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Why Wealth Managers Must Adapt and Lead

March 16, 2017

The wealth management industry is at a crossroads. The investment landscape is changing at warp speed and client desires are changing along with it. But today’s wealth managers conduct business through a model that’s been in place for years. It has somehow avoided widespread innovation – but no longer will this suffice. It’s time for the profession to evolve or risk disintermediation by understanding the qualities investors want in a wealth manager today, and more importantly, tomorrow.

Of course, the same old reputational problems still dog the profession – perceptions that wealth management is characterized by conflicts of interest, poor transparency, and kickbacks, as well as little differentiation and low barriers to entry that allow almost anyone to call themselves a financial advisor. The 2008 financial crisis offered another blow to the profession, while new digital technologies to manage wealth make it easier for clients to invest their own money. It’s no wonder that the role of the wealth manager is in question.

If wealth managers want to remain relevant, I believe we must reshape the industry to one that truly understands how to build client relationships that go well beyond returns.

The value proposition

Research shows there is a serious disconnect in what investors want and what value wealth managers are demonstrating to clients. A survey from CFA Institute and Scorpio Partnership found one in four wealthy individuals don’t even use a wealth manager, mostly due to the cost and the perception that they won’t act in their best interests. To me, this is proof that the industry is facing an urgent challenge to redefine its value proposition on achieving investor outcomes.

Advisors need to understand what wins over today’s investors: communication, integrity and financial acumen. I like to think that a wealth manager should behave much like a doctor — both professions demand high emotional intelligence (EQ) combined with technical knowledge, or IQ. Just as a doctor needs to understand how a patient’s thoughts and feelings affect their illness and treatment, a wealth manager has to understand human impulses and their impact on finances as well as how to structure a portfolio. The right balance of emotional intelligence and technical expertise will distinguish the future advisor from their peers too focused on only one or the other.

But unlike doctors, specialists will find themselves falling behind. “Holistic” needs to become part of each wealth manager’s vernacular. We must do a better job guiding clients through all elements of their financial life cycle. CFA Institute and Scorpio Partnership’s survey also indicates a strong majority of wealthy individuals believe that the core value a wealth manager offers is simply the financial plan, rather than the advice and execution needed to achieve it. With that low bar, it’s no wonder clients question the value of wealth management.

Wealth managers must deliver value beyond investment returns and look at the big picture. We can’t wait to be called upon just for a piece of the puzzle; we must stand side by side with clients as they navigate life choices that impact their wealth, their personal aspirations, their life experiences and their desires to share their wealth with the outside world through philanthropy and their families through estate planning.

The digital storm

Like it or not, robo-advisors are changing the client-advisor relationship. Many clients expect their wealth managers to integrate technology into the advisory relationship, but a vast majority of Millennials consider a wealth manager’s digital offerings to be the focal point of their value. Instead of fighting the digital storm, wealth managers need to do a better job of understanding and demonstrating the convergence of the digital and human experiences. We all know that robo-advisors can never replace the human touch but we also can’t be resistant to their benefits.

Adapting and leading for the future

If our industry continues to sit back and do nothing to change the profession we risk disintermediation. I challenge advisors to make their value clear, and then to take the next step and broaden towards a more holistic and client-focused scope of practice. From integrating digital and human advice to proactively assessing and addressing client goals, a new generation of investors demands — and deserves — more than what is currently being offered.