Private Wealth Management: Is it a Zero-Sum Game

Obviously there's no way around it: you have to sell in PWM. Most aren't cut out for it but the ones who succeed unarguably experience the greatest work life balance for pay out of most modern day jobs.

That said, I can't help but feel that the industry is more competitive than people think. Clearly it's easier to break into than IB but I feel that it's equally as difficult as a long-term career.

Every high net worth individual (who would ever need help) likely already has a financial advisor. Most of them have had long-term relationships with these people. If you're starting out today, wouldn't you literally have to persuade someone to switch advisors? When would someone ever switch?

I guess you'd leverage your investing capabilities but how difficult would this be considering that the investment products you use to cater to the client really aren't differentiated between advisors? Like it really comes down to asset allocation and risk tolerance so the principles of finance and tax write offs only get SO complex.

Not in the industry but really curious to hear anyones take on the above.

Comments (19)

Most Helpful
Oct 31, 2021 - 11:27am
rickle, what's your opinion? Comment below:

Success in PWM comes down developing and growing client relationships. This includes winning them in the first place. The value of a real Financial Advisor (FA) is unlimited. That FA can work with the client on so many levels.

However, the average "FA" is not really an advisor, but rather an asset gatherer (not even an asset manager). The investment aspect is highly commoditized. Most gatherers are using third party or firm created models that are not any better or worse than any other models assuming they're pegged properly to risk tolerance. Great for the "FA" and neutral to the client. ,

So the value needs to come from other planning areas. Tax, Estate, Retirement, Generational (subset of Estate), Banking, Trusts / Asset protection.

I frequently take over accounts from other advisors. The general theme is understanding the client's goals and concerns and then realigning their assets accordingly. Most are gravely out of alignment with their actual current/future needs. An easy / common example would be the average retail client, say 55, who is totally invested in equities and drastically overweight a few holdings when they need to be thinking about retirement staging and preservation (quite common situation). What has worked to get them to point A won't necessarily keep them there as risk tolerance / time horizon / taxation are all different in retirement. 

You'd be surprised how many clients are just on cruise control, partly because they don't understand much of this and the rest because their "FA" doesn't take the time to truly educate and advise them.  Someone like me comes along and they see what they've been missing. 

Very difficult for a young kid to win anything as they have no experience and don't know what they don't know. In the old days, it was make a list of friends and family, cold call, etc. Ridiculously low level of success that way. Today, a much better model is join an existing team (wire, RIA, planning firm, etc.) as a junior. Spend a few yrs learning the business, servicing accounts, sitting in on client meetings, getting a feel for client issues. Move up within the team to become either an investor or client mgr. There is a lot of succession planning going on right now. This is a great way to be part of the succession plan and ultimately own part of a book (without having to build the whole thing). Much easier and more enjoyable than starting from scratch.

I started from scratch and many did, but if the other models were available to me 30 yrs ago, I would have gone that route in a second. Much greater chance for success.

  • Associate 1 in IB - Cov
Oct 31, 2021 - 2:06pm

So I worked in PWM for some years doing a mix of investing and covering clients. I went back and got my mba to pivot to investment banking. In a few years I think I'd like to go back to PWM. Obviously I'd love to join an advisor who is close to retirement and buy out his/her book. If you were in my shoes how would you go about starting back in pwm? Would you join a training program and hope you meet the right team or would you reach out to teams cold until you found the right one to join before leaving IB?

Nov 2, 2021 - 7:14am
rickle, what's your opinion? Comment below:

Not really sure what you're asking. Every firm has good advisors and not so good advisors (like anything else). It gets trickier than that as you need to define "good advisor". That's very client needs based. So the client who needs X may be quite well served by Advisor A while another client might be underserved by the same Advisor (due to knowledge base, experience, process, etc.) The art of advising is really founded in understanding your client and providing solutions to their problems / issues. Could range from simple third party money management to functioning as their Personal CFO. Every client is different. 

