The economic crisis has damaged revenues, business plans and most importantly, the trust of wealth management clients. According to an extensive survey conducted by PriceWaterhouseCoopers and released at the end of July, advisors who succeed in this “new era” will need to truly put the client first…Yes, you've probably heard that before.
But that's part of the problem: talk of client-centric wealth management has been just that really — talk, according to the authors of the PWC report. With their portfolios shredded, their confidence in you at all time lows, the client relationship is at the breaking point. That means good old-fashioned quality service is a must. Especially considering the survey results show a general lack of confidence in the performance of financial advisors, says Steve Crosby, senior managing director for the wealth management practice in the Americas at PriceWaterhouseCoopers. Survey respondents included 238 wealth managers of all sizes, 400-plus senior executives and advisors (customer relationship managers or CRMs) and an undisclosed number of wealthy investors.
According to the report, PWC's 2009 global private banking/wealth management survey, there is a significant gap between advisors' perceptions of their own excellence and the perceptions of their clients. In fact, while most respondents believe they have reached “trusted advisor” status, 20 percent admit they “do not completely understand client expectations and investment objectives.” One key way advisors can improve their understanding of client expectations and service needs, is to segment clients into tiers. (Registered Rep. wrote about client segmentation in a story called “The C Client Time Suck,” in our July issue.)
“In a crisis context, the main concern should be the sustainability of the client relationship,” says the PWC report. “This goal can be achieved more easily, if the client base is clearly defined and clients feel emotionally attached to the CRMs [client relationship managers].” One telling finding from the report: The most successful 10 percent of survey respondents (those with the lowest cost to income ratio) had up to 50 percent fewer clients than the other firms in every wealth segment. And a majority of these top 10 percent most successful respondents said their “client base” defined their brand. The less successful firms said their brands were defined by “history and tradition,” a factor the more successful firms gave far less weight to.
For example, if serving the wealthiest individuals isn't your strength, don't waste your time trying to land that one big fish. They demand the kinds of things that come with institutional management, like sophisticated asset allocation strategies, alternative investments, and low fees. While they might add to your prestige they could also depress your profitability, says the report.
Of course, the firms also have work to do if they want to make the wealth management model truly client-centric. For one thing, they need to send their FAs back to school. Executive respondents said when it comes to meeting client needs, only 20 percent of their firms' advisors could be called “high caliber,” while more than 25 percent were of “average ability.” And advisor respondents said they wanted training in client relationship skills and taxation more than anything else, a point also found in PWC's 2007 survey.
Then there's the way advisor performance is evaluated, using the old yard-stick of asset growth. This measure needs to go, according to the authors. “Most senior executives still judge the performance of their CRMs by the number of assets they manage, not the level of customer satisfaction,” says Crosby. This incentive structure rewards the advisor for growth and ignores whether he's meeting his clients' needs, he adds.
The industry has long talked about the shift to “advice as product.” But little headway has been made in this direction, Crosby says. The Obama Administration is currently pushing to make fiduciary status a reality for all retail financial advisors but in the meantime, FAs looking to capitalize on client mistrust of advisors would be wise to at least consider shifting their focus to advice. Advice-centric processes include comprehensive and recurring financial planning, robust and ongoing product due diligence, customized portfolio modeling, clear statements of goals and objectives as well as comprehensive client reviews with aggregated reporting.
“The very top of the wealth pyramid — those clients with more than $50 million who are typically at the family offices — get dedicated service teams that are paid to advise on all things financial; most of the rest are still paying for products,” he says.
Another area that needs improvement is transparency, says Crosby. “We view transparency as the new hot item. The numbers suggest it rivals brand and performance but we think it's eclipsing both,” he says. The stakes are clearly high, given scams like the ones Madoff and Allen Stanford pulled off. Clients want to know which lawyers their advisors are using, what their professional networks look like, who are the custodians and sub-custodians, what is outsourced. Says Crosby, “Private clients tell us they want to know that their wealth manager is ‘treating my money as though it were their own.’”