A side effect of the wealth destruction and regulatory
uncertainty of the past year is a resurgence in the emphasis placed
on financial planning by private banks. As clients reprioritise
their investment attitude and demand clarity on tax, some are
seeing an opportunity to build fee revenue.
Wealth managers are placing an emphasis on financial planning as
clients ask for advice on how to cope with increasing complexity
and scrutiny imposed by regulators.
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Mapping out objectives with clients can be an effective tool for
wealth managers on both customer acquisition and retention as well
as to grow assets under management. But, according to research from
consultancy Aite, offering the service presents wealth managers
something of a dilemma.
“On one hand, they have been advising clients who have just lost as
much as half of their assets, which has almost certainly resulted
in substantial loss of credibility,” the report says.
“On the other hand, these consumers need help from skilled advisers
to find the best strategy for achieving the goals that are
important to them.”
The report, which focuses on US financial advisers, argues it is
important for wealth managers to engage in a “difficult
conversation” with clients, discussing which parts of their plans
to maintain and which to abandon. As well as retention, there are
also opportunities for client acquisition. Thirty-three percent of
the 201 advisers surveyed by Aite said they considered it an
effective means of picking up new clients. Only 10 percent said
they did not think planning helped acquisition at all.
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By GlobalDataStatistically, advisers who had completed financial plans for more
than 50 percent of their clients showed a much higher ability to
use financial planning as a means of winning more clients, the
report said.
In addition to client acquisition and retention, financial planning
is also an important part of the shift from commission-based,
product-oriented models based around trading to the fee-based,
relationship-led, advisory approach.
But the emphasis is now on financial advisers to deliver the
service, rather than centralised, specialised teams of planners, as
it had been in the past.
Three broad conclusions
The report, The Practice of Financial Planning, has three broad
conclusions, focusing on the US market: that incentives and targets
should be used to promote financial planning, that IFAs offer
opportunities to technology companies, and that there is a need to
balance the push on financial planning with keeping advisers
happy.
On incentives, the report suggests a package for advisers to
increase the number of financial plans they make with clients.
These could be linked to targets, for example providing 25 percent
to 50 percent of clients with a financial plan.
“This will not only increase the number of financial plans produced
by their advisers, but also result in substantial increases in the
number of clients and assets held at a firm,” the report
says.
The increase in popularity and importance of financial planning
among wealth managers also has implications for technology. In the
US, registered investment advisers (RIAs), are faced with issues in
this area, as they are smaller, with less capital and scale to
invest in IT infrastructure. The report says custodians and
technology providers to RIAs have an opportunity to win new
business by investing in technology integration that can give them
efficiency levels comparable to those at wealth managers that
benefit from greater scale.
Another important thing for wealth managers to consider is the
issue of ‘breakaway brokers’ (see PBI 245, 244). Financial advisers
and brokers become more likely to depart and set up independent
firms when they have more assets under management.
Aite’s report says that in the US, the threshold is around
$500,000. As a result, it is important for wealth managers to focus
on providing advisers with independence on product selection and
support to grow their business book, to avoid potential
defection.
