Recent market activity has forced individuals to closely examine their investment strategies.
Not only has the volatility provided an opportunity for people to evaluate how much risk they can withstand, it also has reminded them that financial health must be constantly assessed. There is, however, another question that must be asked: How well does the financial adviser know individual investors' unique circumstances?
Wealth management has become more than just allocation and prudent equity selection. Today's high-net-worth clients are starting to understand that the closer the relationship with their adviser, the more timely and effective the service and portfolio management. With complex issues of wealth management in a volatile market, a close relationship will produce better returns, because the adviser truly understands the clients' needs, transitioning from a wealth consultant to a wealth advocate.
There are three characteristics to evaluate when selecting an investment adviser who also is an advocate - effective listening, account approach, and nimble and proactive allocation.
First, advisers may make imprudent investments if they fail to listen carefully to clients' stories. Having a thorough understanding of the investors' goals, beliefs and circumstances is paramount when creating a custom financial plan. This understanding includes family dynamics, legacy ideas and charitable interests, among others.
It's important to know who controls the wealth and how that control affects family relationships. How the client wants to preserve wealth - or pass it to younger generations - also must be considered. If there is a charity the investor wants to support, the magnitude of that support must be taken into account.
A wealth advocate must understand exactly how clients would like their wealth distributed so they can provide strategic and well-thought-out advice.
Second, having a customized team of experts focused on clients' wealth is instrumental in achieving desired outcomes. The team approach provides access to multiple professionals who understand client goals and can bring specific expertise to the investors' overall financial well-being. Wealth management has become so multifaceted that the effective use of many people has become necessary to provide the specialized service now required with complex planning.
A team approach allows each team member to specialize in specific fields such as planning, portfolio management or legal issues to name a few. In contrast, having a single individual tasked to be an expert in multiple fields carries certain risks that may limit investors' ability to reach financial goals.
Finally, asset allocation must be forward-looking and nimble in order to react to the fast-paced environment of information transfer and the ever-increasing global market. Active management ensures a portfolio is taking advantage of the most current economic data available and projecting where returns are likely to be found in the future. History can be a useful indicator, but if a wealth manager is making decisions solely through a rearview mirror, opportunities may be missed.
Asset allocation also must be customized in order to maximize client return. Unfortunately, the pressure for some wealth managers to hit corporate earnings has caused them to instutionalize private money management. Customization in some cases merely means that all client accounts with similar allocations are traded together. This is clearly not the most advantageous or strategic approach for asset allocation. Individuals should conduct careful due diligence to avoid this scenario.
During a lifetime, the investment-adviser relationship is one of the most important business partnerships. Selecting the ideal adviser should be made with great consideration as to who best understands unique wealth management needs and will serve as an advocate in making financial dreams a reality.[[In-content Ad]]
Steve Hutchinson is a senior vice president and portfolio manager for UMB's Investment and Wealth Management division in Springfield. He may be contacted at stephen.hutchinson@umb.com.
