Investments  

The blurred lines between wealth managers and advisers

The blurred lines between wealth managers and advisers

As I write this, the UK is sat in the corridor waiting to hear what kind of extension we’ll be granted by the EU. 

I mention this not to make any political points, but rather to say that it’s reached the stage where I’d rather write my Money Management column than follow the progress of Brexit any more.

To take my mind off all this perfidious nonsense, I’ve been taking a look at the relative state of the wealth management sector versus the financial advisory sector. I’ve had an ulterior motive for doing this – I’ve got to give a talk on what is probably going to end up being called the ‘dynamics’ of them both.

I don’t really know what that means, but I think if I use the word dynamics a lot, and substitute delta for difference, then I’ll probably be in good shape.

Here’s my hypothesis: the difference, sorry, delta, between the two markets is the smallest it’s ever been, or at least since Methuselah was a boy.

Split the difference

Let’s look at what goes into each of the propositions offered by each, and think about where those differences are. This is, somewhere way underneath, still a technology column, so we’ll also think about how technology has closed and can continue to close the gaps.

Table 1 has the details. I’m sure I’ve missed some, but that’ll do for now.

Table 1: Wealth manager vs adviser attributes

Service

Wealth manager

IFA

Financial planning

Sometimes

Yes

Cash-flow modelling

Sometimes

Yes

Tax management

Yes

Yes

Dealing with client’s other advisers (accountants, etc)

Yes

Yes

Investment management

Yes – including equity-based portfolios, private equity, etc

Yes – normally collectives only

Cash management

Sometimes

No

Intergenerational planning

Yes

Sometimes

Family office (segregated custody, etc)

Yes

No

Multi-jurisdictional planning

Yes

Rarely

Source: Lang Cat. Copyright: Money Management

‘Favours’, of course, is a tricky term, as many IFAs may feel that fancy-dan active equity management, or investment in private equity, is a fool’s game, and some wealth managers may feel that cash-flow planning for wealthy clients who will clearly never run out of money is really just a load of colours on a poorly drawn bar chart. But go with it for now.

Let’s go through it. First up, a common criticism of wealth managers by IFAs is that they don’t do ‘real’ financial planning – whatever that is. If the critics mean that they don’t do kinder-style coaching, then I think that’s probably right. When dealing with wealthy clients, coaching on how to optimise things so you can afford to retire five years earlier probably isn’t all that interesting.

But while the extreme-sports end of financial planning may not be as relevant, there’s plenty of room for good plans, expressed simply, even for those with quite complex affairs. In fact, many businesses spend an awful lot of money in trying to get difficult stuff made easier; it’s no stretch to think that the people leading those businesses might want to extend the same logic to their finances. 

Many wealth managers, who are centred in investment management, either leave this bit out, or treat it as a thing on the side. I can’t be the only one to have talked to financial planners in wealth management firms – sometimes quite big ones (the firms, not the planners; the planners are of a normal size distribution) – who feel like second-class citizens next to the investment guys.