Creating wealth, either through starting and building a successful business or through investing your savings wisely over the years, is half the battle. The other half is ensuring safe, productive, and tax-efficient employment of that wealth to meet your retirement income needs as well as any other dynastic or philanthropic goals you may have. Business owners and high-net-worth families often look to big-box retail firms under the assumption that the larger the firm is, the better the results will be. Ironically, that tends to be the inverse of the way things play out. If you are considering working with a wealth management firm for the first time, I would like to offer a few points to consider about the wealth management industry and boutique wealth management firms that may cause you to rethink the traditional and well-marketed wisdom of what type of firm is best positioned to partner with you in retirement planning.
What is the goal of hiring a wealth management firm?
The answer to this question comes in two parts but is reasonably straightforward. The first goal is to grow and manage the wealth you have created. The second goal is to position that wealth in a manner that is most tax-efficient for you during retirement, transitioning out of running the daily aspects of your business and meeting your philanthropic goals.
So, you accomplish your goal when you get results tailored to meet your specific needs and interests. This is not a likely outcome when you work with a big-box financial services firm. Tailored outcomes are simply not an area of expertise for those firms. Their corporate attorneys and CPAs can only suggest general concepts that may work for most people, but they cannot say what you should actually do, given your specific situation.
Here is why boutique wealth management firms deliver on the goal of wealth management for the majority of business owners and individuals.
Credentials matter.
Large firms bring name recognition and trust, and that’s because they have been around for a long time and, generally, have delivered results for clients in the past.
Being a behemoth, publicly traded financial services firm comes with an obligation to shareholders.
- Does this incentivize ensuring that their advisors are credentialed with expensive, time-consuming, professional experience-based certifications relevant to the industry such as an MBA, CPA, CFP, JD, LLM, and the like?
- Does this model lend itself to bespoke financial planning tailored to the unique needs of each client?
The answer in both cases is understandably no. Mega-firms get business from the power of marketing and volume. Big-box advisors are inclined to use the same tools regardless of the circumstance – target date retirements funds, mutual funds, and proprietary investment vehicles that produce significant revenue for the company. Boutique firms get business from referrals and keep business based on what they deliver to each client. There is not necessarily anything wrong with the two different business models, it is just a matter of deciding which model works better for you.
Take a look at client-to-advisor ratios.
A boutique wealth management firm is going to have a much lower client-to-adviser ratio, which means that a firm like ours has more time to understand each client’s unique goals and circumstances. To ensure that we all have a shared understanding, we follow each client meeting with a detailed recap email that includes a summary of key decisions that were made during the meeting and a to-do list for us and the client. This allows us and clients to feel confident that they understand all aspects of the plan, and it provides the road ahead to make sure that nothing gets dropped along the way.
Larger firms have more clients, and that glut of clients results in advisors dealing with more clients than they can effectively understand and deliver tailored plans to.
Additionally, advisors at large firms are under pressure to do more than wealth management; they are also salespeople. The pressure to cross-sell additional services not included in the initial price to each client means that less time is spent coming up with solutions to grow your wealth, and more time is spent on selling you products you may or may not need.
Large wealth management firms focus on sales. Boutique wealth management firms focus on retention.
A boutique firm like ours is not staffed with a sales department, and we cannot afford to focus on sales because our energy is directed toward the activities that grow your wealth. We sell through proof, referrals by word-of-mouth, and achieving our clients’ goals.
We believe that helping business owners and individuals keep and sustain their wealth is good for families, communities, and our country. We have poured ourselves into education, certifications, and decades of industry experience to partner with you to grow your wealth and achieve tax efficiency that allows you to preserve your wealth through the duration of retirement. Who does not want a CPA, JD, MBA, and CFP on their team to help advise on business and financial decisions?
Large firms are, of course, going to offer strategies to manage and grow your wealth, but the situation is different, and so is the strategy. A large firm’s strategy is based on volume. How many new clients can they sign? Large firms do not want clients leaving immediately, but their tolerance for loss is much, much greater than a boutique firm.
The strategy of a boutique wealth management firm is to retain and grow clients. The strategy of large wealth management firm is to acquire them in large numbers.
Wealth management is built on relationships, and large firms suffer from high turnover.
Take a boutique wealth management firm like ours. We have five people working for you, and two of those individuals are founders. The founders? We are not going anywhere. The other three on the team have been with us since our inception, occupy a significant role in our company, and are compensated well.
Now, contrast that situation with that of a larger firm. There just is not the same loyalty. It is not unlikely that a business owner who chooses to work with a larger firm will find himself or herself being introduced to a new advisor several times over the life of the relationship.
Boutique wealth management firms offer more services.
Just like any large organization, a large business is going to be set up with a more rigid structure. To move, advisors must navigate red tape. So, if the solution your business needs sits on the other side of that red tape, you’re not going to hear about it.
Boutique firms like ours can offer more services because we’ve built a network of specialists covering every aspect of wealth management and financial planning. Is it a complex tax issue that is not our specialty? We have a specialist for that. Are we talking about risk management? We have a specialist for that.
Agility is the future, and that’s where boutique firms excel.
When markets are volatile, boutique firms outperform large firms. It makes sense. We can change course fast because we are smaller with a shorter chain of decision-makers. Boutique firms are necessarily agile in order to deliver superior results for clients.
We are a boutique firm, and nobody is reaching out to us because of our nationwide brand recognition. We are proud to earn every client with relationship building through proven results.
With regards,
Jennifer Baker, CPA, CFP®, RICP
