I recently had a chance to look through the training materials provided by a leading financial planning/wealth management company (it "fell off the back of a table"). It confirms my suspicions that the main target of most "wealth management" services is to manage as much money as possible from your account into their pockets - hopefully while providing you with sufficient residual return on your investments (after fees) that you don't take your business elsewhere.
For example, due to increased competition reducing the margin available in the traditional stock-broking based model which focused on equities research and transactional fees (read "churning"), they are aiming to move to a fee-based "scaleable wealth management" model. The target is to move from having 200+ clients per advisor yielding $4K in revenue per client (from brokerage), to having fewer, high net worth clients - 100 clients yielding $30K+ revenue each (from fees). This is to be achieved by putting such clients into "high margin, high sophistication" products. (read "expensive and hard to understand")
The main driver for this move is a graph showing that the average brokerage rates have dropped below trailing commisions - so it is better for them to push managed products rather than direct equity investments.
An interesting part of the transition plan was how to eliminate current clients that are "small" and "unscalable" by shifting them to a discount broker or "other advisor" . And the methods for finding new "scalable" clients included:
* Internet Research
* Relationships with accounts and lawyers who focus on sales of businesses
* Look for ads of business sales in newspapers
* Relationships with Private Equity companies who will be buying businesses
I found it intriguing that the entire focus was on how to maximise fees from clients, and not a word about maximising returns for their clients, or any relationship between fees and performance.
In a similar vein, the Sydney Morning Herald recently had an article written a student financial planner. It gives a stark insight into just how much the financial planning industry is oriented towards maximising fee revenue, with just enough consideration of the clients needs and situation to avoid running afoul of the regulating bodies. Read Confessions of a student planner.
personal finance, investment, investing, wealth