Joe Duran

Duran Duranblog

Joe Duran

Goodbye wealth management, hello financial life management

For professionals working with clients on life and investment choices, it's time for a new category to capture what they do

Mar 10, 2015 @ 11:00 am

By Joe Duran

Remember when the financial world was really simple? Not that long ago there were brokerage firms, banks, insurance companies and independent financial planners with clearly defined roles and descriptions. How the world has changed.

Last year when I received our firm's valuation from Lazard, I spent a little extra time looking at the different segments of financial firms they had used to form an opinion on our valuation. As most institutional teams do, they had categorized firms in the industry into one of three sectors:

1. The platform companies: Technology-enabled firms like Envestnet, Financial Engines and Advent — all of which have the loftiest valuations, as high as seven times revenue (many lose money so you can't calculate a PE).

2. The asset managers: Firms like AMG, AllianceBernstein and SEI fell into this section. These firms have recurring revenue and scalable investment distribution and valuations between three and five times revenue.

3. The wealth management firms: In this group were LPL, Ameriprise, Morgan Stanley et al. These are the distribution and large brokerage firms with commission and fee-based revenues. They show valuations of one to three times revenue.

By name, the independent adviser who is a fiduciary and helps people with their entire financial life is the same as the broker at a wirehouse. You can imagine how confusing it is to the average consumer who is trying to understand the difference.

THE CO-OPTING OF WEALTH MANAGEMENT

In the early 90s, the retail investment world was made up of mostly commission-based brokers and some pioneering independent advisers who began laying the groundwork for an independent fiduciary, fee-managed solution. Soon the big firms rolled out their own fee-based solutions. In the beginning, most fee relationships were investment focused, but independent advisers soon began differentiating by building a broader and more extensive relationship with clients.

Not coincidentally, as the market has changed, so have the naming conventions. Being a broker has become a “dirty” word and now most firms have become “wealth managers,” an opaque term that covers anyone who touches money. And the people who work at a wealth management firm? Why, they are all “financial advisers!” The big firms have successfully co-opted the term wealth management for both institutions and retail clients.

So how do you let people know that you are a different kind of wealth manager than the investment-focused broker at a brokerage firm, or the insurance agent representing an insurance company (who both call themselves wealth managers)? We have struggled with this question for years. It's time to do something about it.

WHAT'S IN A NAME?

We just completed a months' long research project with a team of social researchers that confirms that most people cannot tell the difference between the various “wealth managers.”

To most clients, whether it's a broker who sells securities, a solicitor who sells investment products for a fee, an investment firm, an insurance agent or a planner who is a fiduciary dealing with a client's entire financial life, we are all financial advisers who help them with their money. Wealth management has become the umbrella term for anyone touching money or investing for people. In our research, most people could simply not tell the difference.

That means if you are an adviser who provides guidance to clients' entire financial lives beyond investments and helps them to make tough choices as a fiduciary, wealth management is not a clearly enough defined category for your clients anymore.

A BETTER NAME

We believe that for those of us who work with clients' life choices and their investment choices, it's time to create a different category. We tested and contemplated many different combinations and words to capture the essence of the Venn diagram below. The one that resonated for most people was Financial Life Management (or FinLife). We discussed the difference between our specific niche and the typical investment-focused adviser in an article about the client's bill of rights. The market can't tell the difference between us because we are all called the same thing, so we have to create a new category.

A FORK IN THE ROAD

When you have market adoption and dilution of a concept, you can either bang your head against the popular position, explaining to clients that you are a “different” or “unique” version of a wealth adviser (and try to outspend the big guys), or take a different road and create a new category. Our research suggests that the latter path makes more sense.

When asking hundreds of people what the difference was between “wealth management” and “financial life management” (a term we coined, which no client had used before, but fortunately all of them seemed to assume they knew what it was), the general response was that the first was more about money and investing and the second was bigger and more about how your whole life works with money. I know those are two very different job descriptions — it's time we weren't all called the same thing. We believe deeply that this clearly articulated service, and the appropriate naming shift, is the next “big thing” for our industry.

How committed are we to this concept? We showed the research and our findings to all of our partner advisers in person earlier this year and there was unanimous agreement by all to change the definition of what we do.

In the next year, you will see the shift in our branding and logo from “Private Wealth Management” to “Financial Life Management.”

We believe Financial Life Management is superior to wealth management when describing what we do: Improve lives by bringing truth, understanding and discipline to people's choices over their entire financial life. That's probably true for most advisers reading this blog, too. We believe our clients will quickly and more easily understand the difference, even if the industry takes a while to catch on.

Joe Duran is chief executive of United Capital. Follow him @DuranMoney.

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