Lately, it seems everywhere I turn, things are “new and improved.” Perfectly good items that have served me well no longer exist. Recently, I needed new running shoes to replace my worn out pair. The make and model I was using had been discontinued; the new version is completely re-modeled and would serve better as a torture tool than an exercise incentive. It took more than a dozen tries to find a pair that were comparable to the old ones. I found myself becoming nostalgic for my childhood days, when I would accompany my mother to the local shoe store for her annual purchase of penny loafers—always the same size and model. I thought she was so boring; now I understand that she had found something that worked well for her, and she knew better than to waste time replacing it with something different. I envy the fact that she could count on those same shoes being available each time.
How does this relate to private wealth management? We don’t sell products, or at least those of us who believe ourselves to be pure vehemently claim that we don’t. And yet, our industry runs the very same risk that product manufacturers do: By always seeking to produce “new and improved,” we run the risk of discontinuing advice and services that are quite good. We also risk frustrating our clients in the process. I might sound like an old (or middle-aged) curmudgeon, but I think as we consider how to bridge gaps between advisor and client, we must take a serious look at what needs to be “new,” to be “improved” and when “new” might mean just the opposite for clients.
Rather than resorting to a mid-life rant against change, I have spent some time reflecting on these developments, considering when they are for good and when for ill. On the whole, I find that there have been more positive than negative “new” developments. I wonder, though, whether the drive for new and improved has the collateral effect of eliminating some very good products and services and misses a fundamental point about the nature of our work. Here are a few examples.
Trends
Financial institutions are constantly searching for new investment offerings, sometimes re-packaging products in new names. Despite the fact that hedge funds have always had a wide range of returns and aren’t per se superior to other investments, these “products,” which were once the purview of the few, are being offered through newly constructed investment vehicles for a broader client base. Similarly, many investment advisory firms seeking to attract ultra-high-net-worth families have noticed that these clients often have or want their own family offices. So, they have either added the label “multi-family office” to existing services or carved out new divisions to do so. In the process, they often diminish their existing expertise - investing - in the quest to replace it with new services that are more administrative in nature. On the legal and accounting side, many firms have spent the past decade transitioning from practices of developing highly customized plans to offering packaged solutions.
Technology
Technology has transformed the private wealth management industry. Families can now connect with each other and their advisors through secure websites, video conferencing and the like. This “new” is generally an improvement, though it runs the risk of being taken to an extreme if it ignores the reality that “face time” matters. At the same time, it’s astounding that a system doesn’t yet exist to provide families with foolproof consolidated reporting across all entities and investments, which could help them, as well as their advisors, understand all that they own and make more informed decisions. The gap in sophisticated reporting offerings must be closed soon with advanced technology for real improvement to exist.
Tax Structures
The year 2012 is the apex of the decades’ long trend that’s led to an ever expanding group of families who have created complex estate tax structures. Today, it’s hard for a family to create a simple estate plan without at least a handful of trusts. The acronyms abound, and the new relationships they create can be crushing to the ways that family members relate to each other. This is where I especially wonder whether “new” is necessarily improved. Despite their desire for simplicity, families seem unable to hold back their advisors who offer “new” and “improved” structures all the time. The families are reeling under all this complexity, and the long-term effects aren’t always positive.
Reality Check
The push for “new” and “improved” seems ironic and contrary to the fact that what we’re working with is often neither new nor can it always be improved. That is, there are some simple facts at the core of private wealth management that will never change: We’re born, we live and we die. We’ll leave something behind, and that includes more than material goods. It’s perhaps better to acknowledge these facts than to create the illusion that if clients buy a certain product, investment, trust or other offering, we can change this reality. I wonder whether we might provide greater comfort by acknowledging the “old” and ”true,” at least a bit more often. I’m sure that my mother walked comfortably in each pair of those loafers that she bought. I wonder today what comfort our clients receive from the products and services on offer in the private wealth management industry. We must seek to strike a balance, and determine when new is improved and when old is just right.
