Wealth management needs to be holistic as an “all balance sheet approach” is back in vogue; customers want communication 

 

For all the glamour attributed to nearly every angle of wealth management, there’s no getting away from how hard it is to be in the field these days.

“It’s definitely a challenging environment,” says Donna Greene, CEO of Busey Wealth Management and Busey Trust, part of $4.5 billion assets, Champaign-Ill.-based First Busey Corp.

Greene says that, accordingly, her team has stepped up the client phone calls, letters, e-mails, and personal meetings to calm nerves and explain asset reallocation strategies or offer context in light of volatile market turns.

“We’ve always taken a proactive approach to account management but we’ve changed the messaging to reflect the current situation,” says Greene. “Our clients know that we are there to address their concerns and issues, whatever happens.”

Greene says her company has long been in the advice business, and that it seeks to learn abut each client’s lifestyle and financial goals and objectives within that framework.

Now that the advice/lifestyle model is getting popular again by mandate of the riotous markets, her team will have the benefit of always having provided service that way. Greene also says that her outfit has long taken a “whole balance sheet” approach to advising, by which she means conducting a team effort that spans cash flow analysis, tax planning, insurance, and and other services in a way typically packaged for “family office”and ultra high net worth clients.

This is the case because, more and more, clients from all tiers of wealth want input that offers both guidance and perspective.

All of that sounds good to Michael Wilson, national director of sales, Comerica Wealth and Institutional Management, part of $65 billion-assets, Comerica Bank, Dallas. Still, his concern in the short run is providing the best information to give clients the perspective they need, whatever they hear on cable news. He advises his team to take a fact-based approach in its frequent client messaging. “In this back-to-basics time of investing, we are staying in front of the public and in front of our clients,” Wilson says.

“But, we don’t want to stoke the flame with a lot of rhetoric. Now is the time for cool heads and simple facts. We don’t want to spout off with predictions of the week,” he adds. As an example of something Wilson found personally annoying, he mentioned the buzz around oil prices he heard last fall: “People were pontificating as if they had a crystal ball. You’d here these outrageous quotes that it would hit $300 a barrel. Speculation only makes things worse.”

Mark Peters, head of private wealth management and institutional investing,  at $189.3 billion assets SunTrust, Atlanta, agrees that a time characterized by polarizing opinions regarding the markets, investing, and the state of the financial services industry calls for calmer, fact-laden voices. “We’re fortunate in that we’re a pond of tranquility compared to the stormy waters elsewhere,” Peters says, referring to SunTrust’s stability. “We’ve picked up business and part of the reason is our broad set of capabilities and fundamentally sound business practices. If there is a silver lining in any of this it’s that conditions pointed out the need for sound, basic financial planning.”

And so, Peters and Wilson are offering a message of partnering and problem solving with clients by focusing on the balance sheet. Like Greene, both men mentioned an all-balance-sheet or holistic approach that takes in the entire lifestyle and goals of the client, considers everything from day-to-day cashflows to estate planning, and tax planning.  

The crisis will take out any casual planners, these professionals believe.“Even with our proactive and holistic approach, most investors are anxious, and understandably so. It’s not an easy environment to read right now,” says Greene.

The mess that some hedge funds made
Greene is polite and understated, but she’s also right. Take the market: By some expert accounts, including an Economist article on finance, half the hedge funds currently in business may be reduced to the status of historical artifact by the time things begin to bubble back up. As has been highly publicized in every form of media, upwards of $7 trillion in wealth has been erased even as government expenditures mount.

Milwaukee-based Barry Mendelson, managing partner with Capital Market Consultants, isn’t sure about the failure estimate of hedge funds, but thinks such an outcome would only be fitting, given the mess that they started. (Of course, he acknowledged that this was merely one thread in a highly complex narrative regarding what led to the financial crisis.)

“Managers that experienced liquidity challenges [back in the summer] and that needed to meet redemptions, first sold their stocks, which were their most liquid assets,” says Mendelson. “All of this activity escalated stock market volatility. It created an environment in trading that, last fall, had everyone baffled,” he says. “You’d see a sudden flurry of trading an hour before closing and all sorts of market behavior that we really hadn’t seen.  Panic spread,” he explains.

And so between unregulated participants and exotic instruments, the formerly friendly, democratic and all-embracing market became a dangerous place.

At the moment, economic indictors are fairly grim. “In terms of credit availability, liquidity, unemployment, consumer confidence, and so on, well, even an optimist like me has to admit we’re in a bad spot,” says Scott Welch, senior managing director of investment research, Fortigent, Rockville, Md. “As a firm, we are definitely bearish in the short run.

 

But conditions will begin to improve late in 2009. And, if you can be a disciplined investor, three to seven years down the road, you will see a rewarding environment once again.”

Mendelson, who is regularly in touch with hundreds of wealth managers from every walk of bank as part of his work, says that in dozens of chats between late summer and November, he often heard sheer disbelief at how quickly the market snapped into a “reversion to the mean.” The math term, as co-opted by Wall Streeters, roughly means, every investment that behaves exceptionally hits a period of failure.

The bear needs to be talked about
As the most impressive bull market in history turned bear, investor confidence tanked and remains wan at best. The bad behavior of some—and the outright cases of corruption of others—on Wall Street have tarnished the reputation of all wealth managers, who will have to regain trust.

“There were a lot of performance promises made that just could not be met,” says Mendelson. “Not every wealth manager made too-good-to-be-true claims, but enough did so that all service providers have been branded with the same iron.”

At the same time, the shrinking economy has left more feet on the street.

