Why The Wealth Management Value Proposition Is Best-In-Class

Todd Sixt is the CEO of Strait & Sound. He is a successful and seasoned leader of financial service teams.

A value proposition, simply put, is the reason or set of reasons that someone chooses you as their financial advisor. After more than 20 years of coaching advisors, I find that many struggle to understand why clients choose them versus another advisor. In some instances, advisors will have served clients for years without really understanding why clients stick with them year after year.

Usually, this doesn’t matter on a day-to-day basis because clients are busy and don’t want the hassle of choosing a new advisor. That can be a daunting task, and it’s usually quite stressful for clients. However, once disruptive change impacts a client, they are often far more willing to look at everything that affects their long-term goals—including their financial advisor.

I’ve come to believe that disruptive change is the ultimate moment when your value proposition either holds or fails. If your value proposition holds, you’ll not only retain clients, you might actually pick up new clients. But if your value proposition fails, you might see painful losses in your client base.

This is one reason I believe the wealth management value proposition is the best in this industry. In my experience, wealth managers weather big disruptions better than almost any other type of provider in the financial services industry. In fact, big disruptions in a client’s life can actually strengthen loyalties to a wealth manager and stimulate referrals.

What Sort Of Disruptions?

I’ve seen two types of disruptions impact clients: macro and micro. Macro-disruptions include events like global catastrophes like Covid-19, market downturns like the great recession of 2008-2009 and industry-specific disruptions such as we’ve seen in the technology and automobile sectors. These types of macro changes often have a negative impact on the markets and make clients nervous.

Micro-disruptions are often related to specific families. These might include death, the onset of disease, divorce, forced retirement, loss of a job or major unplanned expenses. Both macro- and micro-disruptions are unsettling and can cause clients to reconsider their current path and approach.

Three Value Propositions

After having thought about this for many years, I’ve come to believe that most advisors choose one of three value propositions that are common in the financial services industry. To keep things simple, I’ll call them the financial planner, broker and wealth manager value propositions.

The financial planner’s value proposition is about a long-term plan that, if followed, will likely produce the financial outcomes a client wants to see. A client receives a plan and is advised to follow it. The planner will usually check in on a client at defined intervals to see how things are going and what changes, if any, need to be made to the plan.

The broker value proposition is about better-than-market-average rates of return. Those who ascribe to this model often claim to have superior analytical abilities, outstanding technology platforms and a history of designing investment strategies that outperform the markets. They often will point to their history of returns, in good times and bad, as proof of their superior investment approach.

Then there is the wealth management value proposition. In my view, this includes four core tenets: client intimacy, long-term partnership, a comprehensive approach and, finally, the ability to close the gap between what a client wants their wealth to do and what it is actually predisposed to do.

The Wealth Management Value Proposition Explained

Client Intimacy

I wrote an article about how wealth managers come to deeply understand clients through a focused discovery process. This is the foundation of the value proposition. It fosters trust and mutual commitment to long-term goals.

Long-Term Partnership

Wealth managers commit to the long haul. Some wealth managers I’ve known work with clients until they pass away. Sometimes, wealth managers will even work with multiple generations within the same family, even after the first-generation wealth creators have passed.

A Comprehensive Approach

My article on wealth management training programs describes the five core areas wealth managers focus on to serve their clients. This goes well beyond investment returns.

It’s the fourth part of this value proposition that requires a bit more unpacking—closing the gap between what a client wants their wealth to do and what it’s predisposed to do. To illustrate my point, I’d like to foreground two common scenarios where gaps develop between a client’s wishes and their actual situation.

Estate Plan

Many clients have a will and one or more trusts as part of their estate documents. I cannot tell you how many times I’ve heard of estate documents that were drafted years ago that no longer reflect a client’s actual situation. In some instances, people named in the documents may no longer be living while others who should be in the documents aren’t even named. Sometimes assets that were liquidated years ago are still listed in trusts and assets acquired since the drafting of the estate documents are not even listed.

Life Insurance

Here is a common scenario. A man had children, who are now grown, with a former wife. The man started a new family and now has small children. But his life insurance beneficiary statement still lists the former wife and the now-grown children. This means he might accidentally disinherit his new family if he passes away.

These are just two scenarios out of dozens where gaps form between what a client wants their wealth to do and what it actually will do if corrective action isn’t taken. A wealth manager will often perform a deep-dive analysis of a client’s wishes and situation about every five years. This helps ensure that their dreams and their wealth remain aligned.

If you’re wondering how wealth managers describe investment returns, in my experience they often build long-term plans based on market average rates of return. They don’t need to promise better-than-average returns because their clients prefer intimacy and high-touch services that increase the odds that their dreams will come true. This is why disruption doesn’t break the client-advisor bond.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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