Nashville, Home of the 3 Cs: Country Music, Comfort Food, and the CFA Institute's Wealth Management 2017

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When most people think of Nashville, they think of country music and Southern comfort food. For me, Music City also will be the place where I recently attended the CFA Institute’s Wealth Management 2017 conference and learned about the astounding findings of a recent study conducted by the CFA Institute and Scorpio Partnership. The more assets an investor has, the more they need the specialized advice of a professional wealth manager. That would seem to be the logical conclusion; complex matters need sophisticated advice, right? Well, as I and other attendees at the conference learned, a sizeable portion of the very wealthy do not see the value of wealth managers and, consequently, are going to regular banks for financial guidance, if they even seek it at all. When John Bowman, the CFA Institute’s managing director of the Americas, explained this and other details from the study, everyone in the room was excited about it but didn’t know what to do. This sizeable portion of the very wealthy who are not currently seeking specialized advice represent a gigantic opportunity for wealth managers; however, to reach out and appeal to them, wealth managers need a plan that communicates their unique value proposition; these clients won’t simply come to them.

After surveying 4,000 individuals with an average wealth of $2 million, the CFA Institute- Scorpio Partnership study found that an astounding one-quarter of wealthy individuals are not currently taking professional financial advice. And even among the three-quarters who are, one in four are using a retail bank as their primary advisory, not a specialist wealth manager. Even more surprising, high-net-worth individuals (HNWIs) are almost as likely to choose a retail bank, including those with no wealth management specialty, as are their mass affluent peers.

And the results are even more staggering regarding younger investors. Of the people surveyed for the study, one in three under age 35 seek financial guidance from a bank rather than a private wealth manager. Millennials’ low level of interest in seeking advice from wealth managers, compared to older generations, is despite firms’ efforts to appeal to younger clients in recent years. More than 80 percent of managers say that they are trying to attract millennials, according to research conducted by Wealth-X for the Financial Times.

For wealth managers, the CFA Institute and Scorpio Partnership’s findings should be a clear sign that firms have to design new and creative ways of conveying their value to wealthy individuals, especially the younger set. Baby-boomers make up nearly one-half of advisors’ existing client base, the CFA Institute-Scorpio Partnership study explains. When these older investors transfer their wealth to their children and grandchildren, managers who don’t appeal to the younger generations will lose the transferred wealth. As the CFA Institute explains, advisors “who are unaware or unfazed by the extent of the shift risk becoming dangerously out of touch with the future requirements of their customers.”

So what’s a wealth manager to do? Bowman explained at the conference that advisors have to be open to adapting new services and offering a more holistic approach to redefine their value proposition and meet the needs of future investors. “As a wealth management professional, the one characteristic that should define us is our motivation to deliver the most value to our clients,” he said. “How investors are defining that value is rapidly changing today. The challenge for advisers in this environment is to communicate the value of our expertise and technical knowledge to clients while also catering to clients’ specific, real-world needs.”

As I’ve said many times, advisors must adapt and innovate. A whopping 47 percent of wealth practitioners still view market performance as a “principal opportunity” for the industry, the CFA Institute-Scorpio Partnership study found. Well, I’ve got news for that 47 percent: Market performance is not enough anymore. Advisors who think it is are living in the optimistic 1980s, when wealth management was thought of as fulfilling customer needs. As the CFA Institute-Scorpio Partnership research proves, wealthy individuals are looking at wealth managers and thinking, “I don’t need you.” Yes, we in the industry may think that it’s crazy for the nation’s wealthy to manage their finances without the guidance of specialist wealth managers – a particularly reckless move for millennials who, according to a Deloitte study, have “low to medium” financial knowledge.

Yet if we as an industry take an honest look at ourselves, we will realize that we can do a better job at conveying the value of wealth management expertise to the public, particularly to millennials. It’s time to stop looking inward and looking outward. And we can start by improving in three key areas:

· Communicate the Broader Picture of Wealth Management: Nearly two-thirds of private clients perceive “financial planning” as synonymous with the practice of wealth management, rather than as just the construct of a financial plan, according to the CFA Institute. Sure, financial planning is one component of wealth management, but this misconception obscures the other equally important responsibilities a wealth manager has, such as: discretionary investment management, estate planning, and philanthropy services. When wealth managers reach out to prospective and existing clients, they need to convey all that they do, rather than just assuming that clients and prospects already are aware of the broader picture of wealth management.

· Invest in Technology: Having strong technological capabilities is especially important in trying to appeal to younger clients and prospects. When asked to score how important it is for wealth managers to have different capabilities, on average wealthy individuals under age 35 ranked robo-advising approximately a 7 out of 10, nearly as high as financial planning (over 8) and discretionary investment management (8), according to the CFA Institute-Scorpio Partnership study. For traditional wealth managers, these survey results should be a signal that they have to integrate technology into the way they do business, whether it’s by having an app, having a professional presence on social media, or maintaining a blog.

· Be proactive: Investors want proactive investment advice and risk management, according to the CFA Institute’s The Value of Premium Wealth Management. Consequently, advisors have to stop just thinking in terms of performance and instead assess the whole landscape to determine the opportunities and threats that could influence wealth creation.

Only by fully conveying their value proposition can wealth managers turn that 25 percent of wealthy individuals who don’t currently seek professional wealth management advice into clients. Show them why they need you – your skills, your holistic approach to managing their assets, and the care you put into working with every client.