Wealth Intelligence

Are you being served?

Most companies in the wealth management industry have business models unsuited to serving their customers.

Consider the Australian wealth management industry. The size and growth of which has attracted participants from related industries. Each trying to adapt an existing business model to their wealth management customers.

And consider the variety of participants: bank/ insurance-owned financial planning firms; industry superannuation funds; banks; stock brokers; property spruikers; financial advisers; accountants, etc.

Each believes its business model meets the needs of its customers. But has each really considered those needs in designing their business?

Before I answer that question, let’s firstly consider…

… what does the customer want?

The critical success factors of wealth management are each of, and, in the case of First Samuel,
an integration of:

• Wealth strategy advice (aka financial planning)

• Investment management

• Administration and reporting

• Ethics and relationships

First Samuel has just completed its annual client survey.

Amongst other things, we asked which factors clients consider to be most important in the management of their wealth [1] (see chart).

First Hand Spring Summer14 graph 1 1280pxW

Wealth management services are bolted on…

Most participants have bolted their wealth management offering onto an existing financial services business.

In doing so, they have sought to retain the competitive advantage they believed they had. And so their existing business model became also their wealth management business model.

... customers are squeezed in

The result is obvious: wealth management customers squeezed into a business/ culture model built for other services. And providers pretending they can offer all the good things that customers want.

…and failure pops out

So, for the seven years since the GFC, we have seen the failure of the business models of most of the participants.

And these failures will continue. Simply because the business model was not built with the customer’s needs in mind.

For example: banks

Banks have an amazing distribution network (who doesn’t have a bank account?). But their main business is essentially borrowing and lending. Their culture is about maximising short- term profitability, not about long-term investing and the attendant personal relationships.

Deposits/home loans? Sure. Would you like a financial plan with that? Or any one of the 254 products we can offer, today? Or an insurance policy to protect you against an alien invasion?

Err, please tell me about individual portfolio management (to manage tax). Or about trust. Or long-term focus.

For example: financial planners

This industry grew out of life insurance selling, where no-one wanted to pay for advice or distribution. And so a regime of commission payments was established.

Businesses’ models were based on maximising profit on product sales that may or may not be linked to the advice that was given.

And now, with commissions generally banned, financial planners seek profit from other avenues (as giving advice is generally not profitable).

Hence…real property investment, the commissions on which are, well, generous. Or, just as absurdly, actively managing or giving advice on individual stocks, the fees for which can be, well, generous.

Err, how does a financial planner become a portfolio manager?


My point is not necessarily to beat up banks, financial planners or others by implication.

The point is that there are very few individual wealth management businesses that were started with the wealth management customer in mind: where the business begins and ends with its individual wealth management clients.

This is not the case with banks, financial planners (generally), accountants or industry superannuation funds.

If you are looking for a wealth manager, check-off each item on the list of customer needs.

And look only for a provider whose business has been designed solely to serve those needs.

[1] I note that First Samuel’s clients have investible assets of over $500,000 and so my comments should be seen in the context of such clients rather than those served by, for example, industry superannuation funds.
IMPORTANT NOTICE:  Any advice contained in this document is of a general nature only and has been prepared without taking into account your personal objectives, financial situation or needs.
Because of that, before acting on any advice in this document, you should consider whether the advice is appropriate for you having regard to your personal objectives, financial situation and needs.