From a recommending perspective, if you're wanting to get started in the business, I would focus my attention on the shops that have great training and are more team focused. Much easier for you to implement the training with live clients and mentors than building from scratch.

The wires are a natural starting point but think beyond that. Some of the larger RIAs are good starting points. As an example, have a friend who was in Investor Relations at a BB many yrs ago. Took several yrs off to raise her kids. Went back to the workforce in PWM via one of the BBs analyst training programs (3 yr). Got good training but couldn't handle the client development / sourcing requirements once comp shifted to revenue generation. Found an RIA that didn't require a book. Worked in service. Learned a lot about the business. Inherited clients (team based approached). Worked her way up to MD of a multi billion $ RIA. Lots of these firms acquire firms and need staff to assist the transition. Great place to be. Won't have the structure and bureaucracy of a BB. Might make sense to start with a BB, get licensed and trained and go from there.

Nov 3, 2021 - 5:32am
TheBuellerBanker, what's your opinion? Comment below:

Pretty eye-opening for me so thank you for this response. A lot of folks still think succeeding in PWM comes down to working your own personal network which obviously isn't the case. As someone very relationship-driven, had I known what you said then I honestly would've more seriously considered PWM over IB. Hopefully people can learn from this.

  • 2
Oct 31, 2021 - 3:25pm
rickle, what's your opinion? Comment below:

So a few of questions: 1. Why did you leave PWM? 2. What did you like / dislike (about it)? 3. Why do you want to go back? 4. What role do you want to play (client facing or investor - or both? 5. Does your bank have a PB arm or at least a PWM arm that gets serious attention?

I'm making some assumptions here. You appear to like the structured approach of working for a bank with specific titles, paths. A lot of folks do the BB PWM three yr analyst training, figure they can't make it once you transition to revenue based comp (commissions), go get their MBA to reset career, etc. Nothing wrong with that. is that you? What did you learn prior to the MBA that you can use going forward?

I would think the easiest way to get back in would be to go through your current bank as many PB setups serve the wealthy clientele within the CIB. Liquidity event, boom here's 25M to play with, etc. You also have relationships there. Some of those shops work in teams, some don't. I'd do my research on the shop to see how they're structured, what type of succession opportunities exist, etc.

If you're OK with looking outside the banks, you can look at Trust Cos (national and regional), RIAs and even Independent BDs. I'm with an Independent BD and some of our largest shops grew almost entirely via acquisition. Know a guy who has done over 10 transactions in the past  several yrs. He's now at about 150M AUM on an independent pay grid which means he's grossing about 95% payout on 1.5M GDC. Of course he has overhead and a team, etc. You can search for these teams online.

I think it would make sense to join a team, work for a few yrs. Learn the business, get client facing and see if you like it. Then buy in to the practice or buy a practice. Lots of creative ways to structure purchase so you're paying out of revenue over several yrs. Lots of sellers want an annuity to use as a retirement fund. I have a contract set up with a guy to buy him out when he retires (or at death) over a 10 yr period. If he dies tomorrow, 100% of the buyout will come from revenue which will still leave a significant profit each yr. I can then easily resettle with his estate for a discounted lump sum if they want that.

The real key, far more important than any of this, is why did you leave and why do you want back in? Do you really want to work with end user clients and their wealth? Not for everyone but great for the right rock!

