Financial professionals are seen by the general public as gatekeepers to the mystical world of the markets. Like most mystics, they operate in a space the average consumer does not understand, they speak in confusing terminology, and are sometimes wrong. All of these issues cause resentment when things do not go as planned. Paying a commission on a successful trade is fine, but paying it on a loss is almost unbearable. Management fees are understandable when a fund has some big winners, but paying a percentage of the portfolio in a down year makes investors angry.
There has to be a better way. And there is. It’s as simple as changing the way financial professionals present themselves—shifting from fee-takers to financial advisers.
When playing the role of mystic, one is a fee-taker. He or she collects a toll at every turn and are held harmless from the outcome, the customer bears all risk as the broker has already made his or her profit. Instead, as advisers, they take a step back, and before trying to churn fees, they do what is right for the customer. They can still help with commodity services like trades, but branch into a more complete and helpful role.
A family wealth adviser can help navigate the mystical world while providing real value to help the client. Advisers spend time explaining the “how” and the “why” of the markets, instead of just taking fees for the markets. Advisers spend time trying to see the big-picture goals of their clients and, rather than trying to maximize fees, focus on taking care of their overall financial needs.
In practice, this doesn’t mean advisers must eschew fees—but it does mean they are transparent about them. Openly discussing revenue sources with customers often sounds absurd and seems daunting but it allows advisers to build trust, a key component this new role.
Another tool advisers use is to advise the whole family, not just the direct client. Most wealthy people save and invest money to pass on to their spouses or heirs, but most advisors ignore these potential future customers. While these family members don’t bring in much new money, by helping them with their financial lives, advisers are benefiting your direct client by strengthening the family financial knowledge base. Advisers also build a relationship for the future—when the client is gone, they will be asking the heirs to keep their money with the firm.
There is another benefit from this shift—and that’s the word-of-mouth benefit from advising. While many financial professionals ask for referrals from their clients, by advising family, the clients will happily offer unsolicited referrals because this sort of adviser is so uncommon.
The role of an adviser is more rewarding for the professional—as well as more profitable—but most importantly, it’s more valuable for clients. By exposing the mystical world in favor of transparency and useful advice, financial professionals will see their practices grow. It’s a win-win.