Bowen, founder and CEO of CEG Worldwide, previously worked as a financial advisor and firm executive. He served successively as CEO of Reinhardt Werba Bowen Advisory Services and Assante Capital Management.

Getting an Edge

For many financial advisors, the choice to offer wealth management services isn't easy. Their biggest concern is that wealth management will take a lot of time and effort to implement, but the payoff won't come. They wonder if wealth management is really worth it.

The answer is yes. New research by CEG Worldwide shows that advisors using a true wealth management business model outperform their peers across major metrics. Here's a look at the success these planners are enjoying-and steps they're taking to build better businesses.

Getting Serious

Many advisors advertise themselves as wealth managers. But offering real wealth management takes more than changing the title on your business card. Consider that among the 2,094 financial advisors surveyed by CEG Worldwide last year, only 6.6% qualify as true wealth managers under our parameters. The rest-93.4%-continue to operate using the traditional investment generalist business model.

What's the difference? Investment generalists offer a broad range of investment products, but they don't make consulting an essential part of their business model, tending instead to be more transactional.

In contrast, wealth managers take a comprehensive approach to meeting client needs. They construct integrated solutions that encompass all types of financial needs throughout all phases of clients' financial lives. In its simplest form, wealth management comprises three phases:

1. Using a consultative process to establish close relationships with clients.This allows you to gain a detailed understanding of clients' goals and their most important financial wants and needs.
   
   
2. Offering customized choices and solutions designed to fit each individual's needs.This select range of interrelated financial services and products might include investment management, insurance, estate planning and retirement planning.
   
   
3. Delivering these customized solutions in conjunction with clients and their other professional advisors. The wealth manager works closely with clients and their other professional advisors to identify specific needs and design solutions to help meet those needs.

These fundamental differences between the approaches result in large gaps in the level of success that the two groups generate. Our research proves that investment generalists simply cannot compete with their wealth management peers.

The clearest measure of advisor success is, of course, income. The average annual net income (before taxes) of wealth managers is much higher than that of investment generalists-$881,000 versus $279,000. It's not surprising, then, that wealth managers also fare better on assets under administration. The typical wealth manager has $645.2 million in assets under administration, while the average investment generalist has just $307.8 million.

Smart Choices

Our research finds that wealth managers' success comes from systematically making intelligent choices about their business practices. Some of the biggest drivers of their success are client-centric decisions. These include:

Number of clients.

One indication that wealth managers employ a more effective business model is their ability to generate greater income and assets while serving fewer clients. For example, wealth managers serve just 101.1 clients on average. The typical investment generalist serves 269.3 clients.

This is a key point. Many advisors can't believe that reducing their client base will lead to more income and assets. But the evidence reveals that wealth managers win not in spite of having fewer clients, but because their client lists are smaller. Why? A smaller stable of clients allows wealth managers to spend more time focused on the client relationship-resulting in better service and, in turn, greater client retention and word-of-mouth marketing.

Client acceptance standards.

Top wealth managers don't just serve fewer clients-they choose those clients with great care. Our study shows that wealth managers are much more likely to formalize systems to attract clients who are good candidates for profitable long-term relationships.

Consider that 73.2% of wealth managers require a minimum asset size for new clients, versus just 38.8% of investment generalists. Likewise, 84.1% of wealth managers charge a minimum fee, versus 33.9% of investment generalists. These strategies help ensure that wealth managers focus their attention on the most profitable and suitable clients, rather than expending valuable time and resources on clients who are not ideal.

A Targeted Approach

Wealth managers also take a more targeted approach to client acquisition than do investment generalists. Wealth managers typically source new clients through client referrals, in addition to referrals from other professionals or joint ventures and similar arrangements (see "Finding New Clients," above).

Investment generalists agree that client referrals are an important source of new clients, but they are far less likely to use referrals from professionals. But they are far more likely to employ methods that research consistently shows to be ineffective, particularly for attracting wealthy investors. For example, 13.5% of investment generalists try to attract new clients by cold calling.

Client service. Not only do wealth managers make smarter decisions about the number and types of clients they work with, they also take better steps to serve those clients. Whereas investment generalists typically base their relationships on transactions or events-buying and selling stocks, for example-wealth managers take a longer view of client relationships. These advisors cultivate strong bonds with clients, seeking to earn their trust by working closely with them over time and learning their individual needs (financial and otherwise).

A look at the frequency of client contact among the two groups underscores this point. Wealth managers contact each of their 20 best clients an average of 15.4 times per year-a rate of one contact every three and a half weeks. Investment generalists, meanwhile, contact their best clients only about one-third as often-5.6 times, or less than once every other month. This is another benefit of wealth managers' smaller client lists: They're able to spend more of their time communicating with clients.

What's more, we learned that wealth managers employ formal systems to ensure high-quality service. For example, wealth managers are far more likely than investment generalists to engage in a formal interview process with clients, 85.5% versus 58.7%, and to provide formal plans, 81.9% versus 37.0%.

Steps to Success

Making the switch to true wealth management is the surest path to building a successful advisory practice and creating a better life for your clients, your family and yourself. And, while building a wealth management offering isn't necessarily easy, there can be no doubt that the steps you take toward wealth management today will pay off handsomely for years to come.

Reprinted from: Financial Planning