For a client-adviser relationship to be promising, the focus - and type of conversation - should be spot on from the onset, says Kees Stoute.
Still today, many private bankers operate on the assumption that getting assets in from a client potentially represents the beginning of a promising and flourishing relationship.
- “What is the minimum amount I need to open an account with you?”
- “Uh… well,,, that would be USD 500,000.”
- “Ok, then, I will try you out with USD 500,000.”
Let’s have a closer look at this though.
We start with a few assumptions/observations:
- In general, people are happy to pay a fee to professionals who, in one way or another, (make a transparent attempt to) improve the quality of their life.
- We can only consistently add value in areas over which we have a certain level of control. As we do not control the markets, we should never define our added value in terms of delivering superior investment returns.
- The most successful wealth management professionals share three characteristics: i) they have big clients; ii) with whom they have established deep relationships; iii) earning predominantly recurring income.
- The ability to develop deep relationships with the client depends on the type of conversation with that client: is the conversation about the market, your products, your firm, you, or predominantly about the client’s life? Obviously, the more the conversation is about the client’s life, the more likely that a deep relationship ensues.
- In general, technology is redefining the relationship between consumers and service providers, making the actual service provider almost invisible to the end-consumer (Uber, Amazon, Booking.com, robo-advisers, online universities, etc). For wealth management professionals to survive in this industry this means the focus should be on areas that are most difficult to ‘impersonalise’.
Back to our example: the client is willing to try you out by ‘giving’ you the minimum amount needed to open an account. In other words, if you do well and in line with – or even above – his expectations, you may expect a larger share of his pie.
The obvious question, then, is: “How do we define ‘doing well’?”
Unfortunately, in these types of relationships, the performance expectation is usually defined in terms of investment performance.
- If we hold this against the five assumptions/observations, we conclude that: It is usually not clear how and to what extent investment performance is correlated with quality of life, thus making it challenging to charge a decent enough (recurring) fee.
- Delivering investment performance cannot be controlled, simply as a result of the fact that we cannot control the markets.
- With a focus on investment performance, the conversations with clients will be mostly about the markets and products.
- With a focus on the markets and products, it will prove to be a serious challenge to develop a deep relationship with the client.
- Conversations about markets and products are relatively easy to impersonalise.
Our conclusion: the likelihood that ‘I will try you with the minimum amount’ will ever result in a profitable, mutually beneficiary relationship seems remote.
Contact Kees: [email protected]
More from Kees Stoute, Hubbis
Latest Articles
