger).
  2. Have a service offering for each client that is highly customised and designed to fit the individual needs.
  3. Deliver the solution in ongoing close consultation with the client.  Close consultation is more than 1 face-to-face appointment per year, and more than the traditional bombardment of letters, be they of a review or marketing nature.

Points to note

  1. The significant profitability of wealth managers compared to the rest. The CEG research has them generating three times the profitability. Our own Dashboard Reports have wealth managers generating closer to two times the profitability, but it’s obvious from both the USA and Australian research that the wealth management model generates better bang for the buck. (Dashboard is a registered trademark of Strategic Consulting & Training Pty Limited. All rights reserved. The Dashboard Reports are the largest audited performance benchmarks of Australian financial advisory firms, with over 1600 registered firms. Refer for more information.)
  2. Despite the ubiquity of “wealth management”, and most firms self-describing themselves in this manner, CEG found that only 6.6% of the sample really represented a wealth management proposition. The majority offered a product or investment generalist proposition which focused on the compliant placement of monies or product, not the development of long-term, consultative relationships.
  3. The average age of wealth managers and non-wealth managers was the approximately the same – 42 years. Also, both groups of advisers had been in the business of providing financial services to clients for approximately 16 years. CEG research suggests that wealth managers don’t owe their success to additional experience.
  4. Wealth managers serve considerably fewer clients. CEG research shows averages of 101 clients per wealth manager, compared to 269 clients per non-wealth manager. Wealth managers succeed, not in spite of serving fewer clients, but because of serving fewer clients. Having a smaller number of clients allows wealth managers to spend more time cultivating the client relationship, resulting in better client service, and in turn, greater client retention and more word-of-mouth (i.e. referral) marketing.
  5. Whereas non-wealth managers typically base their relationships on transactions or events, wealth managers contact their client much more often. In fact, they make contact every three and a half weeks, compared to non-wealth managers making contact every other month.

What are they talking about every three and a half weeks with their clients? They are being paid to manage their client’s total financial world. With either in-house or external experts, wealth managers play active roles with their clients’ investments, insurances, structures, cash flow, management accounting, banking, debts, succession, taxation, estate, shares, self-managed super funds, and property. They aim to be their clients’ total wealth manager.

It’s interesting to see where the wealth managers get their new clients from. The majority of their new clients come from traditional source of new business – i.e. client referrals. But according to CEG, wealth managers get three times the number of their new clients from referrals from other professionals than do the non-wealth managers.

The future

Prior to the start of 2008, wealth managers and non-wealth managers were both well rewarded thanks to world markets and events beyond the control of most of us. History will forget the ill-equipped group of non-wealth managers as quickly as it forgot the computer programmers of the 1980s, the book-keepers of the 1970s, the milkmen of the 1960s, the ice delivery men of the 1950s, and so on.

The ‘clip the ticket’ product and transaction client propositions are coming up for air at a time when:

  • consumers are relearning about basis points, thanks to interest rates;
  • we’ve got our first Minister for Superannuation looking for a leveller playing field;
  • our Sunday night movies are continually interrupted with industry superannuation ads demonising commissions; and
  • banks are under pressure to make profits, as credit markets contract.

These are the best of times to stand out on purpose as a wealth manager advice provider. Bring it on.

Image: Filomena Scalise /

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