Executive Summary
In recent years, it has become increasingly popular for many financial advisors to call themselves "wealth managers" to differentiate themselves, just as a decade or two ago it was popular to use the term "financial advisor" to differentiate from the stockbrokers and insurance agents.
Yet a recent job task analysis study from IMCA has sought to better define what "wealth management" really means - and their conclusions imply that it is far more than just a fancy label for advice, and instead constitutes unique job tasks and specialized knowledge and skills different from financial planning and designed to serve a unique type of client: those with at least $5 million of net worth.
If it gains momentum, the implications of the IMCA study are significant, as it implies that some advisors are using a label that is not actually an accurate description of the knowledge they have and services they provide, and that those who really do wish to work in this area may need to get further training and education. While that is arguably a conflicted perspective for IMCA, as their Certified Private Wealth Advisor (CPWA) certification is intended to target this exact space, it nonetheless remains a valid point: if the job tasks, knowledge, and skills of wealth management really are different than financial planning, then people should use labels that describe what they really know, do, and deliver to clients, and should be educated accordingly.
The inspiration for today's blog post is the release of a new white paper "Defining Wealth Management: Serving High-Net-Worth Clients with a Distinct Body of Knowledge" from IMCA, which discusses the results of a Job Analysis Survey conducted by the organization to better understand what "wealth management" really is in the first place.
The IMCA Job Task Analysis (JTA) Survey
IMCA's job task analysis survey on wealth management ties to its Certified Private Wealth Advisor (CPWA) certification - in fact, it's the same process that the CFP Board used to define its job task domains and body of knowledge topic areas, and is standard for certifications seeking accreditation.
To complete the process, IMCA started by having a volunteer committee establish a tentative set of job tasks, knowledge, and skills, then sent out a survey to financial professionals to determine how relevant and accurate those job tasks, knowledge, and skills were, and then ultimately reviewed the results to determine which were most relevant and appropriate. The final results were based upon 400 responses, which were subsequently winnowed down to approximately 250 responses (after eliminating some responses due to insufficient job experience, too many clients below $1 million of net worth, etc.). The final responses spanned a wide range of industry channels, including brokerage/wirehouse firms, bank and trust companies, and independent firms.
Conclusions Of The IMCA Study
The basic conclusion of the study was that wealth management is "a distinct field of practice through which qualified professionals help high-net-worth clients achieve their goals and objectives related to the accumulation, protection, and distribution of wealth by applying a set of specialized knowledge and skills." The bold parts of the preceding statement represent the particular areas which, according to the study, establish the defining characteristics of wealth management.
So what does high net worth mean in this context? Overwhelmingly, the most common response was that $5 million of net worth is the starting point for wealth management. In terms of specialized knowledge and skills, the study highlighted four major knowledge domains, each with 2-3 sections:
- Domain I: Human Dynamics
- Section 1: Ethics
- Section 2: Applied Behavioral Finance
- Section 3: Family Dynamics
- Domain II: Wealth Management Strategies
- Section 4: Tax Strategies and Planning
- Section 5: Portfolio Management
- Section 6: Risk Management & Asset Protection
- Domain III: Client Specialization
- Section 7: Client Focus - Executives
- Section 8: Client Focus - Closely-Held Business Owner
- Section 9: Client Focus - Retirement
- Domain IV: Legacy Planning
- Section 10: Charitable Giving
- Section 11: Estate Planning and Wealth Transfer
Notably, the principal topics above have overlap to the broad topic list for CFP certification, but it's only partial overlap: the major sections for CFP certification include General Principles of Financial Planning, Insurance Planning, Investment Planning, Income Tax Planning, Retirement Planning, Estate Planning, Interpersonal Communication, and Professional Conduct and Fiduciary Responsibility. The fundamental point: while wealth management is similar to financial planning, it's not quite the same thing and doesn't utilize the same knowledge and skills.
In fact, as I've written in the past, the real planning issues and technical complexities involved are often quite different between financial planning and wealth management clients, from CRTs and GRATs and IDGTs that are relevant for a high-net-worth client but not a "mere" millionaire, to planning for the claiming and taxation of Social Security benefits that is highly relevant to a millionaire but simply not material for a decamillionaire, to the unique issues of business sales and corporate executive compensation, to the unique family dynamics that emerge at the intersection of traditional family issues and the transfer of very large amounts of money.
Industry Implications Of The IMCA Study
The fundamental point of the IMCA study is that wealth management is distinct; it serves a unique type of client (generally, those with a net worth of at least $5 million) with a specialized body of knowledge appropriate to the needs of those clients. Notably, even the IMCA study itself points out that "advanced competency in wealth management is a practice, not a profession" - which means IMCA is not trying to define wealth management as being a distinct profession from financial planning (or accounting, or law, or investments). Instead, the point is that wealth management represents a (multi-disciplinary) specialization beyond the baseline knowledge of those professions.
And of course, a specialized body of knowledge and unique tasks and skills are also conducive to a certification process to determine exactly who is capable of effectively delivering wealth management, which is exactly what IMCA is trying to create with its CPWA certification. But unlike so many other designations and certifications, IMCA is genuinely taking the steps necessary to establish and define its certification's body of knowledge and what is unique; accordingly, I would put their CPWA certification into the small and elite category of "post-CFP" educational options that really do confer a unique, specialized body of knowledge beyond the core financial planning curriculum.
Notably, IMCA's definition of wealth management also makes it a relatively narrow niche unto itself; according to research cited in the IMCA study from the Spectrum Group's Affluent Market Insights 2012 report, there are only about 1.1 million households in the US with a net worth in excess of $5 million. As IMCA further notes, this means that if the average wealth manager could service 50 clients, the entire space could be served by "just" 22,000 advisors, which is barely about 6%-7% of the more-than-300,000 financial advisors in practice according to Cerulli. I suspect this number may be a bit low, as many firms serving the ultra-high-net-worth space in the private bank and private trust company departments and multi-family-offices limit advisors to as few as 5-15 clients (or one client family in the case of a true family office), which means the capacity for wealth managers may be somewhat larger than 22,000; nonetheless, the fundamental point remains that this is already a rather crowded and competitive space.
Perhaps more significant, though, is that in a world where terms and labels are often used loosely - where "wealth manager" is used to differentiate from financial advisors the way "financial advisor" used to differentiate from stockbroker or insurance agent - the IMCA study also implies that there may be people who are calling themselves wealth managers but aren't "really" wealth managers, either because they do not actually serve clients with a high enough net worth to qualify under the IMCA study's definition, or because they don't really have the specialized knowledge and training necessary to provide a distinct wealth management service. The point here is not that the needs of a client with $5.1 million of net worth are so substantively different than those of a client with $4.9 million of net worth; it's that some people are using a label that suggests a depth of specialization in knowledge and execution that may not really exist in practice.
To that end, while the line in the sand that the IMCA study is drawing may be viewed as controversial, I think it nonetheless represents a valid point: if the job tasks, knowledge, and skills of wealth management really are different than financial planning, then we should use labels that describe what we really know, do, and deliver to clients.
We have yet to truly define “Financial Planner” and stop salesmen from using the term advisor… I can’t imagine the uphill battle the IMCA will have to fight to protect “Wealth Management.”
So people in the financial services industry are using titles that don’t accurately reflect their services? Consumers are confused? Some industry trade organization is trying to legitimize and protect a particular label? I am shocked.