The Changing Role of the Relationship Manager

The relationship between wealth managers and their clients is not what it used to be. Public opinion of the financial sector, as a whole, has become sharply critical—people are outraged by the inability of the industry. Clients have become far less trusting and increasingly likely to jump to another wealth manager. But the relationship between RMs and their clients has actually changed well before the onset of crisis.

Rise of the Product-Push Model before a Crisis
At many wealth-management institutions, particularly the larger ones, the continuity of client relationships has— over time—been disrupted by organizational changes and the shuffling of client portfolios among RMs. In some cases, the goal was to bind the client more to the institution than to an individual advisor. In other cases, however, the institution itself simply could not maintain a consistent service model.
At the same time, investors became more interested in diversifying their wealth across institutions. And as information about financial products became more accessible, some investors became self-directed. They tended to be less interested in holistic planning and more interested in specific types of support or investment recommendations.
The role of the RM has also changed. Since the beginning of the decade, the RM has become less of a confidant and more of a salesperson. This shift was most apparent in the brokerage model, where RMs began providing targeted product recommendations rather than trying to understand a client’s overall needs and priorities. The move to a product-push model was particularly pronounced in institutions with centralized asset-management departments that not only designed the products but decided which ones an RM should sell.
The product-push model diverged from a focus on client relationships in three fundamental ways. First, investment strategies were not necessarily tailored to the client’s holistic needs. Second, RMs did not always fully understand the products they were selling, particularly as investments grew more complex. Third, relationships became far more superficial and far less personal. In times of growth, in particular, social events and a sense of exclusivity took on more importance than a deep understanding of a client’s situation.

Continuity, Competence, and Commitment
In spite of slowdowns, clients look for trusted advisors—knowledgeable RMs who understand client priorities, are committed to the success of an investment strategy, and are able to explain their recommendations in clear, unambiguous terms. And in another break from the recent past, most clients are now eager for continuity and insist on seeing evidence of their wealth manager’s competence and commitment. RMs must prove that they are focused on the client’s interests rather than the institution’s.
To this end, RMs will have to provide more comprehensive advice. A client might ask an RM how to structure his or her finances or might consult with the RM on general financial matters. Other clients might be looking for a more substantial basis for generating wealth—something less one-dimensional than a simple focus on seizing market gains. And with clients having grown more sophisticated about investments and more wary of uninformed advice, RMs will have to be capable and knowledgeable—a lack of know-how will not pass unnoticed, nor will it be tolerated. Communication skills will be critical for rebuilding trust, not only at a specific wealth-management institution but also in the industry as a whole. Being close to the customer will be essential. To provide clients with advice on the full range of wealth management issues, RMs will require access to a large network of specialists such as portfolio managers, technical analysts, and external experts. Increasingly, clients want to meet with such experts to learn more about their portfolios as well as any potential opportunities. It is critical that a wealth manager’s asset-management experts work closely with the front-office staff, regardless of whether the institution pairs experts from a central asset management department with frontline staff or develops decentralized asset-management capabilities.
RMs will need to adhere to a tightly defined investment framework that includes an approved list of investments in equities, bonds, and currencies. Gone are the days when advisors independently decided on the allocation and composition of “their” clients’ portfolios. Responsibility for managing portfolios will shift from the RM to the institution because the latter is ultimately liable for the products and investments being recommended. Compensation will play an important role in building the credibility of the advisor. Short-term incentives will give way to long-term performance goals, which will ensure that RMs focus on the client’s overall wealth-management objectives. Over time, a relationship built on trust will lead to stronger and more sustainable revenue growth compared with that of a product-push model.
Finally, wealth managers must have the right RMs (and specialists) to support a model geared to providing holistic advice. Advisors will require both excellent people skills and deep technical knowledge. It is not good enough for RMs to understand the products—they need to be able to explain them to their clients. This combination of skills is not always easy to find. Wealth managers should take advantage of this period of low growth to recruit new talent—people who fit the mold of a traditional advisor.
They should also develop and enforce principles for managing RM performance in a way that emphasizes the primacy of advice and the quality of relationships.

Reference: BCG Reports