Are you a wealth manager or an investment facilitator?

Answer this question to find out:

You are meeting with a client during a market downturn. The client is paying you a 1% fee for his account and announces that he would like to “sit in cash until the markets calm down.” He tells you that he will pull his account if you disagree. What is your response by the end of the meeting?

A) “Let me help you transition your account to another advisor.”

B) “Okay, let me know when you’re ready to get back in the market.”

If your answer is A, you responded like a wealth manager. If your answer is B, you are probably an investment facilitator.

Bottom line: The wealth manager always puts his client’s best interests first. A client who wants to sit in cash during a market downtown is foregoing his long-term plan because he is uncomfortable. This is an issue of investor behavior. Part of the job of a wealth manager is to serve as a behavioral coach to clients.

Imagine if the above scenario happened in the medical industry.

You go to your doctor complaining about chest pains. After a thorough exam, the doctor tells you that you are at high risk for a heart attack and you should have a procedure immediately. Now imagine telling your doctor, “No thanks,” and you’ll let her know when you’re ready. I think most of us would have that procedure done as soon as possible.

Why is it that doctors don’t compromise or have to justify their recommendations, but many of the brokers in our industry do? These “investment facilitators” are more concerned with closing the sale than being a trusted professional.

Here’s the difference: 

Wealth managers offer a comprehensive, client-based planning process. They have a clearly defined offering and their solutions are based on the distinct needs and goals of each individual client. There is no one-size-fits-all financial plan.

Investment facilitators primarily sell products to meet specific needs. They usually do not have a clearly defined offering and will use a multitude of products in order to get the client’s business.

Wealth managers also take the time to educate their clients and talk about how their investment behavior affects their long-term financial plan. Acting as financial physicians, they conduct a thorough discovery before giving advice, just like a physician does a thorough exam before making a diagnosis and recommending treatment.

A physician also talks to the patient about behavior  — like telling you to finish taking all of the medication, even if you are feeling better after a couple of days. She explains that if you stop taking the medication, you could relapse, and maybe even experience worse symptoms than before.

Do you talk to your clients about their behavior? Have you ever asked: “If market prices go down, will you bail on your plan?” Where is the point where your client feels like they want to “stop taking their medicine” — when the Dow is at 10k, or maybe 9k? A great wealth manager has this conversation with every client to help them stay calm and keep their long-term perspective when volatility strikes.

I believe that most people in financial services want to do the right thing for their clients.

As you are probably aware, the SEC and Department of Labor continue to push efforts to more clearly define and enforce a fiduciary standard of care for financial advisors.

In 2011, the SEC said it would propose a rule which would hold both fee-based financial advisers and commission-based brokers to the same fiduciary standard. (Currently financial advisors are held to a “fiduciary" standard, which means their recommendations must be in the best interest in their clients. Brokers are held to a "suitability" standard, meaning that any products they recommend must be suitable for their clients, though the products need not be in their best interest. )

The rule has yet to be proposed and many industry experts do not believe it will happen before the presidential election.

Regardless of what the SEC does or does not propose, here’s what I know: there is a big difference between offering something that is “suitable” and acting as a “fiduciary.” 

Now is the right time to ask yourself if your current business model is providing the kind of client experiences that make you a wealth manager or an investment facilitator. Clients know the difference.


Steve Atkinson, CFS, is Executive Vice President of Loring Ward, Head of Advisor Relations, providing support and coaching to help advisors grow their businesses.