You Look Like Half a Million Bucks:
Maybe You Need a Wealth Manager

by Patrick Totty

If you think you have to be a millionaire to catch the attention of sophisticated wealth managers, think again.

While wealth management is a recent buzz phrase, credit unions have been providing elements of it all along--for example, by offering debt consolidation loans or steering members toward lower-cost credit cards.

Now, with about 8% of their members qualifying as high-net-worth individuals (people with at least $250,000 worth of investable assets), credit unions are approaching wealth management more consciously, according to Dan Wroblewski, vice president of wealth management at CUNA Mutual Group in Madison, Wis.

You may be a "mass affluent," one of a growing number of people who aren't quite millionaires but have enough wealth to need expert advice about how to manage it.

Mass affluents are defined as people who, not counting their primary residence, have at least $250,000 in liquid assets they can invest in a wealth-generating vehicle, such as stocks, bonds, and annuities. A liquid asset is anything that quickly can be converted to cash.

"However, depending on the age of the investor when he or she begins an investment plan, wealth can be accumulated starting with significantly less than $250,000," says Carl Sanger, registered investment adviser, Serenity Wealth Management, LLC, Massapequa, N.Y.

The reasons for getting help managing your wealth are simple: The sheer number of investment possibilities, as well as the abundant supply of information about them, is far more than any nonexpert can confidently handle.

You need help from people who have a professional grasp of ways and places to grow portfolios, and who can create plans that take into account your goals, concerns, and beginning level of wealth.

How wealth managers see the world

Many wealth managers split potential clients among three categories:

Ultra wealthy: $15 million+ to invest This level of client wealth managers are literally private financial service providers.

High net worth: $1 million+ to invest. Private financial service providers also cater to this category, although perhaps not to the same degree they assist the ultra wealthy.

Mass affluents: $250,000 to $1 million to invest (not including primary residence). Financial institutions want to serve this growing market, but can't provide private financial services to so large a group (their solution: technology-assisted personalized service).

Why you're a target for wealth managers

With brokerage commissions in decline, financial institutions are looking for places to increase revenues. They're certainly justified in doing so: In 1999, wealth managers earned $150 billion in fees from wealthy clients, charging 1% to 2% of the worth of assets under their management.

That's why the wealth management industry sees a tremendous opportunity in catering to mass affluents. As a result, Price Waterhouse Coopers, New York, predicts the industry will grow between 7% and 10% over the next three years. Another incentive: Financial analyst Fitch Ratings, New York, estimates that the number of people with more than $1 million in investable assets is growing at a rate eight times faster than the U.S. population as a whole.

The lucrative entry of mass affluents into the market has spurred competition among wealth managers. During the stock market's glory days of the late 1990s, they didn't have that hard a job. Now, in an uncertain market, they have to prove their worth.

Adding to their difficulties is the fact that mass affluents aren't all that relaxed around them--the market bust of 2001 created a deep sense of skepticism among smaller investors.

The trend now is toward hybrid services that can cover the gamut of client concerns. Those services range from trusts (both personal and business) and investment advice to financial management, including--you name it--debts and credit, art collections, real estate, jewelry, and planning for long-term care.

As a result, even independent, standalone wealth managers know they have to show that they're plugged into a network of advisers.

How to find a wealth manager

There are plenty of places you can look for wealth managers, including credit unions, banks, and financial and investment planning services. You'll find the latter listed online, in the yellow pages, and in business publications and affluent lifestyle magazines.

Many wealth managers are eager to work with you, but few can provide you the same level of service they provide the ultra wealthy. As much as they want to cater to mass affluents, there are limits to how much service they can provide to so large a group.

This means you'll bear much responsibility for educating yourself, as well as monitoring the advisers you select. In their desire to build revenues by taking on mass affluent clients, wealth managers risk overextending themselves--you may have to help keep them focused on your investment goals.

Fortunately, mass affluents often are happy to do a lot of the work monitoring their wealth. They'll do this on two conditions: 1) That their advisers collaborate with them with lots of personal back and forth, and 2) They are assisted by technology. This means having the ability to track investments and obtain advice online with sophisticated software.

Wealth managers also are learning that mass affluents aren't looking for gurus who will provide such traditional services as picking stocks for them. Instead, they want advisers who are willing to bundle services and even refer them to other experts when necessary.

Ultimately, wealth managers pick their clients, not the other way around. They'll quickly refer would-be clients who don't fit their criteria to more appropriate advisers and channels.

What to ask a would-be wealth manager

The credit union difference

Within the next five years, you'll see larger credit unions affiliate with established providers to offer private-label trust services.

In the meantime, many of them have begun offering wealth management services under the auspices of CUNA Mutual Group, or with other professional providers.

Because credit unions enjoy high credibility with their members, they are trustworthy places for you to begin your quest for wealth management advice and services.

Online help

What you need to do

Set goals: How much will you need to accumulate to support your desired standard of living through your life expectancy (counting in the effects of inflation)? How much worth would you like to have in X years for purposes other than supporting your day-to-day lifestyle? How do you intend to use your accumulated capital other than for day-to-day expenses (vacations, second home, etc.)? Analyze your tolerance for risk and understand its effects on how quickly you grow your wealth. Be willing to educate yourself and work with your wealth manager as a partner. Visit the sites we've listed here to get started. Look for a manager who has access to specialists as part of the range of services you sign up for. It's fine for a wealth manager to challenge your assumptions, but don't sign on with one who persistently disrespects your comfort zone.

March 8, 2004