In recent years, there's been considerable strategizing — and a lot of hand wringing — among registered reps over the flood of new competitors to the wealth management business. Accountants, private bankers, lawyers and insurance agents are among those attracted by the increasing number of affluent investors, the rising demand for consultative wealth management services and, of course, the money.
But two recent surveys indicate reps have little to worry about — for now. In one, conducted earlier this year, wealthy investors preferred reps and their firms by a margin of 2-to-1 over the next largest category, banks. Independent financial planners, including RIAs and accountants, were in third place, followed by money managers (see table). The survey asked 391 investors with at least $5 million in investable assets to identify their primary managers.
And, according to a survey of 4,106 reps we conducted last year, four of five considered other reps as their main competition. Online brokers were well down the list, and life insurance agents and attorneys barely made the cut (see table).
To keep their edge with the affluent, however, and to outperform their peers, reps will have to continue to move aggressively toward a wealth management platform that includes investment management as well as brokerage and advanced planning services.
Reps currently have a stranglehold on the top slot for a number of reasons. To begin with, they're known for their brokerage capabilities and investment management expertise, and while it's only a part of the wealth management platform, this positioning often makes reps first in the minds of clients.
Second, because they're affiliated with financial services firms, reps can offer one-stop shopping for a range of financial services and products. Brokerage firms have worked hard over the past few years to give wealthy clients what they need through internal expansion as well as through alliances and acquisitions. As a result, registered reps can offer affluent clients the guidance and the range of products and services that most private banks and independents can't, including off-shore investing, hedge funds, trusts, life insurance, managed accounts and tax consulting.
Further, open architecture has been important to reps — and to their rivals as well — because, in theory, almost any financial professional can access virtually any product or service. By being able to offer more than just their in-house product line, reps can position themselves as consultants to their clients and not mere salespeople.
But how do reps stay on top?
Perhaps most important is that reps have to understand how the business model has morphed from investment-centric to a “wealth management” one. But just what does wealth management mean? Wealth management incorporates and integrates wealth enhancement, wealth transfer, asset protection and charitable giving.
|Today||In 3 Years|
|Other Registered Reps||81.20%||84.40%|
|Independent Financial Advisors||60.3||62.9|
|Money Management Firms||58.2||69.6|
|Registered Investment Advisors||51.7||55.2|
|Bankers and Bank Brokers||33.9||33.5|
|Mutual Fund Companies||29.5||36.5|
|Platforms Setting Up Offices||22.1||26.9|
|Internet Advisory Services||6.6||7.7|
|Life Insurance Agents||6.1||7.3|
|Source: Prince & Associates|
For the most affluent investors, in particular, advanced planning services are essential, and reps have to be able to help clients with such issues as trusts and business succession planning. And the desire of clients to access a broader platform of services and expertise is also the very reason accountants and private bankers are using to get in the door.
Reps don't have to master every aspect of wealth management; there's no shame in being a terrific investment manager. But they do have to be able to understand, access and coordinate the other wealth management services.
Fortunately, most financial services firms have, or are putting in place, the support and resources to offer a full range of wealth management products and services. The ability to understand and implement that platform on behalf of their affluent clients is what will distinguish registered reps from their competitors, including their peers, and help keep them at the top of the charts.
Hannah Shaw Grove is a managing director at Merrill Lynch Investment Managers.
Russ Alan Prince is president of Prince & Associates.