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Wealth managers diversify down market

UBS Americas teams up with robo-adviser; small business owners the new target market.

Diversify or die is the current mantra among US banks, who are moving into wealth management to try to diversify revenue streams. Wealth managers, meanwhile, are looking further down the wealth spectrum as they seek out new markets to expand into.

Goldman Sachs is a prominent example. Thanks to its acquisition of GE Finance, Goldman – whose clients typically have at least $10 million – has launched a high-yield online savings account for those with only $1 via GS Bank. It is also reported to be launching a retirement account and an online lender. 

Mike Carter-160x186

Mike Carter, BizEquity

“It used to be the goal of wealth managers and advisers to work with the biggest clients but nowadays it is more lucrative to handle a broader affluent client base of business owners and entrepreneurs,” say Mike Carter, founder and chief executive of BizEquity, which provides the tools for wealth managers to value small businesses.

If wealth managers want to grow their business, they can no longer focus only on the ultra-high net-worth sector. Yet they face greater competition than ever. 

On the one hand there is increased competition from robo-advisers and platforms that are lower cost and quicker to serve. At the same time, a Department of Labor ruling which comes into effect next April, will require that advisers must present the lowest-priced product to clients first. 

The box

The unintended consequence of the ruling is further diversification of the wealth management firms. 

“They’re having to think outside of the box to justify their fee schedule to clients,” says Carter.

One response from established wealth managers has been to introduce their own robo-advisory platforms capturing the super-affluent and tackling the disrupters head on. UBS Americas wealth unit is going into partnership with online financial adviser SigFig Wealth Management to develop technology and investment tools for the Swiss bank. UBS also bought a stake in SigFig. Some wealth managers like Morgan Stanley and Bank of America are looking to build in-house robo-advisers.

Another strategy has been to move into new territory by offering full-service products and services to small business owners and entrepreneurs – life insurance, accountancy, and small business advice. There are some 20 million small businesses in the US, with roughly a third of those producing revenues of more than $1 million. That’s a large and untapped client pool for many wealth managers.

Big data

Carter’s firm BizEquity has been a beneficiary of this move. It launched in 2011, using big data to value small businesses. 

“Unlike real estate where you can understand what your assets are worth, it is very challenging for small businesses to do the same. It can take some four to six weeks to come up with a valuation, so we created a platform that uses data to value a business immediately,” says Carter. 

Wealth managers and advisers have recognized the value of the data BizEquity provides. Some 200 firms and 1,000 advisers have signed up to BizEquity to white-label their products. 

Carter says: “It means wealth managers can better understand small businesses and help their clients understand their true net worth. Very often small business owners are treated by banks like consumers. Lending or planning is based on their current income and credit score. But by offering small businesses the chance to understand their wealth holistically, then wealth managers can not only better serve their client, but they can differentiate themselves from the traditional competition.”

On my radio

Wealth Strategy Partners is the third-largest wealth planning firm in Hawaii also with offices on the West coast of the US. It is an example of where expanding into ‘out of the box’ areas is paying off for wealth managers. In 2011, Marko Mijuskovic, senior partner at Wealth Strategy Partners, began a radio show focusing on business owners – not as they relate to banking, but rather about the challenges of being an entrepreneur or how to grow the business or plan for an exit.

“Business owners would listen to the show and sometimes decide to see what we do as a wealth management firm,” says Mijuskovic. Many of the clients inquired about retirement planning and exit planning which led Mijuskovic to become the first certified exit planner in the state and for others in his team to follow suit. Since then Wealth Strategy Partners has added a CPA, an attorney and uses BizEquity to help clients value their companies. Wealth Strategy Partners also teams up with life insurance company Guardian to offer clients access to life insurance products. 

“Now we can approach business owners with an entire services package,” says Mijuskovic, who adds that as more and more services become automated wealth managers will have to continue diversifying. “Often wealth managers tend to focus on comprehensive financial planning rather than looking at the assets a client has and what can be wrapped around that. But wealth managers have to offer far more than just financial products. They will become like a personal chief financial officer to all their clients – not just the very wealthy.”