New Trends in Wealth Management

The difference between existing and thriving in wealth management is as simple as following the trends of the nationís best.

June 19, 2008
by John Napolitano, CPA/PFS

The first trend in wealth management is an emerging understanding of the difference between financial planning and wealth management. Over the past few years, I have heard many botched attempts to explain what wealth management really is. Answers usually revolve around a client's portfolio size or net-worth, and many professionals think wealth management is only for the ultra-wealthy. Not necessarily.

You should think of wealth management in the context of financial planning. A financial plan, or a financial planning engagement, can occur as a one-time engagement. You gather facts and qualitative goals from your client, as well as their objectives and life dreams. Then you assemble a report for your client that recommends strategies for maximizing their financial resources and accomplishing their objectives. Your client may be very satisfied with the work that you did, go on their merry way and never implement any of your recommendations — on their own or with other professionals.

Wealth management, on the other hand, is the manifestation of a financial planning engagement into a pro-active and holistic relationship for an indefinite length of time — or at least the foreseeable future.

Wealth management definitely includes life planning, and the wealth manager agrees to act as a client's head coach and will oversee and advise the work done by other professionals. A wealth manager is accountable for ensuring a client has a current estate plan, but the wealth manager doesn't necessarily draft documents. Wealth managers make sure their clients are properly insured, including ownership and beneficiary designations for life insurance. But, a wealth manager doesn't necessarily sell insurance.

Retainer fees are the clearest trend among personal financial head coaches. Clients are willing to pay regular monthly or quarterly retainer fees to advisors who walk the walk and holistically advise. It's true. Information overload is impacting your clients too. What they want is a sound and capable mind guiding them through most of their important financial decisions. Advisors who are not charging regular retainer fees and who are only getting paid from transactions or assets under management, may be missing planning opportunities that clients don't even recognize.

Another trend is that of a comprehensive Customer Relationship Management (CRM) system that incorporates workflow and your service model. Most firms today still operate under the "squeaky wheel gets the grease" model. In other words, the clients who call most frequently and demand regular meetings with their advisors are the ones who actually get those meetings. The other clients, who do not make such demands, don't get meetings or special attention.

If you have a service model that mandates that all "A" clients receive weekly market reports, monthly newsletters on financial planning, quarterly performance reports, quarterly phone calls and face-to-face meetings three times per year, you need to make that happen. This is no time for excuses and a good CRM will see to it that these events occur and that meetings are scheduled (by someone other than you!).

Wealth Management Technology Trends

It's hard to talk about trends without addressing technology. Technology advances for financial professionals seem occur almost daily. Outsourcing is one of the most telling trends. How many firms still struggle to pull together quarterly reporting, daily account reconciliations and data scrubbing? Many firms have scrapped their centerpiece or advent software only to outsource the whole system for recordkeeping and reporting. This usually saves money in the short run and provides instant scalability and continuity going forward.

Asset management is another task headed down the outsourcing trail. Fewer and fewer financial planners and wealth managers believe that they can effectively manage money. It's very difficult to be on top of everything in your clients' financial lives and also be a good money manager. A manager of managers, maybe. But a Peter Lynch look-alike? No way!

While it may cost your client 25 or 50 basis points (BPS) more for you to manage their money as a manager of managers, they won't mind the cost if you are successfully delivering holistic wealth management services. Do you really think that you can manage as well as all of the separate account specialists and third-party asset management programs available today? Don't kid yourself.

Paperless office and the proliferation of sophisticated financial planning and data integration/aggregation software are also tech trends worth noting for wealth managers. Financial planning programs, in which a daily account value downloads automatically and feeds into the planning modules, are growing fast. These types of services and systems are routinely deployed by the most successful advisors in the country.

Service Trends

Service trends are also emerging. The most successful advisors are spending more than two-thirds of their time with their clients, and delegating or outsourcing all the "work" that used to keep them from client meetings. As CPAs mature in their wealth management practices, they too are realizing that their highest and greatest value to the client is time spent with them, not the time spent "nerding out" the numbers in the back room.

Another huge movement underfoot is that of life planning. Life planning is a radically different approach than completely quantitatively driven wealth management. With life planning the client's life dreams and compelling vision for the future becomes the centerpiece for the plan — not their balance sheet and cash flow. With life planning, the wealth manager is often required to stretch into a thinking and service pattern that causes the planner to ask "Why not?" and "How?" rather than a quick, calculable yes or no answer. Having recently attained the designation of Registered Life Planner (RLP®), I confirmed that it is about way more than the numbers. As a CPA financial planner for years, I really thought that it was always about the highest and best use of money and doing the right thing according to my bean-counting brain.

Building a top-notch wealth management business is not rocket science. In fact, it's not even as hard as building a top-notch CPA firm. CPAs just have to learn to get out of their own way and implement some of the best practices followed by the industry's role models. That often means following the trends, not bucking them.

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John P. Napolitano, CPA, PFS, CFP, MST, RLP, is Chairman and CEO of U.S. Wealth Management, LLC, a company he founded to create a culture that did not exist in the marketplace. U.S. Wealth Management only works with financial professionals passionate about wealth management and willing to belong to a professional coaching program. The vision for U.S. Wealth is to be a leader in the hybrid RIA-Broker Dealer model for financial professionals. Napolitano is also editor-in-chief of The Paragon Advisor, a practice management and business development newsletter featuring the top consultants to the financial services industry such as Dan Sullivan, Ron Carson, Bob Veres, Bill Cates, George Kinder and a host of others.