Clients seem not to have embraced the label to the extent the industry has. Fee-based firms had better be careful how they use the term "wealth management." According to a recent study by Spectrem Group, a Chicago-based research and consulting firm that specializes in the affluent and retirement markets, 41% of financial-decision makers in 508 U.S. households with at least $500,000 in investable assets respond negatively to the term, with only 34% responding favorably to it.

Among the comments from respondents to the Spectrem study who dislike the term "wealth management" are sentiments such as

"'Wealth' is too exclusive; the term suggests something for the rich only."
"It sounds like a fancy name for 'financial advisors.'"
"Wealth Management makes me think of the term 'shyster' - somebody who wants to take my money. The term is used too much today."
"There are so many millionaires out there that they've lowered the bar for Wealth Management...especially since it's on TV all the time."

There were 11,030 investment advisories registered with the SEC as of April 2008, according to the Investment Adviser Association, a Washington, D.C.-based organization of RIAs. From this total -- which includes a number of pure-play asset managers with no direct private-client business as well as over 1,800 hedge-fund managers -- a search of the SEC's ADV database finds 1,175 firms that do business under a name that includes the term "wealth management," and 675 that work "wealth" into their names in other ways -- "wealth advisors," "wealth partners" and the like.

Of course RIAs aren't the only players in the wealth-management game, with independent financial planners and full-service brokers also figuring prominently in terms of absolute numbers, assets under supervision and -- according to the Spectrem study -- appeal to respondents.

Short hand

Financial-service providers are attracted to the "wealth management" label because it seems to encapsulate their market focus and fee-based approach to investment consulting and -- to varying degrees -- financial, tax and estate planning. For some of these firms, the term is intended to convey exclusivity and so appeal to likely clients in a comparatively narrow U.S. market that last year boasted just over 1 million households with over $5 million in net worth.

Though "wealth management" isn't an overwhelmingly popular term among the affluent, its appeal is slightly higher among those with more money. Only 35% of respondents from households worth $1 million or more think the term "wealth management" is in some way disagreeable; among those with between $500,000 and $1 million, the term gets a thumbs-down from 42%.

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Occupation bands respond differently to the term as well. Nearly half of respondents who identified themselves as senior corporate executives react favorably to "wealth management" while only 26% of business owners like it.

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Whether or not they like the term, householders worth at least $1 million are likelier than their down-market peers to feel they have sufficient assets to warrant "wealth management" services. Similarly older respondents -- particularly those between 51 and 64 -- see themselves as wealth-management candidates.

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These insights beg a crucial question: just what do the affluent regard as wealth-management services. The main thing for 78% of those who responded to the Spectrem survey is a "comprehensive financial plan" followed by "advice on setting up an estate plan" (68%), "tax planning and personal tax consultation" (64%) and "best ways to handle passing on wealth to posterity" (59%). "Asset management" is in fifth spot as a primary component of wealth management followed closely by "help with setting up a trust fund." At the bottom, a noteworthy 19% of respondents would look to their wealth managers for "advice on properly making funeral and burial plans" -- just a few percentage points behind "help with securing loans and credit products" (22%). Prominent among middle-ranking perceptions of what "wealth management" should include is "counsel and advice concerning long term health care issues" (40%).

In Spectrem's view, the main takeaways from its study The Affluent and their Perception of Wealth Management are

Firms need to bolster the non-asset-management aspects of their service offerings. "The more profitable function of asset management falls down toward the middle of services investors would like to see in a "wealth management" program [but] properly administering the financial plan, setting up an estate plan and providing advice on taxes can be an effective way to get the more desired and profitable asset-management function."
Firms should take stock of when and how they use the term "wealth management" -- starting with an honest assessment of their "sweet spot" to "determine if their clients are primarily in excess of $1 million or if a significant number are slightly below that amount. The term 'wealth management' does gain more credibility as wealth increases, so usage of the term should be reserved for the most wealthy clients of the institution."

In addition to net worth, considerations of service offerings and branding should take into account client attributes such as age and occupation, according to Spectrem. -FWR

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