"With the advent of the Internet, there is now an excellent alternative to the in-house wealth management approach—a virtual team of free-agent experts who are unrestricted by geography and available to work on an as-needed basis."

Virtual Experts

By John Bowen

Given the many advantages that wealth management offers to financial advisors and their affluent clients, it's not surprising there is a huge amount of interest in this business strategy today. In the previous two issues, we discussed why you should implement wealth management in your own practice and how you can transition your clients from an investment generalist model to a wealth management approach. Now we'll look at how you can offer wealth management most effectively by building a virtual team of experts.

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Financial advisors can't simply just begin calling themselves "wealth managers" and expect that to make them true wealth managers. Wealth management at its core is about devising a set of interrelated solutions to meet diverse, complicated needs. No single advisor can provide the technical expertise in multiple fields that is required to formulate these complex solutions.

Wealth management calls for a complete team of experts—people skilled in everything from tax planning and asset protection to charitable giving and life insurance. To advisors long accustomed to meeting their clients' needs entirely on their own, or perhaps in tandem with a partner or two, this requires a substantial shift in thinking.

As a wealth manager, you will probably continue to concentrate in your specialty—most often, this will be investment management—but you will also begin to be able to take care of a much wider array of client needs. One of the key values that you will provide to your clients is your access to a trusted network of highly qualified experts that you can call in as needed on a case-by-case basis. And this access to this network of skilled advisors will enable you to develop a broader and much more profitable relationship with each one of your wealthy clients.

If done correctly, working with a wealth management team will increase your revenue per client, not dilute it. This increase in revenue per client will first come from the new higher-net-worth clients you will attract with your more compelling value proposition. These new services will often be ones you did not previously offer, so if you choose to share in fees with a member of the team, that's income that you would not have earned before. In other words, as the wealth manager in charge of the team, you'll benefit from being the conduit for products and services that clients would have otherwise obtained directly from other advisors.

How can you most effectively move from financial advisor to wealth manager? To answer that question, let's first look at exactly who should be a part of your wealth management team.

To be able to deliver the full range of financial products and services, you will need experts who are able to provide equities, bonds, options, derivatives, cash management services, retirement plans, portfolio construction and maintenance, mutual funds, 529 plans, estate planning, business succession planning, asset protection, charitable planning, and managed accounts—to name only the major requirements. And as daunting as this list seems to be, bear in mind that it will constantly change as client needs continue to evolve.

You'll find there's a broad range of talent, skills, and experience out there ready for you to tap. The wealth management team will be shaped according to the needs of your affluent clients, but it will typically consist of an accountant, an attorney, a money manager, and an insurance agent. It could also include a banker, a trust and estate attorney, a management consultant, an income tax specialist, a valuation expert, plus any number of other financial professionals.

In the past, the goal for most advisors who wanted to offer a complete wealth management solution was to hire this entire team of specialists on staff. Team members were paid a salary and were on hand at all times to work as directed. This approach may be convenient, but there are some significant drawbacks to this all-or-nothing mentality.

First, it's expensive. Wealth managers need to provide office space and write paychecks to each expert every two weeks, whether their services have been needed or not. When a wealth manager has more than enough business to go around, the high cost of maintaining an in-house team can be justified, but that occurs only after the firm has achieved an adequate scale.

Second, it's a challenge either to add or remove any members of an in-house team. Finding qualified candidates in a limited geographic area can be challenging, and the time and physical and mental energy required to bring on a new employee is substantial. Likewise, companies nearly always wait too long to fire employees. One important result of the difficulty of adding or subtracting team members is that it becomes more challenging to maintain a team that is at the leading edge of expertise.

Fortunately, with the advent of the Internet, there is now an excellent alternative to the in-house wealth management approach—a virtual team of free-agent experts who are unrestricted by geography and available to work on an as-needed basis. For wealth managers who are interested in offering top-notch expertise to their clients, it's a tremendous advantage to be able to draw from a nationwide pool of such experts. And because these experts are free agents rather than employees, the wealth manager does not pay for overhead, only for expertise when it's used.

The virtual team model also offers a key advantage when it comes to finding the best possible members for the team. The old in-house model of wealth management called for a traditional hierarchy, with the wealth manager at the top, responsible for recruiting and managing every team member. Given that a complete wealth management team can easily exceed 20 people, this is a major, time-consuming task.

In contrast, the virtual team model leverages the network of contacts that each expert is able to bring to the table. The wealth manager need only choose a handful of "A" players—the experts at the top of their fields—and then ask each to bring in the best experts from their own networks.

A derivatives specialist, for example, might have a working relationship with a securities lawyer. The derivatives specialist would bring the lawyer in to work on particular cases as needed and would manage the ongoing relationship. This frees up the wealth manager to focus on solving client challenges.

There's no doubt that shifting to a virtual wealth management team model from an in-house approach represents a big change for most financial advisors. The good news is that you don't have to jump in all at once. Wealth managers can bring in new people (on the recommendation of existing experts on the team) to work on small, closely defined projects to see how they perform.

A wealth manager might hire a derivatives specialist to design a strategy to hedge an affluent client's large, concentrated security position, for example. If it's a very important client, the wealth manager might even minimize the risk to the client relationship by hiring two experts for the same task to see which one offers the best solution.

Either way, the project serves as a proving ground. If the expert performs the job well, he or she can be brought in on additional, larger projects. But if the expert doesn't perform well, he or she is simply not hired for new projects. The entire set of stressful challenges associated with hiring and firing employees is sidestepped, and the client ultimately benefits from top expertise.

Why am I so convinced of the value of the virtual team approach? That's because I have run my own firm, CEG Worldwide, as a virtual company from the day it opened its doors for business.

By removing the geographic restrictions on who we can partner with, we've been able to draw from a nationwide pool of talent. By tapping the networks of trusted experts, we've been able to locate the best people and match them to the right tasks. And by working only with independent free agents, we've been able to assemble a world-class team much faster than if we'd worked in the old employer-employee model and hired everyone in-house.

Your wealth management clients deserve the very best. With the communications technology that is available today, there's no reason for you not to have the very best experts available to them to help solve their financial challenges.