What If Your Prospect Doesn’t Want Comprehensive Wealth Management?
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I was a financial advisor before “comprehensive wealth management” was a service most advisors offered. At that time, it made sense to charge based on AUM.
When investing became more commoditized, advisors started offering comprehensive wealth management. They justified the AUM-based fee by touting the benefits of their additional work.
Shouldn’t comprehensive wealth management be charged based on time, effort, and expertise rather than AUM, since the AUM fee is premised on managing assets?
Is there any justification left for an AUM-based fee for managing assets? In many cases, it’s not that difficult or time-consuming.
Is there a marketing opportunity you may be missing?
A reader’s dilemma
When a reader contacted me with this dilemma, these issues were front and center. He had significant assets he wanted to be managed by a qualified financial advisor, but he was not interested in comprehensive wealth management.
He explained that he had a very competent estate planning lawyer and accounting firm. He believed all aspects of his financial life were “well under control,” but he needed help managing his investments.
He contacted several firms, but they all explained that they didn’t “unbundle” their services. They wanted to charge him an AUM-based investment management fee, including comprehensive wealth management.
He asked, “Why can’t I find a financial advisor who will charge me a fair fee for managing my investments without charging for additional services I don’t want or need?”
Not everyone needs comprehensive wealth management
Comprehensive wealth management is typically suited for high-net-worth individuals or families with complex financial situations. These clients often have multiple income streams, significant investments, business interests, and complex tax and estate planning needs. They require a coordinated approach to ensure that all aspects of their wealth are managed efficiently and in a way that minimizes risks and maximizes opportunities.
Some clients (like the person who called me) may not need or want comprehensive wealth management.
Younger clients, those with fewer assets, or those who are more financially independent may feel that they can handle other aspects of their financial lives on their own or with the help of other professionals.
Why should you impose comprehensive wealth management on these clients?
Is it a fee issue?
The situation can become complex if you charge fees based on assets under management.
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When a client only wants investment management, it may seem logical to lower the fees since you provide fewer services.
While this may seem fair, investment management is a complex service that involves research, portfolio construction, risk management, and ongoing monitoring. Even without additional financial planning services, managing a portfolio effectively requires significant expertise, time, and resources.
That said, there’s a strong argument that you should have a different fee structure for clients who only want investment management services. This could be a lower AUM-based fee or a fixed retainer based on the time, effort, and expertise required to manage the portfolio.
A missed opportunity
The financial advisory industry has traditionally bundled services, offering comprehensive wealth management as a single package. This approach simplifies the advisor-client relationship and ensures all aspects of a client’s financial life are considered and managed together.
However, this model may not suit every client, especially those who only need specific services.
Unbundling services and offering them à la carte could appeal to clients who want more control over their financial management. This approach allows clients to tailor the services they receive to their unique needs and preferences.
Offering unbundled services could attract a broader range of clients, including those who may not initially need comprehensive wealth management but could benefit from it. It also provides an opportunity to demonstrate the value of each service, potentially leading to an upsell of comprehensive services down the line.
However, unbundling services is not without challenges.
Introducing multiple service tiers and pricing structures can complicate the client relationship. You also need to ensure that unbundled services are still profitable and sustainable.
There’s a risk that clients who opt for only investment management might not receive the holistic financial guidance they need. Without comprehensive planning, they might miss opportunities or fail to address risks that could impact their long-term financial health.
The right balance
Historically, offering niche services has referred to targeting a particular demographic.
I see another “niche” opportunity: Offer unbundled services for a fee that’s fair to clients and still profitable for your firm.
Dan coaches evidence-based financial advisors on how to convert more prospects into clients. His digital marketing firm is a leading provider of SEO, website design, branding, content marketing, and video production services to financial advisors worldwide.
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