Success in Wealth Management Takes More than Knowing Where the Money Is

When considering the best places to grow a wealth management practice, a famous quote comes to mind—hockey great Wayne Gretzky saying “a good player skates to where the puck is, while a great player skates to where it’s going to be.”

For a wealth manager, whose primary clients are among the high and ultra-high net worth individuals, families or organizations, knowing where the money is as well as where it’s going to be are two key factors in growing his or her business. There are a number of others as well, but for the purposes of this article we are only focusing on three of them:

• Where the money is
• Where it’s likely to be
• And where to work, at a large securities firm, or go independent.

To determine the first two, we are employing a number of quantitative and qualitative comparative data analyses, including the Bureau of Labor Statistics on the number of financial advisors working in a specific area, compared to the number of high or ultra-high net worth Americans to whom they’re hoping to provide wealth management service. Where there are gaps, there could be opportunities.

For the third factor, we went to three sources: Morgan Stanley Smith Barney, Bank of America/Merrill Lynch and an independent investment advisor. Each provides insights into why they believe theirs is the best place for wealth management.

Chasing the One-Percenters

If you were to go by where the wealthiest Americans live, work or play, you might choose places like Manhattan, Long Island, Beverly Hills, Greenwich, Connecticut or possibly the Great Lakes suburbs of Chicago, Palm Beach County, Florida or San Francisco and Silicon Valley. But are those areas necessarily the best place for wealth management opportunities?

A quick check of the Bureau of Labor Statistics will show you that while those areas tend to have the greatest concentration of wealthy individuals and families, they also have the greatest numbers of wealth managers. For example, in the New York City metro area, an estimated 25,000 financial advisors serve about 720,000 high net worth and ultra-high net worth individuals. That’s a ratio of 29 rich people to every financial advisor.

Wouldn’t it make more sense to search out those areas where there are pockets of wealth, but lack large numbers of financial advisors? For example:

• In Alaska, there are over 16,000 millionaires, many of them recently wealthy from the flow of oil money, with only 140 financial advisors to serve them. That’s one financial advisor for every 114 millionaires.
• If that option is too cold for your taste, consider the other extreme. There are only 70 financial advisors serving the islands of Hawaii, Kauai and Maui, which has become a second home and vacation haven for wealthy West Coasters, including the Hollywood crowd.
• If you don’t want to go that far for warmth, how about Florida? Over 12,000 millionaires live in Naples, with 300 financial advisors to serve them. In comparison, you probably wouldn’t find much opportunity in Palm Beach, Florida, a wealthy community of 9,600 just spitting distance from 2,010 financial advisors in Palm Beach County.
• How about Belle Meade, Tennessee, an affluent suburb of Nashville where the median household income ($226,250 based on 2010 Census data) is among the highest in the nation, while only 400 financial advisors serve the entire Nashville area?
• Then, there’s New Orleans. This is a city in transition. Business is growing so fast there the census bureau admits they have no idea of the current population. What we do know is that just 340 financial advisors service the “Big Easy” as well as surrounding cities of Metairie and Kenner, Louisiana, where wealth is returning and rebuilding, following the devastation of natural and man-made disasters. The area falls smack in the middle of the “where the money is going to be” category.

Wealth creation is everywhere

Todd Myers, Chief Operating Officer for Merrill Lynch Wealth Management, said his group uses some of those same measures to determine where to focus their resources in terms of geography.

“The reality is there’s still significant wealth being created everywhere,” said Myers. “There might be more traditional wealth creation in the major metropolitan markets, but we’re committed to training new wealth management hires from all parts of the country. In fact, there isn’t one market that we’re looking at for de-prioritizing.”

According to Myers, Merrill Lynch takes a very local approach to making sure they’re looking at each market differently. “Take the state of Florida,” says Myers. “The Miami market is going to be very different than the one in Jacksonville because they have two completely different demographics. We make sure we have the right financial advisor for the right market.”

You have to look beyond the geography

Myers said it is also important to look beyond the geography and to understand what capabilities are going to be required within that geography. “For example, many Florida communities have a large population of retirees so we would make sure we had enough financial advisors who had the capabilities and credentials to handle the specific needs of the retiree and emerging retiree. Ultimately, it’s all about meeting the client needs.”

Turning to the pros and cons of working with a large global wealth management firm versus a smaller and independent Registered Investment Advisor (RIA), we interviewed people from both.

Depth of scale, resources and platform

Christopher J. Barton is Executive Director, Manager of the Morgan Stanley Smith Barney Wealth Management Dallas East Complex. He says that what separates his firm from the independents is “the depth of the firm in terms of its scale, resources and platform that it provides to its financial advisors and in turn out to our clients.”

Barton points out that these days, anyone can execute a trade and get information, but the availability to have “the best trained and qualified financial advisors that continue to do secondary or tertiary education, you have to have resources and you have to have a budget for that.” And not all firms do.

The key to wealth management success in Dallas, says Barton, is to make sure you are a part of the community in which your client lives and works. “You need that interaction to have a relationship. Clients here want to see who they’re entrusting their money with.”

In terms of wealth, Dallas is among the top 10 wealthiest cities in the country, but culturally it has a personality all its own.

“The first thing you learn right away is to not judge a book by its cover,” said Barton. “These families may drive an F-150 pick-up truck, but don’t think for a second that they don’t know every single day where their assets are distributed, how they’re performing and which ones are under-performing in each area.”

Working as an independent investment advisor

There has been an on-going trend of financial advisors leaving the wealth management units of big banks for smaller Registered Investment Advisor (RIA) practices, according to Cerulli Associates, who says the banks’ share of the high net worth market has dropped 14 percent from its peak in 2007 while the RIAs have grown.

Timothy Sean O’Neil, Senior Client Relationship Manager for Naples Money Management, says the most important reason for joining an independent is that they provide unbiased advice.

“Because we are not allowed to receive commissions, any advice we give to clients is disinterested,” said O’Neil. “There isn’t any product from which we benefit more than others, which is absolutely not the case with people on the broker-dealer side.”

As for why he chose Naples over places like Palm Beach, he says Palm Beach is surrounded by wealthy communities while Naples is “in the back of beyond. The closest metropolitan areas are Fort Myers and Miami, and Miami isn’t that close.”

Market is becoming segmented

Another reason for choosing an RIA over a large bank is because the market is becoming incredibly segmented. “J.P. Morgan wants very large accounts to which they provide great service, but people with just $3 to $5 million are given an 800 number,” says O’Neil, adding that some wealth management firms won’t even let you in the door with less than $5 million.

Naples Money Management has a $500,000 minimum, which sounds like a lot to most Americans, but is actually lowering the high net worth category required by many wealth management units of large investment banks.

However, in terms of getting employed, O’Neil says this is not the place for someone just starting out. The unspoken advice here is that you may want to get your training at a firm like Merrill Lynch, and then once you’ve worked in wealth management for five or six years, decide which would be right for you: staying with the large firm or going independent.

In a sense, even with independents, geography plays a big role. “Now that we don’t do cold calls anymore, one of the best ways to meet prospects is to buy mailing addresses and invite prospects to an investment seminar and a free meal,” said O’Neil. “If you have the right address, you could be invited out to dinner three or four times a week.”