Companies which provide advisory services to investors use a plethora of words to describe the services they provide.
There are companies which offer “Wealth Management Services” and others which say they provide “Asset Management Services” and still others who self-describe as “Private Client Services”. But all of those different titles carry one comparable promise, which is to give forethought to the decisions investors make about how their money, including funds they spend on their household as well as funds they wish to invest.
No matter what term advisors and providers use to describe their company, the service most investors want is covered, in the minds of investors, in the two-word phrase “financial planning”.
There is no clear-cut precise description of “financial planning”, just as there is no specific definition of “wealth management”, but investors want financial planning as a component of the services provided by their financial advisor. That’s true, even as we know that each investor defines “financial planning” differently.
And those investors want “financial planning” to be a part of “wealth management”, even though they believe “wealth management” is for wealthy investors, while “financial planning” is a more basic and elemental service offering.
Spectrem’s study into the nomenclature of the financial advisory business determined the value of “financial planning’’ while trying to determine the value of the term “wealth management”. In the study Defining Wealth Management, investors with a net worth up to $25 million (not including the value of their primary residence) were asked what services they expect to receive from someone offering “wealth management” services, and 96 percent said they expected to receive “financial planning” advice.
Ninety-five percent expected “investment management” services.
That means virtually all investors expect their “wealth management service” to provide “financial planning”.
The study goes on to explain how nebulous the terminology is. Seventy percent of investors who have a primary advisor receive “financial planning” services. That means 30 percent of investors who have a primary advisor DO NOT receive “financial planning” services from their advisor. If so, what do they receive?
Meanwhile, 36 percent of investors with a primary advisor claim to receive “wealth management” services, and as stated above, almost all of those investors receiving “wealth management” services expect those services to include “financial planning”.
What should advisors and providers take from all of this confusion over terminology?
There is no industry-wide definition of “financial planning” but the words do carry some concrete weight. A financial planner should help investors plan their finances, which should include household finances as well as investable assets, which purportedly are those assets an investor has beyond what is needed to run his or her household. A financial planner sounds like someone who takes a “from the ground up” approach to financial advice. But is a “financial planner” too basic for a high-end investor to consider?
The Spectrem study is about investor perceptions, and there is a clear indication that they believe “wealth management” sounds exclusionary and expensive, even though they expect “wealth management” to include “financial planning.” According to our study, half of all investors believe an investor needs to be a millionaire to “qualify” for wealth management services, and 30 percent of all investors believe “wealth management’’ is for an investor wealthier than they are.
Words matter, and words have effects. A firm which self-describes as offering “financial planning” is going to attract a different clientele than one who self-describes as offering “wealth management” services.
The fact that advisors and firms have leeway in describing themselves makes the industry confusing for investors. But it also can inject confusion and disappointment into an investor-advisor relationship, when an investor believes they should be receiving particular services from their “wealth management” company.
© 2018 Spectrem Group