View more on these topics

Wealth is the wrong label

IFAs mostly do financial planning, a discipline that is necessary only because people do not have enough money to achieve all their goals. When this is the case – as it is with most people apart from the very rich – the skills of the professional planner come into their own. These are prioritising objectives and agreeing timescales, defining a tolerable range of outcomes and clarifying the risks involved with different strategies – essentially, negotiating towards a plan that is inevitably a compromise and has to be adjusted in response to changes in goals, circumstances, legislation and financial conditions.

In contrast, wealth management is mainly about paying less tax, or preserving or increasing wealth which means investment management, but on a wider scale than IFAs typically use, including business ventures and foreign property investment.

Wealth management for the very rich rarely involves the planning skills I have outlined above because they do not need to do those things. That is not to say that some of the techniques of the planner will not be applied in wealth management but the core proposition is different.

That is why I think wealth management is a misleading label for IFAs who are, in fact, doing financial planning. Its implicit promise is if you have wealth you can have pretty well anything you want. That, after all, is the man-in-the-street definition of wealth.

The core market of the IFA is not the really wealthy, it is the moderately well-off and they do not need sophisticated wealth management as practised by private banks in Switzerland. Those IFAs who call themselves wealth managers can argue they are just stretching a description but they are making claims about their clients (obviously they must be wealthy or they could not be clients) and about how they would like their clients to see themselves (rich).

In an age when bankers’ bonuses are condemned, taxes on the rich are rising and majority opinion says the wealthy should be paying more and getting less, I am not convinced that defining yourself as serving the wealthy (who everyone knows are a small minority) is a great marketing pitch, except to the kind of people an IFA would be wise not to attract as clients – the rich who believe they are entitled not to pay tax.

The only valid reason in business terms for calling yourself a wealth manager is that clients will expect to pay high fees, so the test of whether this tactic works will be the average fee per client. If these IFA wealth managers do not get an average of well north of £10,000 a year, they will have failed.

I describe the wealth management concept as a fad. Many IFAs are poor businesspeople so they tend to crave magic bullets. If you have survived for years on transactional commission, you might feel that you need one in a fee-paying world after the RDR. What could be better proof of a road-to-Damascus conversion from the old religion (commission) than the adoption of a label for your business that justifies the highest possible fees? If only salvation were that easy, or as a good old English proverb has it: If wishes were horses, beggars would ride.

Chris Gilchrist is the joint author of The Process of Financial Planning and editor of The IRS Report


Fund with a difference

Things will not get better or worse, they will become different”. This is a favourite saying of Nigel Thomas, manager of the Axa Framlington UK select opportunities fund. I only wrote about his fund in this column last summer but I make no apologies for looking at it again. Over the past six months, the […]

IFAs wait to see fixed-term annuity fees

Advisers have welcomed Living Time’s return to the fixed-term annuity market, although uncertainty remains over how much it will charge on the new product. Last week, the company revealed details of the new product following a rebranding exercise which sees it change its name to Primetime Retirement. The new plan, which is to launch at […]

Income protection taskforce arranges sales shortage summit

The Income Protection Task Force is to hold a summit meeting for the heads of protection of the leading providers to seek views on how to increase sales of the product. It will take place on April 18 at the Chartered Insurance Institute’s headquarters in Aldemanbury and will aim to find a way of achieving […]


Margaret Cole to leave FSA

FSA conduct business unit managing director and former director of enforcement Margaret Cole is to leave the regulator later this year. Cole (pictured), who is also an FSA board member, will leave the FSA after nearly seven years at the regulator. She will remain in her current role and on the FSA board until the […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment