The scales in the private wealth industry are clearly weighted toward the professionals, not the wealthy. Discounting the grifters, there are several structural reasons for this imbalance. For example, the inherent complexity of many financial services and products can easily form an excessive reliance by the wealthy on their wealth managers. Just consider estate planning with its array of acronyms and poorly named concepts such as Crummey letters and intentionally defective trusts.
The consequence of the imbalance is that many of the wealthy, including the ultra-wealthy and super-rich, are being poorly served. They are often not getting the most appropriate financial services and products to meet their needs and wants. And, if they are getting the best financial services and products for their circumstances, it is not uncommon for them to be overpaying for them. This state of affairs, however, is starting to change.
Today, the balance of power between wealth managers and the wealthy is slowly shifting toward the wealthy. The result is more astute clients who do not understand the mechanics of financial services and products and do not want to, but understand how they fit into their lives and what they should be paying for them.
High-performing single-family offices and an ever-growing number of the ultra-wealthy are facilitating this shift. These wealth management clients are becoming increasingly critical of the nature and cost of their services and products. Furthermore, more and more leading professionals are pulling back the curtain on the financial services industry.
According to Paul Saganey, founder and president of Integrated Partners and co-author of Making Smart Decisions: How Ultra-Wealth Families Get Superior Wealth Planning Results, “Optimally, instead of trying to sell the wealthy on a particular service or product, the goal is to empower them so they can make smart decisions. This necessitates private wealth industry professionals find ways to add substantial value cost-effectively for each client. By providing the wealthy with a clear understanding of all their relevant choices, including the advantages and disadvantages of each choice, they are ensuring their clients are in control of the process.”
This trend is only going to intensify. Helping the wealthy to be critical when working with wealth management professionals, including themselves, often leads to more opportunities for the professionals. Remember, most of the wealthy are poorly served. So many of them have been sold inappropriate or costly financial services and products. Consequently, there are enormous opportunities for talented wealth managers to deliver value.
Those private wealth industry professionals who adapt and support empowering the wealthy to make smart decisions will likely reap considerable business rewards. Included here are loyal and wealthier clients. Specifically, empowering the wealthy to make smart decisions has produced significantly more ongoing business and substantially more client referrals. For wealth managers, shifting the balance of power to the wealthy is not only the “right” thing to do, it is good business.
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
