The financial advisory industry has a nomenclature problem, but attempts to fix it are met with resistance.
There is a breadth and width to the investment and financial services financial providers and advisors offer, from the basics which investors can access through a discount broker to the full extent of the industry, which is offered by numerous firms whose names are familiar to all Americans, probably even those who don’t invest.
The problem is that the range of services offered creates a range of titles which advisors and providers can claim without repudiation. Firms can advertise themselves as Full Service Brokers or Financial Planners, or they can offer Investment Management or Investment Advice, or they can advertise with the granddaddy of them all, Wealth Management.
There is absolutely no single clear definition of what Wealth Management means, what a firm offering Wealth Management actually must offer, what that firm does offer, and more importantly, what a Wealth Management firm does not offer. It’s a rabbit hole, and no one has any intention of putting language fences around any advisory terminology to make it clear to investors.
How confusing is it all? That’s the basis of the new Spectrem study Defining Wealth Management, which asks investors what they think the term “wealth management” means in regard to services offered.
Just as an example of the confusion created by the lack of definition in the industry, 30 percent of investors surveyed for the study believe “Wealth Management is for someone wealthier than I am” and almost 50 percent of investors believe an investor must have a net worth of at least $1 million before they are eligible to receive Wealth Management services.
Is any of that true? Who knows? It’s all about perceptions, and the Spectrem study looks into how investors perceive the industry terminology, not how advisors or providers perceive the words to mean.
Does you firm describe itself as offering “private client services”? How about “asset management” or “investment management”? Is one different from the other?
It may not matter what the business is called to advisors, but it matters to investors who are trying to find a first or new advisor and must wade through the morass of possible services to determine which advisor best fits their needs.
In previous Spectrem research, when investors are asked what type of advisor they employ, the most popular response is Full Service Broker. What does “full service’’ mean? Who knows?
The same conversation of confusion occurs when the SEC and the DOL try to regulate the fiduciary status of advisors, but at least “fiduciary” has a definition. Investors rarely know for certain whether their advisor is a fiduciary, and the government is having the most difficult time regulating that title, even when there is a working definition to be employed. When it comes to terms like “Wealth Management”, there is no definition, and thus no regulation, and thus endless amounts of confusion.
Is there a need to regulate the terminology of the industry, or are advisors and providers better off with the nebulous nature of the framework in which they work? How much time do advisors spend explaining their range of services to new clients simply because their job description or company brochure uses the word “holistic” to describe their approach to investing and advice?
For now, advisors and providers can, for the most part, call themselves whatever they want. But at some point, investors are going to end up asking “What does Wealth Management mean?“
© 2018 Spectrem Group