The world’s most famous investor, Warren Buffett (pictured) has coined many a catchphrase in his time, but “price is what you pay, value is what you get” is one of the most well-known.
I was reminded of these sentiments when I was recently invited to sit round a table with several very pleasant private bankers and wealth managers. It was quite an eye-opener for this Independent Financial Adviser….
My private banking peers and I were part of a focus group brought together to assess the quality of an online investment service offering what it described as “low-cost access to world class wealth management”.
This attracted criticism from my peers almost immediately. They argued that low costs and bespoke wealth management are two impossible concepts to marry. I tended to agree with them, at least initially.
Looking at the proposition more closely we discovered it was, for all intents and purposes, an online version of a plain vanilla managed portfolio service. One of my esteemed peers felt the service had been misrepresented, stating “Wealth management? It’s just an investment portfolio”.
Things get interesting….
The focus group co-ordinator himself had a limited appreciation of financial services and so asked how best to define the term wealth management. A couple of the guys proceeded to give a well-rehearsed pitch focusing on managing portfolios, risk mandates and global research. Lot’s of investment speak but very little about strategic financial management, tax planning, pensions, cashflow, etc.
Then came a perfectly innocent but killer question from the co-ordinator:
“So, I assume the extra cost clients pay for your investment services helps them achieve superior results to this low-cost one?”
Cue the tumbleweed….
There were some coy looks around the room, so I broke the awkward silence to gently remind the co-ordinator that, regardless of who’s managing a portfolio, future performance can never be predicted.
To the co-ordinator’s untrained eye, the private banks and the online platform basically offered their own flavours of the very same thing – managed investments. He had a point.
Anyone for tennis?
One of the private bankers then bravely attempted to define his company’s added value as ‘providing an enhanced client experience’. Beyond the investment conversation, this seemed to largely consist of a nice lunch at their shiny offices, the presentation of a gold-embossed desk blotter and tickets to Wimbledon!
I’m not suggesting all private banks and wealth managers share this view; neither do I have an issue with premier-style client treatment but it did strike me as a tad superficial when billed as added value or wealth management!
Does this premier experience make a client feel valued and confident their wealth is in good hands? Almost certainly. Does it actually help move them closer to their objectives and increase their bottom line? The jury’s out…
The bigger picture
For me, wealth management is more than just an investment portfolio and being nice to your clients.
It’s understanding who your client is, what’s important to them, where they want their lives to go and a desire to help them get there.
A bespoke plan incorporating investment/risk management, the right selection of products, tax mitigation, cashflow planning, opportunity spotting, problem-solving – and perhaps even the odd lunch – all tend to flow quite naturally from there.
Whilst I believe this level of planning can increase the likelihood of a client achieving their aims, I understand not everyone wants or needs this level of service. Some just want an investment portfolio, but my basic point is that not all ‘wealth management’ services are born equal.
Apples and Oranges
Cheaper doesn’t mean better but an investment service dressed up to look – and charge – like holistic wealth management is unlikely to provide good value for money. Price and value can be confusing in financial services.
As with all things, to understand the true value of what you’re buying (for you individually), you need to know roughly what you’re looking for in the first place.
Thanks for reading, please get in touch if you have a view or want to know more.