Nov 1, 2021 - 12:37pm
thebrofessor, what's your opinion? Comment below:

answering the title of the thread: is it a zero sum game. HARD NO. will tell you why later

Obviously there's no way around it: you have to sell in PWM. Most aren't cut out for it but the ones who succeed unarguably experience the greatest work life balance for pay out of most modern day jobs.

yes and yes

That said, I can't help but feel that the industry is more competitive than people think. Clearly it's easier to break into than IB but I feel that it's equally as difficult as a long-term career.

everything worthwhile is competitive, it's why there are hundreds of thousands of people who played baseball yet 810 active players (27 man roster x 30 teams). just like becoming an MD, there's a reason there are so few MDs out there. if it was easily attainable it wouldn't pay so well and have such good WLB. scarcity = reward.

in terms of difficulty long term, hard disagree. yes it's difficult to get established, no argument there. it's difficult to survive your first bear market. it's difficult to sleep well when covid just tanked your income by 20% and your retired partner still is owed $100k from you and his watermark was pre-market drop. nothing worthwhile in life is hard, PWM is not a different domain in this regard. however, once you are established, you are free. you make your own schedule, control where your revenue goes, get to run your business as you please, and don't have to chase the next deal constantly. 50 year olds in PWM live infinitely better than 50 year olds in IB, even if their W2 is smaller.

Every high net worth individual (who would ever need help) likely already has a financial advisor. Most of them have had long-term relationships with these people. If you're starting out today, wouldn't you literally have to persuade someone to switch advisors? When would someone ever switch?

you're forgetting the very real thing that there are constantly people who have never had an advisor and are looking for someone like you to come along. I'm many of my clients' first advisor ever. some started small and I built them up (because an established FA wouldn't take a chance on them), some started big. every time the S&P 500 goes up, wealth is being created, it's not zero sum. the millenial generation will likely begin to become a source of new business for me as I've been doing this a while, am already established, and of that generation. my friends are becoming millionaires and as their time gets more taken up by kids, work, and living life, and the one time they YOLO'd on TQQQ or whatever is popular these days, repeating that experience when you have tuition to save for becomes less appealing. and here I am to take a phone call from an old fraternity brother. 

that said, I do take accounts from other advisors, usually for reasons like rickle mentioned (FA doesn't care, not holistic, etc.)

I guess you'd leverage your investing capabilities but how difficult would this be considering that the investment products you use to cater to the client really aren't differentiated between advisors? Like it really comes down to asset allocation and risk tolerance so the principles of finance and tax write offs only get SO complex.

differentiation is difficult, that's for sure, but we're a service business, so you can differentiate on service, processes, philosophy, planning, and so on. it's not up to me to create an offering that's all things to all people, it's up to me to find clients that like what I do well at, plain and simple. everyone's mousetrap is by and large the exact same. how it's applied is where you can differentiate.

good questions and thoughts, feel free to follow up with more if anything needs clarification

Nov 1, 2021 - 1:30pm
rickle, what's your opinion? Comment below:

thebrofressor (as always) makes great points. On the client acquisition front I would add there are millions of newly retired or retiring workers who have never worked with an advisor. Their primary accounts were their 401k and maybe some minor  brokerage or Vanguard accounts. These may not be considered your sweetspot, but many of them are retiring with 250k or 500k+ 401ks. They need help as they've never thought about what they need to do to make that money last. Most of them just set up an outdated portfolio yrs ago and rarely looked at their account beyond the balance. I see this in a rather large swatch of the people I meet, regardless of their level of education. There's a ton of money out there looking for an advisor. You just have to know how/where to find it.

Nov 1, 2021 - 2:38pm
Smoke Frog, what's your opinion? Comment below:

Another poster above mentioned to join an existing team and grow from the ground up, with the eventual goal of simply inheriting accounts when the senior guy retires. That's probably the best way.

Today's PWM is most successful if they are a good sales and people person, they can farm out the actual investing part to anyone or any platform. The hard part is convincing busy, rich people to trust you.

If you're not outgoing, gregarious and enjoy "wining and dining", I wouldn't suggest this as a career track.

I met a lot of wealth managers in business school, who basically told me that they can't really beat the market, but what they could do was offer their clients cool IPO investing opportunities and interesting private equity deals. And that their rich clients were actually seduced by "exclusive" investments as opposed to actually maximizing their absolute returns.

