Becoming a Wealth Steward in Five Steps

Published by Marshall Smith, CIPM, Managing Director - General Manager, Products
June 22nd, 2015

The Wealth Management landscape is changing rapidly. Robo-advisors are interrupting the traditional business models with technology, regulatory bodies are looking to create a uniform fiduciary standard, and passive investment solutions are growing as active investment strategies are declining. While some are resisting these changes, others are embracing them as an opportunity to differentiate themselves both from the automated investment services but also the traditional wealth management models.

A growing number of advisors are positioning themselves as Wealth Stewards. The concept of stewardship has often been used in context of the environment, theology, and health. The term at its core means responsible planning and management of resources. Wealthy individuals have grown tired of the traditional pitches from advisors that revolve around outperforming the market and investment terminology they don’t understand or identify with. Clients invest to achieve tangible goals related to retirement, lifestyle, education, or philanthropy. They need someone to walk alongside them as a financial expert, advisor, and planner.

Enter the Wealth Steward. The Wealth Steward breaks the mold and undertakes a process that, from beginning to end, is about achieving tangible goals. The following is a five step process that Wealth Stewards are taking to differentiate themselves: Becoming

Step 1: Understand. The Wealth Steward first understands their client’s goals in terms of personal goals and milestones. Not what rate of return you need or the amount of downside risk can you withstand. Instead, what will your lifestyle look like at retirement? What kind of college do you want your children to attend? What would your leisure and vacations look like? What type of philanthropy do you want to support and in what ways? These questions get to the heart of why they are investing.

Step 2: Translate. Now that you understand your client’s goals in their terms, you can guide them in translating them into an actionable investment plan. Calculate the amount of monthly income to sustain the lifestyle goal. Research the all in education expenses including related housing, food, transportation, and other fees. Determine how much their peer group spends on vacation and leisure. Show them how others are giving to charitable causes and in what ways including time, money, in-kind gifts such as investments and property. Provide this information to your clients as a consultant and including options in each area the client may not have considered.

Step 3: Implement. Combining the details of client’s goals in their terminology and your expertise in investment solutions, you are now ready to implement an investment plan. This looks like finding investment solutions that best meet your client’s goals and are sensitive to tax impact, fees, and risk. The Wealth Steward considers all options to best achieve success, not in terms of maximum performance, alpha or smart beta but your expert knowledge of these concepts to implement a strategy that maximizes the likelihood of achieving the client’s goals.

Step 4: Report Back. Unlike a typical client meeting, do not to discuss their progress primarily in terms of returns, risk statistics and comparative benchmarks but instead goals based reporting which represents a progress report relative to each goal. The reporting should show the likelihood of each goal being obtained. It could also depict a graphic showing progress toward the end goal compared to the original plan projections. The Wealth Steward identifies where the client is not upholding their end of the plan, such as additional withdrawals, lack of contributions. In addition, the Wealth Steward is transparent in showing how the investments performed relative to expectations. As a supplement to the goal reporting, performance reporting showing after-fee AND after-tax performance including market benchmarks is also provided and discussed if needed.

Step 5: Be the Coach. Completing the process, the Wealth Steward acts as a coach who modifies the game plan based on results and life changes. Whether that be encouraging the client to meet their financial commitments or making adjustments to the investment strategy, the Wealth Steward adjusts the plan as necessary to give the client the highest likelihood of achieving their goals, in their terms.

About the Author: Marshall Smith CIPM, Managing Director of Service Bureau, has been with First Rate since 2006. In this role he oversees Service Bureau, the business line responsible for clients that outsource their performance processing function, develops and maintains client relationships, and develops strategic planning for all Service Bureau operations. In addition, he leads First Rate’s Marketing team. You can follow Marshall on Twitter @1stRateMarshall, or connect via LinkedIn.

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