Wealth Managers Who Can Make It Rain – Overcoming Short-Term Thinking

Tom Burroughes Group Editor London 21 July 2022

Wealth Managers Who Can Make It Rain – Overcoming Short-Term Thinking

Wealth managers need to think more strategically, and bring in the kind of change-making individuals who can add momentum to a business rather than just go along for the ride, a senior figure in the executive search industry tells this publication.

There has been a lot of talk about the need for wealth managers to be more diverse, innovative and able to serve younger wealthy clients. And, although there has been movement, the industry is still hobbled by short-term thinking, one of the most experienced wealth management executive search figures in London argues.

Wealth management has opportunities and threats. There are trillions of dollars or equivalent in inter-generational asset transfer, and this is already underway.

There is digitalisation of operations from front- to back-office to create new hybrid ways of serving clients better; new sources of wealth, such as from technology; pressure on margins; new business models (opportunities for wealth managers to differentiate themselves in the eyes of their clients), and client disenchantment with banks even a decade after the 2008 financial crash. There is pressure on firms to perform, but too often compensation and management is geared towards the average at the expense of high-achievers, Mark Somers, who runs the Somers Partnership executive search and consultancy firm, told this news service recently.  

Somers Partnership terms the current situation as the “Flaw of Averages” as CEOs concentrate attention on the often unprofitable mid-level “Lawnmower” relationship manager rather than raising expectations to the profitable “Rainmaker” profile. This is not sustainable with so many pressures in play, Somers said. 

“This industry is still incredibly short-sighted and thinks in terms of quarterly objectives rather than those for five to 10 years,” Somers, a former Army officer, said. He has a keen interest in leadership and retains an enthusiasm for the sort of team ethic that comes with time spent in the military.  

“Astonishingly, many CEOs of wealth management organisations still do not understand the power of ‘Compound Talent’ and so give this competitive advantage away to their competitors,” he said. 

“Our wealth management clients have a lot to learn from our family office clients who are much more nimble, agile and unafraid. We work from some of the most successful entrepreneurs on the planet and they can teach the wealth managers much about staying relevant in terms of proposition and purpose,” he said. 

The average tenure of a CEO in a wealth management firm today is too short, often merely three to five years, he said. 

Added to this is that their average client age is elderly and increasing, rather than being replenished with younger high potential clients. “Rather than follow existing clients they need to future-proof their organisations, prepare for the wealth transference and find new younger clients,” he said. 

To do that isn’t easy: “There is an enormous transference of wealth…merely to stand still a bank needs 5 to 7 per cent growth for the net [revenue] result to be in equilibrium: To grow like some of our clients they need to be adding 12 to 20 per cent new assets per annum” Somers said.

“That is even more of a CEO leadership challenge because most bankers are incapable of growing their client books at that rate,” he said. 

Somers wonders why, for example, there are so few HR directors and chief marketing directors at the main board level. “CEOs need to step up and equip their high performing relationship managers for success, otherwise they are doomed to have front offices staffed by Lawnmowers rather then Rainmakers as the Rainmakers will leave for their more enlightened competitors,” he said.  

A skills shortage in many Western countries, partly an overhang from the pandemic, and possibly also due to ageing demographics, makes the task of finding talented people for wealth management more urgent. HR, payroll and finance firm MHR International recently said that 90 per cent of some of the UK’s largest organisations are struggling with a skills shortage and are unable to find talent with the appropriate skills to remain competitive. (MHR polled 504 senior managers across the HR, finance, business planning and operational functions within businesses with 500 to 5000 employees, and with a turnover of £50 million ($59.9 million) to £2 billion.) The talent shortage problem is one that this news service hears about regularly. (See this interview with Multrees CEO Chris Fisher, for example.)

Making it rain
"Among the Rainmakers in a firm, their total compensation, relative to the revenues they bring, against those of the average relationship manager, doesn’t make sense to them as reward is geared to the average Lawnmower rather than a high performer," Somers said.

In frustration, the highest performers will leave. And a desire for independence from impoverished leadership also explains why managers go to independent shops, Somers said. His experience over two decades is that “Lions are not well led by Donkeys,” and “that ‘Rainmaker’ talent leaves `Lawnmower’ or ‘Well Poisoner’ management and joins organisations where there is an aligned vision, purpose and proposition for their best clients.”  

The trend of departures of some managers is clear. (This is a phenomenon that this publication has seen in the continued move by bankers to Swiss external asset managers, or EAMs in Singapore, registered investment advisors and MFOs in the US, and various independent business models in the UK.)

So who is making a difference?
Somers argues that contrary to any idea of them being rather stuffy, amateurish organisations, family offices have quietly professionalised and are often at the forefront of innovation and adaptability. Mainstream wealth firms should learn – and learn quickly, he said.

“Family offices are leading the way in this, and they are much nimbler. They are future-proofing their businesses and benefiting from compound talent that the private banking industry doesn’t understand,” he said. (“Compound talent” refers to how a firm that attracts high-achieving people will attract like-minded ones, building a positive business momentum that is greater than the sum of its parts.)

With all too many wealth managers, they are “okay, but not that great,” Somers said.

Somers argues that his firm can back up his views on the state of the industry by hard data. It produces a regular compensation survey on the wealth industry and works with US-based family office compensation specialists Botoff Consulting, to launch its 2022 Global Family Office Compensation Survey. Somers says the survey is the first survey of its kind, focusing on family office salaries, bonuses and benefits, for C-Suite and front office executives and non-executives.

Family offices have also risen in prominence and are less below-radar than they used to be, and not just in the US. They’re becoming better known, as in the case of when tech billionaires such as Michael Dell and James Dyson set them up. Coverage is increasing. WealthBriefing is exclusive media partner to Highworth Research, a UK-based data and research group producing detailed figures and commentaries on what single-family offices around the world do, such as investments. (See a story here.)

Somers’ experience in executive search means that he has a ringside seat and often a seat at the table, on the kind of issues wealth managers come up against. As already mentioned, diversity – not just gender – is a major concern. Many inheritors and owners of wealth/businesses are women, and those who may not have a pre-existing relationship with their parents’ banks and advisors, he said.

Firms must tailor their talent management accordingly. “To improve the talent bench, you need people who are super-sophisticated in their EQ, who are aware of the changes. The industry is still male dominated. They [firms] have had a decade to work all this out,” Somers lamented.

Finally, this publication asked Somers about the actual role of independent executive search organisations in an industry where, at times, firms have tried to do it in-house.

“In-house recruiters don’t understand the market and are there because they are cheap. The HR and finance departments are complicit in this. Rainmaker CEOs see the need to step in and take back control….as recruiting is too often treated as a cost issue rather than as an investment,” he said. “Impoverished recruiting, where too many `Farmers’ are recruited instead of `Hunters’ accelerates the organisation’s slide towards `Farmergeddon’ and oblivion,” he added.

(The Somers Partnership was awarded the “Outstanding Contribution to Thought Leadership” Wealth Briefing Awards 2021.)

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