Wealth management must sell itself again

There’s never been a better time to be in this business.

That may seem like a bold statement. After all, regulations have increased over the years, creating added expenses and squeezing margins.

Moreover, the dot-com bubble, the 2018 financial crisis and, to a lesser extent, 2022’s market slump created substantial investment losses. Naturally downturns like that weigh on business performance, to say nothing of how difficult it is to keep clients calm during tumultuous times.

Yet when you consider some other trends that have happened in the recent past, it’s clear that we’ve benefited from several advantageous tailwinds that have facilitated growth.

Favorable trends 

Historically, stocks have never before advanced at the rate they have over the last 12 years. Since 2012, the S&P 500 is up 414.84%, while the average annual gain was 14.33%. In the 20 years before that, the index advanced 356.54%, with annual returns averaging about 7.88%[i]. The contrast is stark.

Advancements in technology have put many once time-consuming tasks on autopilot. This has simplified many internal processes, including portfolio management, saving advisors precious time – which we can now spend meeting with clients and prospecting for new business.

Lastly, up until last year, growth capital was never more accessible. Whether it was the record-setting levels of private equity money or the historically low interest rate environment that followed the financial crisis, firms have had plenty of liquidity to pursue acquisitions and create scale.

These tailwinds have been so profound, in fact, I’d argue that we’ve never had it so good.

However, that could change, with our jobs potentially set to become much more difficult.

Challenges on the horizon

While stocks have been on a tear this year, we’re in unchartered territory. Never before have so few stocks (i.e., Nvidia, Microsoft and others) been responsible for so many of the market’s overall gains. Up until now investors have been rewarded. The fear is that sort of concentration is kindling for a blaze of volatility, should stock market sentiments turn. 

Higher interest rates and an increasingly saturated M&A environment also pose potential problems. Granted, mega-firms with limitless access to capital will continue to do well, but everyone else could struggle thanks to escalating costs.

Even technology – which overall provides firms enormous benefits – is a looming pain point. Studies show that investors want financial advice. Unfortunately, they also show that a growing number of young people are getting it from robos or even social media, creating competition for traditional wealth management businesses.

What’s old is new again – it’s time to sell 

As a result, more firms will have to focus on organic growth. That means devoting more time, money, and effort to elevating client service. It also means focusing more on prospecting for new business. In other words, we’re going to have to sell ourselves again.

Selling has become a dirty word in wealth management - it shouldn’t be. Indeed, we should be proud of what we have to offer because what we’re selling – comprehensive financial planning-based advice – has the power to provide people with life-changing financial independence.

Therefore, the onus is on us. Don’t expect prospects to call you – even though, as markets have gone up in recent years, that’s precisely what happened in many cases. Back away from your desk, get out there, and proactively make things happen.

Part of the solution is having an engaging, content-rich, and personal online presence (get rid of stock images). But it’s also about taking the time to understand the values and needs of prospective and current clients. To do that, you must shift your approach to account for modern communication techniques, generational expectations, and the pandemic’s lingering impact on interpersonal relationships.

Think about how to recreate the steak dinner experience for the modern era. Clients may not want or expect an expensive meal or some other gift (which, in any case, could cause compliance problems). It’s time again to invest in relationship-building exercises that were once so popular – and effective.

Time to step up

For too long, we’ve relied on market gains, technological advancements, and easy money policies to power growth and make clients happy—so much so that a sense of complacency has set in.

As we potentially head into a period of heightened uncertainty, revisit what makes an excellent wealth management experience, how to sell ourselves, and tout the value of our services.

Josh Harris is managing director of corporate development at Coldstream Wealth Management, which has offices in Bellevue, Seattle, Mercer Island, Kirkland, Portland, Boise, and Kenai.

[i] Source: Bloomberg