Unlocking Real Value Blog

What Wealth Managers Are Burned By Crisis?

Published inFUNDfire – An Information Service of Money-Media, a Financial Times Company
Written by Andy Klausner, CIMA, CIS, the founder of AK Advisory Partners LLC., a strategic consultancy serving the wealth management industry.

Few if any wealth managers escaped 2008 without significant damage to their portfolios, their client lists, or both. Just by the very nature of the market’s decline, any business that relies on, or is impacted, by assets under management will be down at least 30% – 40% and in many cases more as 2009 begins.

For wealth managers, those hardest hit include those that did not have their clients properly diversified. Firms with less than stellar client service were also impacted. The quality of client servicing is very important to high-net-worth investors, and the fourth quarter of 2008 was a time for wealth managers to prove themselves in this area. The more proactive wealth managers were in contacting clients and providing calm and rational advice, the more likely that those clients will stay put with their assets. Even if clients felt compelled to sell out of the market, if their advisor partnered with them in that decision and remained attentive, there’s a good chance that these investors will come back to that advisor.

Also vulnerable are wealth managers that were not proactively prospecting over the past few years and have simply benefited from their revenue growing as their current client’s AUM grew. These advisors are likely to come back slowly as they have to reinvent their businesses once again and refocus on marketing and asset gathering.

Wealth managers that excelled in both of these areas – asset allocation and client servicing – havethe greatest chance of coming back the quickest. However, even those that did everything correctly are still facing a tough 2009 as lower assets under management totals translate into reduced fees, squeezing income. Still, keep in mind that there will be many unhappy clients and many making switches. Wealth managers that take advantage of these likely movements and have well thought out marketing plans should be able to attract new clients more quickly.

In terms of the wealth management model that stands out, the RIA and independent B-D channels definitely emerged as the early winners from the financial sector turmoil. Negative press about the wirehouses, coupled with dramatic falls in their share prices – which released advisors from the golden handcuffs that had previously tied them to these firms – made it more attractive for larger advisors to go independent. While this trend is likely to continue, the pendulum may swing back a little in the other direction as the reality of large losses in fee-based revenue will probably make some of those advisors who were considering going independent rethink their choice. For these advisors, being able to concentrate full time on rebuilding their businesses and revenue, without having to assume some of the administrative duties associated with going independent, may be the best interim solution. Furthermore, the negative press associated with large broker-dealers has somewhat dissipated.

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