By Roger Eskinazi, head of wealth management, AlphaWealth
I have spent 25 years working in wealth management, many of these for some of the most reputable companies. They all claim to have the best people, a proprietary investment process, competitive fees, outstanding reporting and deep client relationships.
However, the ‛best people’ are everywhere, the investment process is now pretty standardised, fees are more regulated and reporting is a mere ticket to compete, and not a differentiator.
So what are the true differentiators when it comes to wealth management businesses?
Demonstrate value for fees
Clients need to be clear as to what they are paying for and how their adviser’s remuneration is structured. Some clients prefer the certainty of lower fees coupled with greater use of index-oriented solutions. Others are more comfortable with higher fees in lieu of the potential of sustainable alpha from active management. Depending on the client, there is room for both.
Firms that help clients distinguish between alpha and beta solutions and refine their solutions to reduce fees will earn and keep the trust of their clients. Educating clients about determining value is paramount.
Measurements that should be appraised and continually rated include:
- Performance over an agreed and relevant benchmark;
- Proactive positioning of the portfolio in low-growth environments;
- Frequent sharing of topical information, risk mitigation or capital protection in extended bear markets; and
- Tax and estate optimisation.
Shared goals by the business and its advisers
There is often conflict between the professional advisers who serve the clients and the business itself.
Nearly half a century ago, renowned American economics professor Milton Friedman said that, “the sole purpose of a firm is to make money for its shareholders.”This out-dated, dumb idea is sadly still alive. Somehow, the client’s cash becomes the shareholder’s money. The business then tries to deliver shareholder return on equity by charging huge fees or by pushing investment products with a direct link to adviser compensation.
Furthermore, we see serious problems associated with many advisers:
- High staff turnover
- Improperly trained advisers lacking technical proficiency, personal wealth and life experience to be in a position to advise wealthy families
- Tendencies to churn to maximise commission which erodes clients’ trust.
The successful firms are the ones that serve their clients. They are unashamedly and professionally independent. Their advisers choose their careers and remain with the company. And there is a deep philosophical connection between the goals and values of the firm and that of its principals. This is the kind of firm with which clients want to remain.
Getting better versus bigger
Firms that make a conscious decision to get better rather than bigger will remain at the forefront of the industry. They do not succumb to shareholder pressure, they have a patient board, a flat executive structure and champion client excellence. They realise the value of discipline, perseverance and focus. They build high-quality sustainable businesses. They invest time and resources in doing more challenging but more valuable work. Their clients are substantial and sophisticated.
Agreed and fulfilled expectations
For every ten prospective new clients that I consult, at least six are disillusioned with their previous advisers from top local and international private banks and various-sized firms. The issues cited include performance promises unfulfilled, infrequent or lack of communication, opacity of fee structure, perceived lack of independence and poor chemistry.
Firms with advisers that invest time with their clients clarifying, documenting and appraising expectations along the way will be the ones that have the most satisfied and the most loyal clients. A 24-month renewable contract, with six monthly appraisals, is a good start.
Access to multidisciplinary skills
The requirements of high-net-worth investors have become more complicated requiring more specialised advice. To continually meet the demands from affluent families and maintain competitive advantage, wealth management firms need to continually review their core competencies and skills. This enables them to evaluate what resources are available internally versus those accessed through an external partner or alliances.
Access to a network of specialist and independent skills across numerous disciplines like private equity, tax, estate planning, accounting, risk, legal and philanthropy is essential for sophisticated clients with complex structures.
Firms that recognise and implement wealth management as a strategic and serious team effort will differentiate themselves from the rest. True multidisciplinary teamwork requires skilled and competent practitioners from various disciplines who work interdependently with a shared urgency and client service ethic. Enjoying powerful benefits of collective strengths, the client experience is enriched; it becomes educational and enjoyable for clients and family members involved.
This press release was issued by AlphaWealth, which offers bespoke investment and wealth planning services for high-net-worth individuals, families, selected institutions and charitable trusts.
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