Divider
Divider

Lewis Schiff
Lewis Schiff
Selling Wisdom in the Age of Information

How to differentiate your practice during difficult market conditions.

October 22, 2009
by Lewis Schiff

Rather than stumble like their colleagues who've added only investments to their menu of offerings, accountants with a broader wealth-management practice orientation can benefit and grow as they provide the kind of services affluent families need during difficult market times.

In fact those advisors who take an advance-planning approach, which embraces wealth-management comprehensiveness, are positioning themselves much more effectively to reach high-net-worth (HNW) and ultra-high-net-worth (UHNW) families. The term wealth management is used loosely by marketing people, but to be clear, true wealth management examines all aspects of a client's financial life and goals and it provides a full range of planning services, including complex estate planning, business planning and charitable giving. According to Cerulli Associates and Federal Reserve numbers, HNW ($5 million to $50 million) and UHNW ($50 million and above) represents only 1.5 percent of the overall population, but they control 39 percent of the nation's overall net worth.

Anecdotal evidence from advisors and industry firms highlights how clients from all segments are asking for more planning advice not just account information. At Charles Schwab, the number of its retirement plan participants requesting personalized service grew by more than 40 percent from September to October 2008. Cerulli's 2008 Advisor Survey showed that 78 percent of advisors agree that consumers are demanding more comprehensive financial advice.

Feeling the Market

Affluent clients are certainly experiencing the slump during these economic times, albeit on a scale relative to their normal lifestyle. "The reality is that individuals in the range of $5 million to $15 million [of investable assets] have fear in this environment just as much as the individual who may just have a half a million to $1 million," observes Howard Schneider, president and founder of Practical Perspectives, Boxford, MA, a specialist in addressing critical strategic and competitive challenges in financial services.

"Advisors who are dealing with those clients [are] dealing with the same emotions as the mass affluent," says Schneider. "Their feeling of comfort, their feeling of wealth, their confidence in the future to a large degree has been shaken."

Concerns about the cost of healthcare during the retirement years cuts through demographic segments. In a Northern Trust survey of HNW individuals averaging over $5 million of investable assets, 92 percent of pre-retirees stated they are very or somewhat worried that jumps in healthcares costs would affect their ability to enjoy their retirement. They have the assets to purchase adequate amounts of health and long-term-care (LTC) insurance protection (see related article), yet they're concerned about the lack of certainty about expenses when they move from wealth accumulation to the retirement spend-down phase.

In terms of a retirement lifestyle, these individuals still have enough for what most people would consider comfortable. A $10 million portfolio down 50 percent still leaves $5 million — but they still feel the pain of a pinched lifestyle.

More Planning, Now

Given market conditions and client concerns, Cerulli expects advisors to boost comprehensive planning as part of their practice. When asked how they anticipate their practices will change during the next 12 months, 61 percent of respondents to a Cerulli survey agreed that they would offer more financial planning services. By adopting a comprehensive approach to client needs, advisors can create a repeatable discovery, planning, implementation and review process that enhances the client experience and doesn't rely solely on the unpredictable performance of investment portfolios.

The long view for clients also brings more stability and organic growth potential for advisor practices. Those professionals with broader service offerings based on advice — not just products — also offer the possibility of greater profitability since advisors with an advanced planning team can address more client needs. If the client connection is just based on investment guidance, challenging market conditions can bring the thinness of that relationship under sharp scrutiny. For the right clients, it becomes a shrewd time to make some strategic investments.

Advisors who look beyond investments have the opportunity to have more conversations with clients about something other than equities, notes Scott B. Smith, senior analyst at Cerulli. The status of the client's life insurance and long-term care are two good topics to pursue. "Those things that may have been pushed aside in the past but now have stepped back to the forefront because advisors have more time on their hands to talk about these things," says Smith.

In the short term, advisors will also spend a lot more time handholding and communicating with clients seeking reassurance. Especially for new clients recovering from unsatisfying experiences with other advisors — and depleted portfolios — spending habits may need to realign with new world of greatly diminished income streams.

Opportunity for Growth

Many investors are disappointed not only in their portfolio performance but the performance of their advisors, as well. When Cerulli asked advisors in Q4 2008 what their source of new clients in the last six months was, the largest number by far (55%) came from new clients dissatisfied with other advisors. New clients who did not have advisors came in second at 21 percent; and clients consolidating multiple advisor relationships came in third with 17 percent.

On the other side, advisors who said they lost clients during the same period stated the main cause as dissatisfaction with investment performance (44%).

Anecdotally, advisors who follow a wealth management model report gaining more referrals during recent months via clients who appreciate the regular communication and long-range approach to their finances. They're sending friends and family members who have been dissatisfied with their advisor and feel and need to make a change.

Bring on the Team

The repeatable advanced planning process is also a highly nimble one. Rather than rely on just the output of even the most sophisticated financial planning software to create a plan, an appropriate advanced planning team works together to create the comprehensive plan. Software supports the planning, it doesn't drive it.  The issues in affluent families are just too complex — closely-held businesses, wealth transfer to grandchildren, property in multiple jurisdictions and philanthropic planning, for example. Each part of the process needs the technical focus of the right professional for that client, with team members selected from a pool of estate attorneys, insurance experts, CPAs, business valuations experts, investment professionals, among others.

Cerulli believes that to compete for HNW and UHNW clients, advisors will need to respond with strategy and tactics to address complex financial planning issues. Private banking, charitable giving and tax planning are the areas where wealth managers far outpace other types of advisors in offering the services affluent client needs. In fact, these services live outside the practice capabilities of many advisors. Those who succeed at working with the affluent have focused on providing very high quality, thorough personalize service to a limited client list. Given the close personal attention provided, it's not surprising that wealth management practices are 96 percent team based, according to Cerulli.

Investment Planner vs. Wealth Manager: Services Offered, 2008

Those services that affluent clients need are the ones that help wealth managers differentiate their practices

Service

 

Service Classification

 

Investment Planner

 

Wealth Manager

Asset allocation

 

Investment Management

 

100%

 

100%

Retirement income planning

 

Classic Planning

 

97

 

91

Retirement accumulation planning

 

Classic Planning

 

95

 

87

Education funding

 

Classic Planning

 

90

 

86

Insurance (life, health, disability, etc.)

 

Classic Planning

 

84

 

84

Estate planning

 

High Net Worth

 

76

 

95

Investment manager due diligence

 

Investment Management

 

75

 

84

Cash management/budgeting

 

Classic Planning

 

61

 

72

Charitable giving

 

High Net Worth

 

64

 

94

Employer benefits retirement planning

 

Classic Planning

 

46

 

57

Tax planning

 

High Net Worth

 

36

 

72

Business planning (financing, transition planning, etc.)

 

High Net Worth

 

38

 

57

Elder care planning

 

Classic Planning

 

39

 

37

Trust services

 

High Net Worth

 

42

 

68

Private banking

 

High Net Worth

 

18

 

53

Concierge and lifestyle services

 

High Net Worth

 

6

 

27


Rate this article 5 (excellent) to 1 (poor). Send your responses here.

Lewis Schiff is the principal of Advanced Planning Group, a family office network for advisors. His latest book, The Middle-Class Millionaire, was published in January 2008. View complete details on how to receive a free report on The Highly Effective Habits of Successful Advisors by the authors of The Middle-Class-Millionaire.