Executives at SIA's Retail Management Conference in Chicago this week said they haven't done enough to help reps make what they see as a necessary transition to a fee-based advisory business for wealthy clients from a transactional business.
"We've probably been behind in our preparedness with branch managers to make them effective coaches in wealth management," said Michael Rice, executive director of Prudential Securities' private client group.
Top advisors have been making the transition to the fee-based, "wealth management" style of advisory. But surveys have shown that many brokers remained resistant to the fee-based concept, because some feared that they would become less important to their clients—in essence, nothing but a go between for the firm and the client. Others simply had a strong transactional business that they've not been inclined to abandon. That said, this grinding bear market is tearing that business model apart; some transaction-oriented reps have "given up," says Rich Franchella, Prudential national sales director. Fee-based reps may be making less too, but at least they are still getting paid. Thus, brokers are not saying if but how to transition to the fee-based model.
James Gorman, head of Merrill Lynch's private client group, said brokers must learn to continue to cultivate the client relationship long after the initial three- to six-month courtship of what, on average, is a 10-year relationship. He says Merrill is encouraging the creation of broker teams rather than relying on lone practitioner model of yore. In addition, Merrill is developing new broker workstations that will enhance the broker's ability to give advice, rather than just aggregate information.
"We've found that we're not consistently giving good advice—we're not close to as good as some of the private bank groups and trust groups," he said. "We're not setting expectations correctly; we're getting clients to believe in a dream."
Ted Ridlehuber, president and CEO of Cannon Financial Institute, which works with brokers to help them become more successful at wealth management, says the business isn't just about selling investments; it's about prioritizing a client's particular needs and goals. Ridlehuber—eschewing PowerPoint for an old-fashioned overhead projection presentation—told attendees that wealth management must account for a greater understanding of what the client's money is to be used for—and the amount of risk a client can tolerate for a particular swath of their portfolio.
Initially, at least, he recommends, concentrating on clients that are most sensitive to performance fluctuations. "Performance-sensitive clients, over the last 30 months, are more likely to leave for you doing nothing than doing something," he said. If you've been simply telling them that the market is going to come back, said Ridlehuber, "What do you think they think you've been doing for the last year? Nothing. And what have you been doing for the last year? Nothing."