Voices

The softer side of wealth management

Being a student and a business owner in the wealth management profession, it became clear to me years ago that the most successful firms or practitioners were not necessarily owned by the smartest people in the profession.

In the wealth management profession, the best of the best have the entrepreneurial thing figured out. They have competent staff, powerful outside resources, capital, and a business plan to generate growth.

The owner likely started as a practitioner in one of the more common starting places for wealth managers, such as investments or insurance, but then became a business owner and focused on what they do best and began to surround themselves with competent staff to do everything else.

What these most successful wealth management owners have also determined is that the deepest mastery of the technical matter isn’t what sets them apart.

Their services are distinct from others in that they understand their clients and their lives extremely well. They’ve mastered the soft side of personal financial planning in a very bonding way. Don’t take this as a slam to the technical nerds out there, but realize this: What you think is most important in a wealth management relationship may be drastically different from what your clients and prospects think is most important in a wealth management relationship. I’ll have more on that later.

When pondering an offering in the wealth management space, many CPAs immediately get wrapped up in the specialized knowledge that is needed to deliver that service as well as they do their CPA services. Because the CPA world contains so much specialized knowledge, where mastery is considered game stakes for practitioners, I can understand the thinking. But in the wealth management world, the knowledge base required is so vast that it is nearly impossible to master all of the specialized technical subject matters that may need addressing in the course of a typical wealth management engagement.

I am not saying that knowledge doesn’t matter. In fact, it matters a lot. In my experience, I truly believe that most CPAs with a deep understanding of the Tax Code and business in general have a leg up on most wealth advisors trained in sales, insurance or investments.

To get your knowledge base up to the minimum required standard, invest in a little education. I’m a big fan of the educational tracks that are available when studying for the Certified Financial Planner or the Personal Financial Specialist exams. Both have rigorous agendas and comprehensively educate you to speak intelligently in just about every area of personal finance. Both the CFP Board and the American Institute of CPAs’ PFS Section have robust resource sections on their websites that can lead you to most of the deeper technical resources that you may need.

Your wealth management division will ultimately be based on the relationships that you build with clients. If the relationship is treated like a tax engagement, grounded in fact, details and forms, it won’t be sustainable. But if the relationship focuses on the topics that clients think are important, then you will develop very strong, enduring relationships that are likely to last.


What matters most

Some of the issues most important to clients have little correlation to the Tax Code, alpha or beta, but are more soft or personal in nature. A great example is in the area of estate planning. Yes, clients want an estate plan that minimizes death taxes, delays and expenses in estate administration. And they assume that you or any other advisor can and will help guide them through that. They care about clarity on who is going to oversee this if the surviving spouse isn’t the more knowledgeable of the two.

Who is going to see that there aren’t any family battles over the family business, real estate, or any other part of the estate? Who can they trust for the lifespans of their children to protect their assets from their children’s potential future issues such as divorce, business failure or substance abuse? They also care about how this is communicated to their kids — now and after death.

Knowing what clients want in the area of estate planning guides the most successful advisory firms to conduct their affairs and build their businesses to accommodate that. These firms delve deep into estate plans not just to see that the documents are current and proper, but to see that the structure also makes sense.

Should there be a discussion about estate equalization because only one of your three children works in the family business? Or should that discussion design a form of business governance so that the future non-owner employee siblings deal with owning an interest in a closely held business that doesn’t ruin the business? How does the one who works in the business feel about owning a minority interest in the business that he or she helped build?

I could come up with dozens of other possibilities for dealing with this sticky issue of a family business in estate planning. But as you can see, it’s a discussion that goes far beyond future cash flow and estate tax forecasts. Being interested in your client’s well-being enough to be sure that these tough conversations occur is what I’d call a softer-side skill that frequently trumps technical advice only.

The appropriate answer to any planning issue for your clients lies deep in their own systems of beliefs and values. You may uncover their beliefs (and misconceptions) about money, but understanding their value system and what is important to them is critical in being the advisor that they’ve dreamed of having.

Any technical issue can be dealt with from a “highest and best use of money” perspective or viewed through the lens of what is most important to the client. The latter will always add dividends to the relationship, even though it may go against your grain and technical base.

We see this all the time when it comes to portfolio management. It could be about concentrated positions, too much or too little risk in a portfolio, or a completely tax-insensitive approach. Successful advisors don’t let their own financial biases dictate the guidance that is given to clients.

The best way to succeed in the softer side of wealth management is to ask your clients better questions. Make fewer assumptions about what they want and specifically ask them what they’d like to accomplish … while living, while working, in retirement, and after they’re gone.

Ask about how they currently make financial decisions, good and bad decisions they’ve made in the past, what they are hoping to avoid going forward, and what they are hoping to gain in working with your firm. Ask about their context, and what they liked or didn’t like about their previous advisor relationships.

Personally, I’m a big fan of life-planning questions.

My experience reveals, however, that the more money and wealth that a client has, the more significant a deep conversation about life planning, family and their 168 hours per week is.

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