What to Watch in Wealth Management

It’s not easy keeping up with the changing wealth management landscape. There is so much information available these days. How to stay focused on those things that will have the most impact on your clients? Well, the Dow Jones Wealth Management Advisory Council has some advice: Try taxes, the 30-year retirement, the increasing complexity of investment products, and team development.

It’s not easy keeping up with the changing wealth management landscape. There is so much information available these days. How to stay focused on those things that will have the most impact on your clients? Well, the Dow Jones Wealth Management Advisory Council has some advice: Try taxes, the 30-year retirement, the increasing complexity of investment products, and team development.

“Taxation has always been a top concern of high-net-worth clients, but if the planned 2010 sunset to tax provisions occurs it will change the way people invest,” says James A Covell, senior vice-president and financial advisor at RBC Dain Rauscher and a member of the advisory council.

One concern in particular is the possible increase in the capital gains tax. The Tax Reconciliation Act signed into law last year helped extend the low 15 percent tax rate through 2010, but come 2011 the rates may “sunset” to previous rates of about 20 percent.

For advisors, this means keeping track of Congressional decisions on taxation, and helping them understand the need to be flexible about the best time to defer taxes. “The right thing today may be the wrong thing for clients later on. We’re all positive on tax deferrals now, but you might be better off paying them now [with the lower rates.] The important thing is to discuss this with clients,” says one council member.

The 30-plus-year retirement is another thing that will have a major impact on your business, and the lives of your clients. “People are living longer and retiring earlier,” says Joe Montgomery, managing director of investments at Wachovia Securities, and another council member. “More and more people are retiring at age 62 and odds are they will live to 95. As an advisor, you have to plan for that long-term retirement period so your clients are taken care of for a far longer time than expected before,” he says. It’s important to look at all of the potential investment options, not be overly conservative, so you can get the kind of growth that will offset inflation. “If inflation is set at 2 percent, then it’s a significant change for clients who will be retired for 25 or 30 years. You don’t want them to lose purchasing power,” he adds.

His solution is simple. Well, sort of. Diversification is a term that’s often thrown around in the industry. But Montgomery says allocating client assets in a full range of asset classes, including things like emerging market bonds, managed futures or international bonds, can help to weather long periods of time.

But understanding these diverse products is just as important as investing in them. The council says products will only get more complex in the future and wealth managers will have to be able to keep on top of the latest developments. “Tomorrow’s wealth managers will not only need to understand intricate investment options, they will also need to explain the risks and rewards associated with these opportunities,” says George Schietinger, directors at Credit Suisse Private Banking USA.

The good news for wealth managers is that they won’t have to master it all by themselves. A vital part of success for wealth managers in the future will be developing a team of experts who can address specific areas of the business. Instead of a sole practitioner attempting to learn all there is about accounting, trust and estate planning, financial planning and investments he should have a network of professionals that are able to answer questions for each of those disciplines.

“Wealth managers that are creating the best teams are doing so virtually,” Montgomery says. In other words, advisors are not obligated to hire full-time, salaried experts that work in the office. The network can be made of attorneys or accountants with their own practices but that the wealth manager has an agreement with about referring business or questions to them. Bottom line: a successful wealth management practice needs the support of specialists to tackle the firm’s diverse offerings.

The Advisory Council, which was formed in late 2005, is made up of nine council members from across the wealth management industry and includes one industry consultant.

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