Integrated Wealth Management Advice for Affluent Canadian Families: Part 4 – The 5 Costs of One-Stop-Shop Wealth Advice

By Mark Barnicutt on October 12th, 2016

This article will delve into this subject to explore the top five potential costs of the convenient, integrated “one-stop-shop” approach.

I believe that it’s materially more challenging for these One-Firm-Knows-All, integrated wealth advice propositions to be truly effective in all areas of professional expertise for high net worth families, given their more complex needs in a global market place of increasing knowledge, and rising professional specialization.

Having said this, I also know there are many high net worth family clients across Canada with long-established advisory relationships with large financial organizations – so, if it works for them, then it works. I believe, though, it’s important for all affluent families to recognize the five potential advice costs associated with the convenience of this ‘One-Stop Shopping’ approach to wealth management:

Potential Advice Cost #1 – Competency

As discussed in part 3, my ‘Law of Professional Diworsification’ dictates that the higher the family net worth, the greater the probability that a One-Firm-Knows-All approach to integrated wealth advice will face greater challenges in giving advice for some wealth practice areas. 

For instance, I don’t call my lawyer to fix my personal taxation problems… I call my accountant, so why should affluent families call their large wealth management organization to fix their tax problems?

Potential Advice Cost #2 – ‘Free’ Isn’t Free

I’ve noticed in recent years that several large wealth management organizations have hired their own accountants and lawyers for tax and estate planning services, which are being positioned as ‘free’, as long as family clients invest their assets through the large wealth management organization.

The problem I have with this positioning is that, in my experience, there’s simply a cost to quality professional advice. In other words: “Ya get what ya pay for!”

It’s typically taken many years for affluent families to accumulate their wealth, and they most often don’t have the time or the desire to create their wealth twice. So, the question for affluent families to ask themselves is:

“Do we really want to have ‘free’ professionals advising on our hard-earned wealth?”

Everything has a cost.

Potential Advice Cost #3 – Transparency

Obviously, the cost to the large wealth management organization of providing advice to affluent families has to be covered somehow; when tax and estate planning services are positioned as ‘free’, the costs of delivering this advice just get covered through the costs associated with other products and services, such as investments and insurance. This arrangement isn’t always simple, and it can be difficult for families to determine what they’re really paying for what!

I believe that affluent families are best served when they view their family wealth as a business in which all expenses are fully and transparently disclosed against the discrete services received. Who runs a business without knowing exactly what they’re getting for what they’re paying? Why should family wealth be any different?

Potential Advice Cost #4 – Objectivity

Large wealth management organizations are comprised of multiple legal entity businesses that offer investment management, full-service brokerage, insurance, banking, custody, and trust products and services. When designing an integrated wealth plan for an affluent family, these diverse product and service offerings have the potential to create many conflicts of interest.

So, the question for affluent families to ask themselves with these One-Stop-Shopping propositions is:

“Is this product or service being offered because it’s the best solution for us, and in our best interest or is there a potential conflict of interest going on?”

Potential Advice Cost #5 – Freedom

I believe that large wealth management organizations, by providing integrated advice services, are looking to ‘put a fence’ around family clients. This makes sense from a business perspective, but is it in the family client’s best interest? How can an affluent family tell if they’re truly receiving the best advice available, if there’s a ‘fence’ around them?

Therefore, a potential cost to the One-Firm-Knows-All advice proposition is that affluent families can inadvertently give up their freedom to access expert advice for the cost of perceived convenience. In other words, it’s a trade-off between control and collaboration.

In all One-Firm-Knows-All, there’s always an element of control being exercised:

Control: ‘Don’t worry about that… we’ll take care of that for you.’

In contrast, when affluent families have an open dialogue amongst independent, specialized professionals, it’s about collaboration:

Collaboration: ‘Your accountant, lawyer, and I believe that this is best course of action for you and your family.’

Avoiding These Costs

I believe that affluent families need a different approach to integrated wealth management than most large financial organizations can provide.

In my fifth and final article in this series, I will discuss that different approach for high net worth families.