By now, financial advisors know the drill. They are supposed to be evolving into wealth managers. This upgrade helps advisors better connect with existing clients, attracts more high-net-worth prospects and improves profitability by broadening the range of products and services offered. That's a formidable — and highly desirable — trifecta.

There's a major glitch in this scenario, however. For many advisors, the evolution to wealth manager remains a matter of theory, not practice. Sure, they're calling themselves wealth managers, but they're still behaving like financial advisors.

In fact, in research that we've conducted, three-quarters of all financial advisors identify themselves as “wealth managers” but only one in 10 actually merits the title — by our definition, anyway.

Definitions, of course, are part of the problem. There is no one, concise definition of wealth manager that is accepted by every financial firm, professional and pundit. For our purposes, however, a wealth manager is someone who provides a range of inter-related brokerage, investment and advanced-planning products and services to clients in a consultative manner. What does that mean? It means knowing clients well enough to be able to match them with the right products and services, and it means assembling and managing a team of experts who can work together to address every aspect of a client's complicated financial life.

The Real World

In our research, we have shown that advisors who put the theory of wealth management into practice — by truly adopting a multidisciplinary approach — do indeed hit the trifecta that the theory promises. In fact, financial advisors who adopt our wealth management model have increased their profitability by at least 35 percent within a year, after expenses.

This wealth management model has also proved to be resistant to market downturns and more binding in terms of client loyalty. Furthermore, it can lead to referrals, primarily through the high-end accountants and attorneys who work with the affluent. And, importantly, it's not just a business model that works for financial advisors. Our research has demonstrated that it's also what affluent clients want — an informed professional whom they can relate to and who can simplify their financial lives.

The Holdup

So why do so many financial advisors fall short when they aspire to wealth management status? First, many financial advisors are not able to identify opportunities for doing more business with their clients, a key to successful wealth management. And secondly, even if the advisors do identify those other financial opportunities, they don't have — or more often, don't have ready access to — the expertise needed to put those opportunities into perspective and into action.

The good news is that, for both these problems, there's a solution.

The highest hurdle to identifying client opportunities is developing a comprehensive and actionable client profile. Though the financial services industry has advanced in this regard over the past few years, most profiling tools still focus on assets and investments. Client questionnaires are aimed at capturing client assets and placing them in appropriate (and arbitration-proof) portfolios of stocks, bonds and mutual funds. This approach does not give the advisor what is needed to build a wealth management relationship, however. Wealth management is premised on a detailed knowledge of each individual client, which leads to personalized financial solutions. That knowledge goes far beyond learning their risk tolerances and adjusting their portfolios.

By way of example, we use a data-gathering tool that covers seven categories: client demographics, goals and concerns, financial status, relationships, interests (including charitable), process (how the client likes to work with an advisor) and other advisors.

The actual questions one asks and the timing of the conversations will depend on a given advisor's strengths and style (some advisors may not have the temperament for this highly personal approach). But we've found that uncovering information about clients can lead to longer conversations, other ideas, a better relationship and, often, a natural opening for selling new products and services. Even if that in-depth personal knowledge does not lead directly to more business, the context it creates engenders greater client trust, confidence and loyalty.

Now, we come to the second problem: finding the necessary expertise to deliver solutions once opportunities have been identified. Financial life is incredibly and increasingly complicated, and no one person can be expected to have all of the answers. Nor should they, because each advisor presumably has one field of expertise — stockpicking, say — that attracted the client in the first place. So when a higher level of expertise is called for — to create a generation-skipping trust, write a business succession plan, find private equity investments or start a charitable foundation — a wealth manager has to be able to tap the proper resources.

Team Players

To date, we've found that independent financial advisors have been more successful in putting together an advisory team than their peers who work for major financial services firms. That's because the former can network far and wide, while the typical wirehouse rep is encouraged (and sometimes compelled) to use in-house resources. Independent experts tend to be highly motivated and they are also accustomed to being team players. In-house experts can be hard to pin down and, perhaps, not as informed as their independent peers.

Many financial services firms are now actively addressing this issue by hiring and training more specialists, by making sure those specialists are available and accountable, and by giving them greater incentives to partner with their fellow employees.

Whether an advisor creates a network of experts himself or taps in-house resources, managing an advisory team can be challenging, not least because the advisory business has long encouraged (and exalted) solo fliers. Also, not everyone is comfortable being part of a team nor is everyone capable of working productively with other experts to whom they may have to defer. Some advisors fear losing control of clients.

For those who can make the transition, however, an advisory team will help them generate ideas, offer solutions, impress clients and, not incidentally, provide referrals. That all adds up to a substantial reward for making the move to wealth management.

Writers' BIOS: Russ Alan Prince is president of Prince & Associates.

Hannah Shaw Grove is the author of five books on private wealth and advisory practice management.


What it is:

True wealth management is providing a range of inter-related brokerage, investment and advanced planning products and services to clients in a consultative manner.

What it does:

  • Connects advisors better with existing clients.
  • Attracts more high-net-worth prospects.
  • Improves profitability by broadening the range of products and services offered.