If two decades ago the financial services industry resembled a mom-and-pop sidewalk food stand offering a mere handful of plain-vanilla entrees on its menu— stocks, bonds and mutual funds—today’s financial marketplace more closely evokes a full-service restaurant located inside a five-star hotel, replete with smiling and eminently capable maîtres d’hôtel and a concierge prepared to meet—and ideally anticipate—every conceivable need, articulated or not, of the discerning investor.
The popularity of structured instruments—including collateralized debt obligations and other forms of asset-backed securities, some of which courted controversy and even outright incredulity during the credit crunch of 2007—is clearly responsible for a significant proportion of the new wealth spawned within the first decade of the twenty-first century. Yet broader access to these high-performance and often high-risk vehicles (the Porsches and Maseratis of the financial world) has not come without cost or anxiety.
The sheer complexity of such instruments demands a level of expertise to fully comprehend and navigate through their exotic universe and has only increased the value of expert guidance and advice to baffled yet justifiably intrigued clients. Many of today’s structured products require advanced math degrees not only to create, but even to comprehend. The global nature of these investments also means that numerous tax and regulatory jurisdictions may come into play, further enhancing the chances that expert guidance in the field will be required by clients and advisors alike when engaging with a wide variety of products.
As we noted a decade ago, the traditional world of the obsequiously discreet and low-key private banker was even then fading fast into a dusty past. “Private banks can no longer expect to receive handsome fees for providing old-fashioned trust and investment management services merely to protect assets from inflation or domestic taxation.” Clients then, as now, “are becoming increasingly sophisticated and demanding…and expect not only outstanding service but consistent strong performance, active wealth management, and a multi-market investment strategy.”
Family offices and multi-family offices that provide tailored advice to an exclusive and limited network of families, relatives and friends have continued to proliferate in the HNW universe. Financial services boutiques (many located within larger institutions) that strive to maintain the high-touch intimacy of the traditional private bank have continued to thrive. Several of the largest financial institutions have been quite aggressive in preserving the best of the private-banking tradition by carving out private banks within their larger wealth management divisions, while supplementing the skill sets of their high-production private bankers with expertise drawn from the broad array of activities conducted by the firm.
A new client class labelled as “active performance driven investors” has emerged globally. While once upon a time the average wealthy investor might have sought out a private banker for his or her high-end investment advice—probably the same private banking house that served his or her parents or grandparents—today’s more versatile, knowledgeable and empowered HNWIs are inclined to take a broader view of their entire financial picture. This broader view has in turn ushered in an era of financial service in which a comparatively small number of firms with a global footprint are prepared to combine the intimacy of a financial boutique with the intellectual capital of a financial powerhouse.
When a HNWI turns to a wealth manager in our era, he or she invariably demands to know about and perhaps even fully understand the identity of the newest exotic investment vehicle being offered, much as the same discerning consumer might prefer to acquire a custom-made designer suit as opposed to a mass-production item pulled straight off the rack.
It is critical to grasp the fact that a more holistic wealth management view offers the surest path to wealth for this broadest class of discerning investors. For advisors, it pays to know that HNWIs will increasingly expect this breadth of service. For large banks, with complex global structures, it has become all the more urgent to break down silos and integrate across lines of business and geographies to provide the holistic service HNWIs need and will expect.
A key finding here is that as HNWIs become more engaged than ever before in their investments, they are less and less self-directed. HNWIs will continue to require and value the high-level expertise and sophistication that a good financial advisor can bring to the table.
That may be good news for advisors, but it also means that HNWIs are relentlessly raising the bar of expectations for them. They fully expect their financial advisor to understand and explain how products fit into the overall portfolio. Or, depending upon the product or instrument in question, they expect their advisor to be in a position to call upon the right expert to add their specialized knowledge to the relationship.
Investors cannot be passive bystanders to the management of their wealth. Advisors, for their part, need to know how to encourage and stimulate this dialogue so that goals may be clearly understood and expectations managed on both sides.
The question is “Does the Wealth Manager on the Street has necessary expertise and skills to serve this ever more demanding customer? The answer I fear is no. Wealth Manager in most organisations is not more than a “Glorified Sales Man” who is unaware and unprepared to tackle and satisfy the aspirations of today’s customer. To gain the necessary skills and expertise in this specialized and dynamic domain of Wealth Management it is necessary that the existing “Wealth Managers “ acquires these skills by adding certifications like “Chartered Wealth Manager” offered by AAFM USA and those aspiring to make a mark in this field acquire necessary knowledge and skills before entering.
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