“You’ve had job losses in the affluent workforce,” says Matt Bienfang, research director, senior analyst for brokerage, wealth management, and financial services at TowerGroup, based Needham, Mass.

“The big-salaried, white-collar jobs tied to the financial services sector got crushed—and it’s global.” The confluence of events will put ample pressure on the financial services industry in general and wealth managers in particular to get their chops in high gear, even with a diminishing talent pool.

“It’s been a tough year for everyone,” acknowledges Chris Walters, executive vice-president of the trust division for the $2.5 billion assets Citizens Business Bank, based in Pasadena, Calif. “We did well, considering. Compared to the S&P’s slide down by 37.1%, we went down by 23%. Still, it’s like being the world’s tallest midget. We didn’t experience the mass layoffs that some of the other firms did and we’re proud of our accomplishments,” Walters says, referring to CVB Corp’s net earnings increase of 4.11% compared to yearend 2007.

Still hearing about friends getting laid off was “like a cold splash of water in the face,” says Walters. Citizens trust division tends to deal with affluent business owners. “When everything is going well, clients feel okay with less frequent meetings. When markets turn, they want a perspective, not only a systemic perspective, but a context around their own holdings—what’s performance like, what’s up, what’s down, where are we in terms of meeting my overall objectives?

How to regain trust
“On the bell curve that is consumer market and investment sentiment, most individual investors have worked through the ‘panic phase’ and are settling into the ‘contempt phase’,” says TowerGroup’s Bienfang, engaging in a bit of gallows humor. He relates that at conferences, he typically shows this particular bell curve and that it’s always gotten a laugh, although lately, the laugh is more like a brief, pro forma chuckle, because the news of late has been almost too serious to take.

“As an investor, how panicked are you right now? It depends on how close to retirement you are and whether or not you are living right up against your means,” says Mark Halverson, executive director of global wealth management services with Accenture who is based in Chicago. “The wealth tier a client happens to occupy isn’t all that predictive about attitudes toward the market,” he says. “Everything from age and lifestyle to risk tolerance will be more helpful in that regard.”

Few are happy, that is clear. Halverson says that something like one in three were actively thinking of switching asset managers. He says there may be a big transformation among providers as new bank holding companies—e.g., Morgan Stanley, Goldman Sachs, etc.— join many more independent advisors, who suddenly look better than their old-school, wirehouse, counterparts.

Jeff Crowley, vice-president with tech provider, InvestEdge, Bala Cynwyd, Pa., says that his banking and financial services clients are admitting that the consumer psyche is damaged. “Even as the fundamentals begin to improve, investors will take time to feel that trust again. Advisors need to be in a position, with their reporting tools, and communications to clients, to be concise, to offer more frequent snapshots, to offer perspective on cash flow and investment strategies. Moreover, regulators will want them to be able to easily demonstrate that they have a strategy.

 

That they aren’t just ‘stock pickers’.”

Be that as it may, the real winners in wealth management will be those who figure out a way to forge a bond. For many of the millionaire-next-door types—hard-working entrepreneurs who are good at making money but wish to plough it back into their businesses, says Halverson, there is little tolerance for anyone in the asset management field who can’t present as a straight shooter and offer timely ideas on coping.

Halverson, who discouraged the writer at every attempt to glean generalities about “wealthy investors,” continually returned to one theme: the need for wealth management firms to engage in complex forms of segmenting and to let that guide efforts.

“Firms need to find inventive ways to treat people as individuals,” Halverson says. (He admitted that not every wealth management firm or trust group could run itself like a boutique shop.)

Such communication and outreach could take the form of collaborating by using electronic portals or e-newsletters. Moreover, the idea of partnering, and the notion that you know who these people are, “should be evident throughout communication in all channels,” says Halverson.

Matt Bienfang agrees. In the short run, wealth managers will need to adjust and push the advice model with a strong message of offering help, guidance, and stability. They will also need to demonstrate knowledge of the client. Being effective, and successful, as a wealth management professional will be about presenting strategies for wealth preservation, but it will also be about coming up with solid, workable, advice models for various sectors of the wealth market.

And while everyone likes perspective, affluent people do tend to have specific complexities. Says Bienfang: “It’s about creating a feasible way to gain visibility into their cash flows, their spending patterns, and whether their daily money habits are serving their stated objectives.” BJ

 

 

Best practices in client communications

• Pick up the phone: Reach out to your clients frequently in turbulent times, whatever the day’s headlines. Try to talk at least three times a month unless you get told otherwise.

• If the news is bad, use it: No, negative business news isn’t easy to deal with. But a cable television broadcast, for instance, can be used to underscore a client “action message.” As part of this, focus on what must be done, by when, and why. 

• Consider using web-based content management systems: (e.g., application that supports portals and e-newsletters) to send frequent, electronic updates to clients. While not everyone likes the web, content generated there can be repurposed for paper-based communications.

• Charts, graphs, and clarity all count: When the market itself is volatile and confusing, clients want explanations that are as straightforward as possible—that is, without being so “dumbed down” as to be meaningless. Part of striking that balance, experts say, involves use of sharp visuals that can help to clarify key points. A picture is worth a 1,000 words, and all that...

• Why are we working this way? Periodically, remind the investor of the big-picture “why” behind a series of tactical “hows” of their plan. Strike a balance in any given meeting between long-run goals and short-term objectives. Remember that the clients need your perspective on their plan. Periodically solicit clients for status changes in lifestyle—a pending divorce, new child, new business line, or an interest in going back to school are the sorts of life events that some folks might be too stoic or reserved by nature to volunteer. But they “count,” so ask.

 

The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0309/index.php?startid=26

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