Relationships Before Returns
Great fund performance is nice, but area wealth managers say the fundamentals of success start with client interactions.
by Dennis Boone
Even before the roll was called in Congress on the so-called Durbin Amendment to the Dodd-Frank banking reform legislation of 2010, UMB Financial announced that it would purchase Prairie Capital Management, supplementing the wealth-management function of its Scout Investment Advisors unit. Just a few weeks later, Scout added Indiana-based Reams Asset Management Co. to its lineup. The two acquisitions gave the bank added muscle in both the individual and institutional investment spheres.
And both moves, it turns out, were prescient.
The Aite Group, an independent financial-services research interest, issued a report on the wealth-management sector last month that said more big-bank forays into wealth management would follow in 2012. The reason? Banks are seeking ways to recover revenues lost to the Durbin Amendment’s cap on debit-card swipe fees, as well as restrictions on checking overdraft fees and other revenue sources trimmed by Dodd-Frank, the report said.
That new level of competition will be just one of the challenges facing wealth managers in the Kansas City area this year. Among others, the Aite report said:
■ Clients would continue to express dissatisfaction with less-than-stellar returns, raising the possibility of taking their business elsewhere.
■ There’s more potential for advisers to align with independent brokerage firms.
■ Regulatory changes would impose an additional squeeze on profitability.
Those are just a few of the roadblocks that wealth managers will have to navigate this year. But for fee-based managers, change is nothing new, says Kathy Stepp, partner in Stepp & Rothwell in Overland Park; it’s been the story of the industry since the investment model first emerged in the 1980s.
A good barometer of a wealth manager’s level of optimism might be the response to this question: Would you want your children to go into this line of work?
“Absolutely, yes,” Stepp declares, citing the unrealized potential of a business sector that is still relatively new.
“It’s an industry that’s in its infancy, as far as financial planning goes—it’s only been around 30 years, so there’s room to grow.”
That’s not to say it’s without challenges in addition to those cited in the Aite report.
“The big players keep getting into our space and claiming to do what we do,” Stepp says. “I’m not sure how that will look in the future; we have to be diligent about keeping focused on what we do.”
That means deftly navigating cumbersome regulatory changes such as more auditing—“a consequence of Bernie
Madoff,” Stepp says—and doing a better job of making sure future investors are better educated, other wealth managers say.
Investor sophistication—or lack of it—is the biggest concern David Neihart has for the future of his profession. “The ’80s and ’90s made some people think they were geniuses because the markets were going higher,” said the Wells Fargo Advisors asset manager. “Well, in the last 10 years, we’ve been in a long-term bear market. I think people are still using bull-market techniques and management styles. Look at 401(k)s today—most of them are in long-only funds. Things have to go up for them to make money.”
The problem for too many investors, he said, is that they haven’t come to realize that “you don’t want to fight this battle using techniques from the last war.”Gordon Hamilton of Morgan Stanley Smith Barney said the biggest challenge to successful planning has been, and remains, “establishing people’s trust. With the access to all the information that’s out there, and with so many different opinions, that’s really the hard part.”
Some managers cite increased regulation as a burden, but acknowledge that it is part of any financial service, whether it’s banking, real estate, commodity or currency trading. In that regard, everyone in wealth management is on an even field.
Success must be grounded in meeting customer needs, says Marty Bicknell of Mariner Wealth Advisors.
“In conversations with clients, we talk about investment performance from the perspective of how it impacts long-term goals. I think that’s a different conversation than clients have with many advisers, who measure the success of the relationship or plan primarily on investment returns,” Bicknell said. “While we recognize the importance of investment performance as one piece of the puzzle, we gauge our success by our ability to help clients reach their financial destinations and provide them peace of mind in our approach.” Lets get acquainted with seven area wealth managers and learn their secrets to investment success.