Some big names in the industry have turned their attention to differentiating between advisors who can truly handle the complex affairs of the ultra wealthy, and those who just say they can. There is also a movement afoot to get this information across to the consumer.
This movement is important at a time everyone is going after high net worth wealth, simply by virtue of the fact other areas of profitability are disappearing. Middle class wealth has fallen; investment banking and trading revenues have been hit by the poor economy. And ultimately, wealth management is a sales business, says Doug Black, founder of SpringReef Partners, which means some people will always be tempted to make exaggerated claims.
The size issue
Size is one aspect: before the 2008 financial crash and the Lehman Brothers bankruptcy, size was equated with the safety of an institution. But size has provided no immunity against involvement in some of the most nefarious schemes to hit the privately wealthy, or against regulatory run-ins.
Size also depends on the type of institution as it is meaningless to compare an RIA to a private bank – but would a consumer understand that?
Nevertheless, size plays a part. If one hones in on a particular sector it provides an indicator as to how firms or individual advisors are growing their practices and how popular they have proved in the past. Bloomberg Markets recently released a list ranking family offices by assets under advisement. Interestingly, firms dominating in terms of overall size were units of large banks while smaller boutiques dominated growth (albeit from a lower base).
But such lists are arguably more for the industry’s interest than the end consumer’s. Meanwhile, there are a number of other lists around such as Barron’s ranking of financial advisors, which combines characteristics of size along with “the quality of their practice” and factors such as philanthropy.
Family Office Exchange recently came out with a list of “Leading Wealth Advisors,” in an attempt to focus on the qualitative side – the quality of advice. However, Barron’s later published findings that, for example, one firm on the list was defending itself against charges by the SEC of artificially inflating performance of a hedge fund.
FOX has tightened up the procedures and given staff extra training in this area, founder and CEO Sara Hamilton told Family Wealth Report, and is implementing regular updates and checks on the information advisors provide. It is also accelerating the implementation of an advisory board to identify candidates for the list.