Clients with between $100,000 and $1 million of liquid financial assets are becoming a key battleground for the wealth management industry.

Banks and stock brokers, which previously targeted clients with greater than $1 million to invest, are starting to look further down the ladder, and mutual fund advisors and financial planners are aiming upward to increase their revenue base. All wealth managers have to prepare as competition intensifies.

And there’s competition from outside the traditional industry, thanks to robo-advisors. These services, which are getting investors comfortable with the concept of digital advice, allow brokers to support smaller accounts with a low-maintenance service model until they grow and can be migrated into traditional advice platforms.

To succeed in the future, wealth managers will have to be better relationship managers and highly efficient professionals.

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1. Become a better relationship manager

Asset managers who solely worked with the richest families may do well with larger client portfolios, but they often suffer from what is referred to as the “paradox of size.”

Bigger firms are typically ineffective at personalizing their offerings to clients of more modest means. They tend to pigeonhole those clients into cookie-cutter programs. However, what works for one client group doesn’t always work for another. For instance, wealthier clients have access to hedge funds, venture capital and managed commodity funds, which are excellent diversification alternatives. The same can’t be said for investors of lesser means, due to these investments’ higher account minimums.

Clients need to feel they matter to their wealth manager, and they don’t want a commoditized offering. Many smaller and more entrepreneurial firms are able to meet those needs and offer their clients customized solutions. These firms can adapt to the requirements of their most valuable clients quickly and don’t simply slot clients into their products.

To compete, advisors will need to focus more on interpersonal skills and fostering relationships rather than on technical expertise, which can be outsourced to more specialized investment management firms. To enhance client relationships, advisors could offer tax planning services or succession plan seminars, while leaving actual tax-efficient portfolio creation to the money managers.

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2. Become more efficient

Technology has been a great equalizer in the investment management world, allowing advisors to offer formerly complex and costly services to less wealthy clients, who only a few short years ago would not be able to access these more sophisticated solutions.

Advisors with smaller and medium-sized books may become extinct if they don’t integrate these online efficiencies. That includes maximizing the efficiency of the client onboarding process. Sophisticated profiling techniques will be instrumental to delivering solutions to clients efficiently, by focusing on effectiveness, pricing and segmentation. For instance, an advisor could now remotely offer comprehensive financial and estate planning services without the cost and time burden of meeting a client in person.

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Going forward

The firms that will prosper will have individual advisors who are highly versatile and experienced with a strong understanding of investing, taxation and regulation. These advisors recognize that clients’ needs change and consequently they need to use a holistic fee-based wealth management approach. Using this approach, rather than a product-push approach, is absolutely necessary to grow a practice and increase profitability.

Clients are demanding sharper investment capabilities and consistent, above-average investment performance. The advisors most likely to succeed will focus on a smaller number of client segments. Independent players will continue to do well with a tailored, rather than a factory, approach to client servicing. Depending on the client base, this approach could result in some attrition of clients who don’t fit. However, it will ultimately lead to the acquisition of more clients who are attracted to firms that have their best interests at heart.

Christopher Ambridge, CFA is the President and Chief Investment Officer of Provisus Wealth Management. Chris has nearly 30 years of experience in the investment industry and works with independent financial advisors across the country.
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