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 practices were not necessarily owned by the smartest people in the profession.
In many businesses, the skills to perform the services or make superior widgets are not necessarily the same as those required to build a successful business that performs services or makes widgets. These successful entrepreneurs figure out what resources and talent they’ll need to scale and grow the business, invest in their business, and execute on a business plan. I think I learned that in the first week of business school. But then somehow, the process of becoming a CPA sucked me into thinking that being the most technically competent was most important, until I realized that I was an entrepreneur, and not built to do audits and tax returns.
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 successful wealth management owners have also figured out is that it is not the deepest mastery of the technical matter that 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. We’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 is such 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 and wide 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’ve heard firsthand from most of the CPAs that I’ve worked with that they want to get better at the technical side before they go too deep with wealth management for their clients — especially their larger “A” clients. My response is typically this: “Good luck! I’ve been doing wealth management for 35 years and if you started studying today in addition to all of your 40 hours per week, you’ll never catch up to me with the technical knowledge needed to master all of the subject matters of wealth management.”
This is not boasting; I am officially not the smartest wealth manager in the universe. It is a statement recognizing that expertise in wealth management is an acquired skill that includes a basic understanding of all of the technical moving parts, along with the realization that it takes years of practicing, listening to clients, and paying attention to changes and trends to offer the best advice humanly possible for your beloved clients.
If you are still dubious, ask yourself this. Have you ever seen an extremely successful wealth manager whose technical knowledge base didn’t impress you? The answer is of course you have. I don’t recommend that you fake it until you make it, but allow your internal ethos to guide you away from being a sales-oriented wealth manager and you’ll devote the proper amount of time to figure out the best choice for your clients or find an allied professional uniquely suited to assist.
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 am 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 a rigorous agenda 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 Web sites that can lead you to most of the deeper technical resources that you may need. As of now, I’d give the edge to the AICPA PFS, but the CFP Board is coming on fast thanks to a commercial sponsorship to fund that project.
GETTING STARTED
When starting their wealth management division, many firms take different routes. Some bring in an outside advisor, referred to as a partner, to spearhead the engagements. For smaller firms, this may make sense. Devoting the time to master the topic and take you away from your core revenue-producing activities can be painful if you are the main productive asset in your small firm. Beware the pitfalls of this arrangement, have good written agreements if you are sharing in revenue, and stay on top of client engagements so you always know what is going on in your clients’ financial lives.
Larger firms have hired the talent needed or acquired a wealth management firm to accomplish their firm’s objectives. I prefer this route, but it is only right for larger firms or smaller firms looking to do a complete overhaul of their business model. Your wealth management division will ultimately be based on the relationships that you can 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 be with you forever.
Some of the issues most important to clients have little relationship 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 (rightly or wrongly) can and will help guide them through that. But what they care more about is clarity on who is going to oversee this if the surviving spouse is not 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 life spans of their children to protect their assets from their children’s potential future problems such as divorce, business failure or substance abuse? They also care about how this is communicated to their offspring — 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 so 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 take the form of business governance and how the future non-owner employee siblings deal with owning an interest in a closely held business? Or how does the one who works in the business feel about owning a minority interest in the business that they helped build?
We all know that 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 now also see, it is 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.
KNOW THY CLIENTS
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 myths) about money, but understanding their value systems 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 as 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 for 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 questions 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. Space won’t permit a full launch into the life planning side of financial planning. 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 your 168 hours per week becomes.
Before you get all befuddled when one of your top clients starts asking you stuff that is over your head, take a deep breath and ask these questions: What would you like to accomplish with this? Would you like my guidance to oversee the process, including coordinating with any other professionals that we need to make sure that the end result is what you had in mind? When would you like to get started on this project?
Notice that those questions are quite different than “Call me after tax season” or “I don’t know, let me get back to you.” In fact, these questions, perhaps stated a bit differently, are appropriate coming from any professional on the accounting firm’s staff when asked a complicated question by a client.
