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The threat to investment centric financial planning
Wealth planning — July 28, 2016

The threat to investment centric financial planning

Across the wealth management spectrum, there are many variations of the type of service on offer. Most wealth management firm’s focus on managing clients assets, with portfolio management the lead proposition.

But with pressure on margins, there is a growing awareness among traditional wealth managers that closer and more beneficial client relationships can be created by placing wealth planning at their core. Speaking recently to a recruitment consultant who specialises in working with wealth managers and private banks, there is growing demand for paraplanners and financial planners in recognition of their value.

Two examples of firms that have embraced wealth planning are UBS and Societe Generale. Both successfully attract HNW and UHNW individuals for reasons relating brand, quality of the client experience, geographical diversity, scope of proposition and depth of expertise. By combining these attributes, they can address a broader set of needs.

Over the next ten years, the structure of the market for financial advice will dramatically change, driven by consolidation and the move by product providers into face-to-face and digital advice. Advisers that today deliver a financial planning service focused on investment, estate planning and pensions planning may find themselves increasingly competing with vertically integrated players. Over time, there will be little distinction between the two.

While the benefits of dealing with a small business offering a highly personal level of service will prevail, firms will experience margin pressure and may be disadvantaged by financial and people resource limitations that will be less of a challenge for their larger competitors.

However, the opportunity for firms to build on their knowledge of planning is significant and we have already seen a number of leading UK wealth planning firms that were historically independent financial advisers move into the HNW segment. They are winning clients from wealth managers who are disengaging from certain wealth brackets.  

These firms are finding success by working with clients with more complex needs - typically owners of family businesses, entrepreneurs and senior corporate executives. There are opportunities to assist on a number of levels, including taking on responsibility for managing the affairs of these clients on a day-to-day basis.

An essential part of the service involves establishing a strong network of professional connections and the ability to successfully manage these long-term by having the right structures and processes in place. To attract HNW clients, the service has to be multi-faceted and requires a team-based approach. In addition to offering a core financial planning service, a number of other areas must be considered.

These include helping to manage risk, succession planning (where a family business is concerned), philanthropy and fiduciary services (the management of tax and trusts). In addition to traditional professional connections, relationships with other specialist service providers may be required and the wealth planner must be adept at managing these. 

To successfully execute such a proposition requires wealth planners to adopt a different approach, similar to that of a management consultant or a corporate account executive. They also have to work as part of a team. Given the wider range of services on offer, more time must be spent getting to know the client and their personal and business circumstances.

By doing so, wealth planners have the opportunity to place themselves at the core of relationships a client may have with other professional advisers. The ability to co-ordinate, execute and report across all activity is of significant value to a time pushed individual and can be priced accordingly. (Firms offering such services tend to price on the basis of fixed fees, or hourly rates).

There has to be clarity around the proposition and where value lies. While there are many aspects to the service, the firm must be clear on where they make a difference. A small number of value statements should be articulated in a clear and simple way - and these may vary depending on the profile of the client. For example, the owner of a family business has a different set of needs when compared to an entrepreneur building a business.

How the business is branded and positioned requires careful consideration. Prospective clients must recognise this is a business offering a premium service.  The look and feel must reflect this and be evident across all touch points, including the quality of the office environment and client suite.

Technology plays a key role. HNWs are early adopters and demand access to personal information that is engaging and understandable. More frequent communication will be required and clients’ communication preferences should be noted in a service level agreement with adviser remuneration based on their ability to deliver against this.  

Demand for wealth planning services is set to grow with more traditionally investment focused wealth managers and high end financial planning firms looking to evolve their current business models and propositions. By doing so, the level of income per client is likely to grow and with it the value of their business. But it does require investment, access to additional resources and a clear plan outlining how the proposition can be delivered. 

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