The wealth management industry is experiencing a renewed focus on growth, with many firms seeking to improve the sales effectiveness of their relationship managers. Significant disparities exist in revenue generation between individual managers, highlighting an opportunity for improvement. Studies show that top performers bring in ten times more revenue than those in the bottom tier.

Understanding the Revenue Equation

To optimize sales effectiveness, firms must first understand the factors driving revenue for each relationship manager or team. Here’s a breakdown:

  • Number of Clients: The size of a manager’s client base directly impacts revenue generation.
  • AUM per Client: The average amount of Assets Under Management (AUM) per client influences overall revenue.
  • Gross Margin: The profitability of services offered to clients plays a role in total revenue.

Optimizing Time Allocation

While addressing all areas simultaneously might not be ideal, a key strategy involves focusing on the time relationship managers spend with clients. Here’s a three-step approach:

  1. Increase Overall Client Time: Studies reveal that relationship managers often dedicate only 50-60% of their time to client-facing activities. The remaining time is spent on internal tasks and non-client related activities. Increasing this percentage is crucial for growth.
  2. Effective Time Allocation: Many firms struggle with undifferentiated service, where a significant portion of resources gets tied up with clients on the extremes of the value spectrum. Low-value clients might receive excessive attention, while high-value clients are neglected. Optimizing time allocation based on client needs, attractiveness, and potential is essential.
  3. Maximize Time Spent with Each Client: Relationship managers need to develop a deeper understanding of client goals and aspirations. Effective communication and collaboration with product specialists during the planning and execution phases are crucial for maximizing the value of client interactions.

Measuring and Rewarding Performance

Sales effectiveness hinges on setting appropriate targets, providing incentives, and conducting performance reviews. While building long-term relationships and attracting new business remain important, various metrics are used to assess relationship manager performance.

  • New Asset Growth: The industry prioritizes achieving growth, reflected in a focus on new asset generation.
  • Revenue Targets: Meeting revenue goals is a key performance indicator.
  • Number of New Clients: Expanding the client base is a vital growth driver.
  • Profitability Targets: Advanced firms increasingly emphasize profit per client as a key metric.

Client Satisfaction Matters

Interestingly, studies have shown that few firms assess relationship managers based on client satisfaction, despite the correlation between unhappy clients and asset/revenue attrition. A more holistic approach to performance evaluation that incorporates client satisfaction is crucial for long-term success.

Investment Performance Measurement

Transparency in investment performance is a major concern for wealth management clients. Traditional market capitalization-based techniques present challenges due to confidentiality constraints. The Wealth Management Index (WMI) is an effort to address this need by providing a multi-asset class benchmarking tool that allows clients to measure the absolute and relative performance of their investments and the wealth manager itself.

By implementing these strategies and focusing on relationship building, effective time management, and performance measurement, wealth management firms can empower their relationship managers to achieve greater sales effectiveness and drive sustainable growth.