A senior figure in the international wealth management arena talks about the requirements for success in the industry.
The following article is by Michael Morley, chief executive of Deutsche Bank Wealth Management UK and he is also a member of the Cambridge Judge Business School China Advisory Council. This article was first published in December 2018 by the China Advisory Council, in association with SEEC and the University of Cambridge Judge Business School. This news service republishes this article with permission. We are pleased to share these comments with readers and invite responses. Michael is also a member of this news service’s editorial advisory board.
There was a time of course when the only wealth worth having was land. It was legal control over real estate that gave the global medieval elites access to both physical security and leverage with rulers, whether Kings, Emperors or local warlords.
Today, if we have it, we think of wealth as something that enables us to plan our lives. Partha Dasgupta, emeritus professor of economics at Cambridge University, has written that “wealth is [essentially] what enables you to plan by converting one form of capital into another.”
Wealth management has traditionally been thought of as a branch of financial services which is concerned solely with looking after the needs of very wealthy individuals and their families. However, the need to plan, to ensure an efficient conversion of all types of income and capital, both tangible and intangible, into a range of asset and liability outcomes that support the life of an individual or family, is a recurring need, whether you are very rich, of middle income, or of modest means.
Research from a range of independent organisations which produce regular commentary on how private client wealth is distributed across the global regions of the world has tended to confirm that over the last 25 years wealth has become ever more concentrated: i.e. the wealthy have become wealthier, and the very wealthy - so called UHNWIs - have become wealthier still, confirming the rise of a phenomenon that William Rees-Mogg and James Dale Davidson described in 1997 as the Sovereign Individual.
Concentration of wealth appears to be one of the factors which has led to growing dissatisfaction amongst western electors and the rise of populism in a number of countries. The rise of the Sovereign Individual, with global resources at his/her fingertips equivalent to those of small sovereign nations potentially threatens the authority of governments in both western and eastern states.
Wealth management as a strategic industry
Having spent the last twenty years running large, medium-sized and small wealth management organisations, and having had literally hundreds of conversations with wealthy men and women and their families over this time, I have reached the conclusion that part of the business of a wealth manager is to have a view on how countries should organise themselves to ensure that they successfully harness the private client capital resources that they need to drive growth in their respective economies. It is also to recognise that there is a vital social dimension to managing wealth.
Ensuring that all citizens have access to high quality advice and resources to enable them to take the appropriate decisions on what makes sense for them to plan for their own lifetime goals turns out to be both a macroeconomic necessity and a social good.
The philanthropy practised by many wealthy individuals and their families through foundations and institutes has had many positive benefits for societies across the world. John Ruskin, the 19th century art critic and author, wrote in his essay Unto this Last: “that country is the richest which nourishes the greatest number of noble and happy human beings; that man is richest who, having perfected the functions of his own life to the utmost, has also the widest helpful influence, both personal and by means of his own possessions, over the lives of others”. He had a point.
But governments cannot rely on philanthropy alone to get the job done and, as already mentioned, relying on so-called Sovereign Individuals to make objective choices for their fellow citizens, be they global or local, has its limits.
This paper will argue that investing in advice-led wealth management propositions which educate both those who have wealth, however modest, and those who pretend to advise on it, is a strategic necessity for China as a buttress to its Belt and Road strategy.
But what do we mean by wealth management?
To be in the business of “wealth management” means a whole lot of different things to different audiences. For some it means to be in the business of asset gathering and then managing the assets that have been “gathered”. For others it means to be in the business of private banking and to provide bespoke current and capital account services. For some it means to be in the business of providing structured lending facilities to enable better liability management for clients. For others it means to be in the business of providing stockbroking or platform execution services.
All of the services mentioned above may be valuable in and of themselves - but as standalone services to drive forward a growth agenda for a sustainable wealth management industry they are unlikely to be sufficient. Businesses which focus solely on providing investment management services may unintentionally end up in pushing products that may or may not be suitable for clients; simply concentrating on credit and current account banking runs the risk of too narrow a focus on a client’s overall needs; merely being a stockbroker runs the risk of making Woody Allen’s often quoted dictum come true: i.e. that a stockbroker is someone who invests your money until there isn’t any left!
The thing that almost all clients require is someone who takes the time to understand their needs and their lifetime goals: someone who has skills that are more akin to those of a professional services advisor, able to advise on both sides of a client’s personal financial balance sheet. The aim of the wealth management advisor is to make a positive impact on a client’s life by helping them to achieve their client’s lifetime goals. It is in this sense that the wealth manager of this century is in the life planning business, aiming to be the trusted advisor who ensures that a financial or wealth plan is in place that supports the client’s life plan.
If the service begins with a comprehensive financial or wealth plan which is designed to advise clients on both sides of their personal balance sheets, credibility and trust are more easily established. The advisor is then much more likely to be entrusted with the job of executing the plan, bringing to bear the skills and services of other parts of his/her wealth management operation (banking, credit, investments etc.) and enabling further expertise to be established, deepening the trust between client and service provider.
Most wealth management organisations that developed in the west began as product organisations, often with strong links to their retail, commercial or investment banking arms. Experience has shown that, whilst innovative and effective products are essential, a wealth management business needs to start by building long-term trusting relationships. As China begins to develop its own wealth management industry, it can build effectively on some of the lessons which have been learnt empirically over many years in the West.
There are a number of key attributes that are essential in establishing the right culture and framework for a successful wealth management industry. Let’s start with the attributes needed for looking after those who have significant capital wealth - so-called high net worth individuals (HNWIs), and we will then consider the needs of both the super-rich and those of modest means.
1. The first attribute is: understanding what it means to
Scott Fitzgerald and Ernest Hemingway supposedly agreed that the rich were different: they have more money than the average citizen. If you work in the wealth management sector, one of the challenges is that you may find yourself advising someone who has been more successful than you are and is richer. Why should they take advice from you - an employee, even if a very hard working one, a salaried individual, not an owner nor an entrepreneur?
There is of course no short cut to solving this dilemma. Time, wisdom, experience and professional qualifications eventually help you out. But the key skill set is to be good at putting yourself in other people’s shoes; to try and see things from others’ perspectives; to spend time getting to understand their goals, their background, their families, their likes and dislikes, their passions, their weaknesses.
It was Mme de Staël in 19th century France who said that “to understand all is to forgive all”. In wealth management “to understand all is to advise well”.
2. The second attribute is: empathy
Wealth managers who hope to be appointed as a trusted advisor to their clients need to start by showing that they care. Nobody cares what you think until they think that you care.
Showing that you care can manifest itself in many different ways:
it might be spending time getting to understand a client’s
particular interests, understanding the way their family
thinks about next generational planning or the legacy of their
family business, or it might simply be about showing that you
care about a favourite wine that they drink or a piece of music
that means a lot to them. Showing that you care about them
and their life goals is often a much more important starting
point than the traditional product led strategies of many wealth