Poll: Few advisers are 'real' wealth managers

Oct 29, 2007 @ 12:01 am

By Charles Paikert

Although an increasing number of financial professionals claim to be wealth managers, few truly are, according to a study conducted by consultants CEG Worldwide LLC of San Martin, Calif., and sponsored by New York-based Dow Jones & Co. Inc.

In fact, while more than 40% of brokers and financial advisers described themselves as wealth managers, according to the study, "Best Practices of Elite Advisors: The Wealth Management Edge," only 6.6% meet the criteria that the report's authors claim define a "true wealth manager."

Those criteria include using a consultative process to establish and maintain close relationships with clients and providing the clients with customized choices and solutions, according to Simon Alterman, senior vice president of strategy and business development at Dow Jones Enterprise Media Group.

"A defined process and a high level of client communication differentiate the highly successful group of wealth managers," he said.

Wealth managers, on average, contact their top clients more than 15 times a year, according to the study, which is almost three times more often than other financial advisers do. They also tend to concentrate on fewer clients, averaging about one-third as many as other financial advisers, the study found.

"For all of the talk and promotion focused on wealth management, we found that only a small portion of the financial advisory industry is practicing true wealth management. But for those who do, the benefits are tremendous," said John Bowen, CEG's founder and chief executive.

Those benefits, the survey found, include controlling more assets and having a higher annual net income and income growth rate than other financial advisers.

Wealth managers average $881,000 in annual net income, according to the survey, as compared with $279,000 for other advisers. And wealth manager income is growing nearly twice as fast as other advisers' — by 15.4% in 2006, compared with 8.7%.

Nearly three-quarters of wealth managers require a minimum asset size for new clients, the survey found.

"Requiring a minimum asset size helps wealth managers ensure that they focus time and resources on wealthier — and more profitable — clients," the report stated.

While the survey did not ask respondents for the dollar value they set as the minimum asset size for clients, Mr. Bowen suggested that setting a minimum of $1 million in investible assets and $3 million in net worth is "a good rule of thumb." He added, however, that "there are advisers successfully doing this at $500,000 [minimum for investible assets]."

Some wealth managers believe minimums should be higher.

While he believes that $1 million is the minimum amount of assets clients would need to have to be exposed to alternative investments, James Hausberg, a managing partner in Los Angeles for San Francisco-based Presidio Financial Partners LLC, says that minimum asset size for proper diversification is between $2.5 million and $5 million.

Even more important than client asset size as the true measure of a wealth manager, Mr. Hausberg said, is an ability to "have a total handle on a client's assets and liabilities and understand their objectives and risk tolerance. It really is about being the trusted adviser. You have to manage wealth properly, based on what the client tells you."

True wealth managers also are able to provide clients with a variety of specialized services ranging from money management to estate planning, stressed Jeff Krueg, chief executive of Scottsdale-based WealthTrust Arizona.

"We're the financial quarterback," he said. "We have the contacts to put everything the client needs in one plan."

Working closely with clients also yields benefits, according to the CEG report. Nearly 90% of wealth managers surveyed cited client referrals, and 82% cited professional referrals as sources for new clients.

None of the wealth managers surveyed said "cold-calling" was a source of new clients.

The study was based on a survey of 2,094 financial advisers in the United States, all of whom had been in business for at least five years and had at least $50 million in assets under administration.

Charles Paikert can be reached at cpaikert@crain.com.

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