sipping wine

Just like sommeliers look for specific things in a good wine, there are essential characteristics that make good wealth management offerings.

Why Do People Buy Second Label Wines?

Discerning wine lovers and marquee wineries traffic in second label wines. Bordeaux wines championed this approach and California wineries are following their lead. We are starting to see the same approach play out in the wealth management industry. How can we become sommeliers of second label wealth management offerings? Let’s start with the essential characteristics that sommeliers look for in a wine: the nose, taste and the finish. The three areas to look for in wealth management are brand, services and value.

Brand

Every successful second label drafts off of the success of the brand of the first label. There are numerous case studies and best-selling books and blogs written on the subject of how to build a brand. It takes time and hard work and most firms don’t succeed. This reality is one of the main reasons to consider a second label that offers the trappings of the established brand. In wine those trappings are the grapes, the wine-making equipment and the insight of the iconic founder. In wealth management they are the operational infrastructure, network pricing power and experienced training and support. Second label clients should demand all three when buying a firm’s services.

Services

Infrastructure is an essential need of wealth management firms, but it presents a chicken-and-egg problem for emerging firms. The emerging firm does not have the scale or expertise to build a top-shelf infrastructure, making the second label infrastructure appealing. The emerging firm has another decision to make: Should they join the first label firm or use their second label services? Most emerging firm founders believe that they don’t want to spend their time on infrastructure, but they also don’t want to cede their vision to the established vision of the primary brand. If this sounds like you, buy second label services.

Value

How much should you pay for the second label? It will cost less than the primary brand because you don’t have to pay the brand premium that includes the iconic founder. You are now the iconic founder. You can build the infrastructure yourself, but how much time will that take and what is your time worth? As the financial services industry continues to consolidate to achieve scale to offset dwindling fees, we must accept the reality that size matters. A second label will give you immediate scale.

Succession planning is the rage of the wealth management industry as the leaders of most firms are closer to their 70s than their 30s. Using second label services could be an essential component of your succession plan. The strategic buyers of your practice already have an infrastructure in place and they see your value as your strategy and your clients. When I go to buy premium wine for an important dinner party, I buy the Maiden or Bond instead of the Harlan Estate. My guests will appreciate the good wine and most will not be able to tell the difference. Now it’s time to use your new wealth management sommelier skills and chose the second label service that will make your clients’ experience unforgettable.   

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