Choose your value proposition

Unlike medicine where there is a clearly defined distinction between the general practitioner and various specialists, wealth management is a grey area the world over. While global regulators are increasingly separating brokers/distributors from advisers based on compensation source, wealth managers can still choose their own business model and area of focus based on their own scale and competence – they can choose their own value proposition. And thereby increase their chance of success.

Setting aside the legal requirements, there is no one uniform definition of financial adviser in any market – it can range from being purely an ‘investment adviser’ (who advises only on product selection) to a ‘financial planner’ (who prepares financial plans) to a ‘wealth manager’ (who advises on assets and liabilities as well as wealth planning issues).

People equate wealth management with investments. While ‘investments’ is the most basic advisers are supposed to offer, there are quite a few other services they offer, such as –

  • Goal setting – turning qualitative goals such as ‘comfortable income in retirement,’ children’s education/wedding, holidays etc into hard estimates of amounts needed for these in future, and in today’s currency
  • Needs analysis – comparing future goals with expected values of current assets
  • Estate and wealth planning – ensuring investors wishes are executed on death/disability, through use of wills, powers of attorney, trusts, pre-nuptials etc
  • Tax planning – ensuring investors do not pay more tax than necessary through the monitoring of holding vehicles, residency, life events etc
  • Insurance – advising on appropriate insurance cover to protect investor and family in case of unforeseen situations

This list is not exhaustive. Private banks and family offices catering to high net worth individuals offer a long list of additional services such as banking/credit for entrepreneurs, concierge services, philanthropy advice, art advice etc.

I would describe wealth management as “understanding and matching –

  • Clients’ needs – through financial planning/advisory process; with
  • Expertise in investments, insurance, tax and wealth planning”


The financial planning/advisory process is the client side of the equation. This is the process where individuals create and follow a detailed, coordinated strategy to properly manage their financial affairs and resources to try to achieve their financial and lifestyle goals. In a way, this part could be compared to the general practitioner in medicine.

The next step is to match the client needs with appropriate expertise. It may not be possible to have personal expertise in all the required areas, so it is increasingly common to bring in subject matter experts in these areas, either from within the organization or outside. However, it is important that wealth managers have an understanding of all the specialist areas (investments, insurance, tax and wealth planning).

The investment process is actually quite complex, as outlined in the chart above. It is unlikely that wealth firms, let alone individual advisers, have the expertise to thoroughly research all steps without bringing in some expertise. Hence, this could be compared to a specialty like in medicine.


Investment process is a specialty

Even within the investment area, to be able to give investment advice, the adviser needs to –

  • Convert investor’s qualitative goals, constraints and risk tolerance to a required rate of returnfrom the investment/complete assets portfolio
  • Recommend a strategic asset allocation to achieve the required rate of return, including a disclosure of the probability of not achieving it
  • Recommend a rebalancing strategy, on a periodic or ‘deviation away from strategic asset allocation’ basis
  • Recommend a portfolio of investment vehicles that are likely to achieve the required rate of return
  • Recommend tactical asset allocation calls, if this service is offered
  • Monitor progress of the portfolio return against goals, and adjust when needed

While this list looks simple enough, in order to give this investment advice, the adviser has to have knowledge or access to research on –

  • Long term expected returns from various asset classes
  • Models for estimating optimum strategic asset allocation, and probability of achieving returns
  • Long term assumptions for volatility and correlations, which are inputs to models
  • Research on which products (including funds, direct securities, indices, structured products), out of a wide universe, have the probability of achieving at least market return, and ideally exceeding it
  • If offering tactical asset allocation, research on economics/market valuations/momentum etc and a philosophy on how to make TAA calls
  • If offering advice on alternatives, in-depth research on these illiquid investments

Again, this list is indicative, not exhaustive. What should be clear though, is that investment advice is not as simple as it looks. Indeed, even global private banks, with all their resources and global networks, seek specialist advice from investment consulting firms (like Mercer where I set up and led the wealth management division giving such advice).


Choose your sweet spot

Wealth management is a nascent profession and industry. We are still defining what wealth managers do, what they get called, how they get paid, how to regulate them etc. While this can be very confusing, it can also be an opportunity.Wealth managers can choose which part of the value chain they want to focus on – based on their own expertise and scale.

For example, if some people enjoy the client interaction but don’t like the investment complexity, they can focus on being a ‘relationship manager’ in a larger firm or bank, or implement through ready-made portfolios/products. Or not implement at all. Others can focus on specialist expertise areas.

The important point for wealth managers is to be self-aware to realise their strengths and interests, and focus only on those. More importantly, they should make their clients aware of their specialisations and point out where they have made certain assumptions, and partnered/outsourced to other specialists.




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