What I gathered was that most of these rich guys could make the most money by dumping their large tax balances into Vanguard total market index and ignoring all market noise for twenty years. But that strategy is deceptively simple, and doesn't "seem" like the best way to invest. They actually enjoy investing in riskier and sexier products. They like having an active hand on their investments. And of course, once in awhile they or one of their friends invests early in a unicorn and it confirms their active bias.

Nov 1, 2021 - 3:29pm
thebrofessor, what's your opinion? Comment below:

OP, this poster makes some good points, but I will just say that the types of clients he is alluding to I have an allergic reaction to, so don't think you have to be that guy to make it in PWM. that doesn't mean he's right and I'm wrong or vice versa. the point is this: there's plenty of people with money that don't want to look after it themselves, and if you can be a people person when you need to be you can make it. I'm like 50/50 introvert/extrovert, I don't wine and dine clients unless they're out of state and it's the one time a year we see them, I do lunches, breakfasts, coffees, house calls, and we have an annual event. my clients are like me, they enjoy seeing us, but given the option of putting on a sportcoat to go to an overpriced steakhouse versus having time with their spouse, they, like me, choose the latter.

TLDR: plenty of opportunity out there from the wheelin & dealin IPO slinger to the bookworm wouldve-been-an-engineer-in-another-life types and everywhere in between. what's non negotiable is you have to be a self starter, be unafraid of asking for what you want (cold calling/sales/whatever), and be OK with volatility in your life

Nov 2, 2021 - 12:50am
curiousgeorge79, what's your opinion? Comment below:

You'd be surprised. There's a ton of boomers who have been growing a portfolio for decades with a terrible / no advisor. You can pick up clients in downturns as you are the rational voice in the conversation.

Apr 29, 2022 - 6:54pm
[email protected], what's your opinion? Comment below:

Work in PWM in Canada, but will be leaving shortly. Here is my two cents….

1. PWM is tremendously competitive, like anything else, and most business is concentrated at the top. In Canada you can pretty much join a "Wealth Management" group as long as you have a pulse. The barriers to entry are so ridiculously low. With that, comes many advisors who fail. However, the advisors who can survive the first 5-10 years make an absolute boat load of money. The earning potential is quite literally exponential when you're being paid a % on assets that are compounding over decades. It is seen as a destination career as once you build a business that pays you fees every year, plus market returns, PLUS selling your book, you are set. It is much different than other areas of finance because there are not clear "promotions" or exit opps. I'm a Portfolio Manager today and I will be one for my entire time in PWM. There are token title changes when you hit benchmarks, but your day to day job stays the same.
 

2. PWM is not asset management. There is a 0% chance that you are going to build a business pitching your unique trading strategy or your favourite stock. You simply don't have the time, resources, or expertise. Plus, those days have mostly passed. Stock brokers are a dying breed. If your interested in managing a portfolio, go to asset management directly and save time.

3. PWM is sales. Do not try to convince yourself otherwise. You are selling a service. The biggest wealth managers are not the best investors, financial planners, accountants, estate planners, etc. The use of third party sub advisors is increasing because advisors are no longer positioning themselves as a stock picker (this is probably a good thing). Even if they do run their own portfolio, it is often based on firm provided models that can spoon feed research to the advisor. You get paid to bring in assets and bring a team of experts to the table. I would say the best PWM are now looking like a mini family office structure.

4. PWM is not going anywhere, but it is sure going to look a lot different in 10 years. There are so many advisors retiring in the next decade. Many of those advisors built their business in a time where people called their broker to buy a stock. Now clients have just as much research as we do, so reading it back to them and charging a commission per trade is of no value. The next generation of advisory will be focused on holistic planning. 

4. 

Aug 17, 2022 - 5:16pm
Maple_Banker, what's your opinion? Comment below:

Mind if I ask why you're leaving?  Coming from a junior working on a PWM team in Canada.

Sep 16, 2022 - 3:53am
Matsby, what's your opinion? Comment below:

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