Journal of Financial Planning: March 2014
Across industries, the natural product development evolution is from single-purpose products to bundled/packaged products. Bundling is taking hold within the financial and wealth management industry in the form of multidisciplinary teams (MDT). Here, the client gains the benefit of comprehensive planning and execution attended to by a coordinated team of financial advisers, trust and estate attorneys, CPAs, and insurance specialists.
In the MDT model, the client’s circumstances, needs, anxieties, and aspirations remain the center of attention, but built around this are two portfolios. The first is a portfolio of solution tools, and the second is a portfolio of specialists.
Similar to a diversified investment portfolio, the portfolios of specialists and solution tools achieve more together than if offered independently.
In an MDT model, each tool is executed knowing the elements of the other tools; they are not implemented independently as is done with a silo approach (for example, as a result of arm’s-length professional referrals without specific coordination). Two MDT approaches exist: large, branded advisory firms with specialty resources on staff, and small- to mid-sized firms operating in a collaborative, team-based arrangement. This article concentrates on the MDT collaborative model while also considering today’s market realities.
Hiring Criteria: What the Market Wants
Every market has defining moments usually brought on by disruptive technologies or external shocks. For the financial and wealth management industry, the Great Recession’s trauma shifted trustworthiness from an afterthought to a core hiring criterion.
The 2013 CFA Institute and Edelman Investor Trust Study identified that financial services firms were the least trusted of eight listed industries, even among clients of these firms. In the study, participants were asked “to indicate which attribute is most important when making a decision to hire an investment manager” and the results illustrate the dominance related to trustworthiness. Indeed, 75 percent of the factors (the first four listed) are linked to trustworthiness.
- Trusted to act in my best interest: 35 percent
- Commitment to ethical conduct: 17 percent
- Recommended by someone I trust: 15 percent
- Compliance with industry best practices: 8 percent
- Ability to achieve high returns: 17 percent
- Amount/structure of fees: 7 percent
These results were corroborated by the 2013 Spectrem Group study, Defining Wealth Management, which found that 97 percent of men and 98 percent of women put “honest and trustworthy” as the top criterion in hiring advisers. Grouping the total results from both studies concludes that while expertise/reputation and care/concern are important hiring criteria, the prerequisite criterion is trustworthiness.
Trustworthiness Due Diligence: The MDT Collaborative Advantage
The due diligence needed to ferret out these hiring criteria from one practitioner to another represents a major challenge. Certainly some people have the time, interest, and process necessary to undertake a truly diligent review, but this is more the exception than the rule.
The Oechsli Institute conducted a 2013 study and determined that the dominating method an individual used to hire financial and wealth management professionals was through introductions from professionals, family, friends, and colleagues.
The 56 percent of individuals using this due-diligence-by-proxy model acknowledged it is more relevant to gain another person’s on-the-ground experience, especially when assessing something as subjective as trustworthiness, than it is listening to sales presentations or reading marketing brochures. Finding trustworthiness in a relationship is a function not of words but of actions.
Here’s a second and equally important due-diligence proxy for trustworthiness: one practitioner’s decision to affiliate with another in an MDT. Here, an MDT of small- to mid-sized practitioners has a structural advantage over the large firm, internal-staffing approach.
A collaborative MDT connects like-minded independent businesses. Similar to the investment diversification principle in which a portfolio of securities minimizes exposure to non-systematic (security-level) risk, a collaborative MDT diversifies the client’s risk of a single firm’s ethical or operational failure collapsing the entire solution and relationship. Alternatively, a staff of specialists works under a single firm’s common ethical, compliance, and operational umbrella; there is no firm-level diversification.
Sound risk management demands ongoing, diligent monitoring. Again, the collaborative MDT’s profile sits in a preferred position to the internally staffed MDT approach. Each small- to mid-sized practitioner choosing to affiliate in a collaborative team risks his or her own business interests if one team member operates unethically. The collective oversight of team member to team member not only monitors actions and behaviors the client sees, but also those that are unseen.
Furthermore, if one team member fails to deliver sound practices required to build and maintain trust, then it is in the other team members’ own self-interest to act decisively. Trustworthiness among MDT members is itself a precondition; the MDT’s and clients’ need for trustworthiness are fully aligned.
Client Demand: Comprehensive Planning
Spectrem’s study confirmed that demand for comprehensive financial planning reached 84 percent in 2013. The table lists comprehensive planning services currently and to be offered (in 2014) by advisers as identified in FPA’s 2013 Research and Practice Institute study, The Future of Practice Management.
In truth, clients hire practitioners not just to plan but also to execute. The rightmost column set in the table identifies the four key wealth management specialties and the role each plays in a comprehensive plan’s execution. As can be seen, each specialty has both primary and secondary roles depending on the planning service.
Putting MDT into Action
Each of the four specialties listed in the table has a required legal and/or regulatory mandate to bring the comprehensive plan to fruition. For example, the adviser may develop a charitable giving plan, but the trust and estate attorney is licensed to practice the law required to write the trust documents. Generally, implementing any comprehensive plan holds to these specialist-execution roles:
- Adviser: evaluate, select, trade, and monitor investments
- Attorney: practice trust, estate, and business law
- CPA: produce tax strategies and related documents
- Insurance agent: analyze, illustrate, and sell insurance products
Unlike the silo-based professional referral model that has specialists working in an arm’s-length relationship, an MDT reaches a much higher operating level as a committed structure. A prosperous MDT possesses these elements:
Organization. Before a team can form, an understanding needs to be developed among the specialists regarding the packaging of fees, payment of fees for direct services rendered (given attorneys’ limitations in fee sharing arrangements), handling client communication, performance standards, and specialist-to-specialist expectations. Although a legal business structure isn’t necessary, a formal memorandum of understanding and expectations should be executed and signed by each member of the team.
Commitment. Unlike a referral model, each specialist in an MDT is committed to the team’s performance.
A leader. In an MDT, the adviser usually takes the planning lead (the previously mentioned Oechsli Institute study found that a financial adviser was the primary professional 84 percent of the time).
A playbook. There is an agreed-upon method in how the team will interact with the client. The best MDTs work together on all aspects of the client’s need, anxiety, and aspiration inventory from the analysis to the planning to the proposal to the presentation and, when hired, on the monitoring and reporting.
Defined roles. The client-relationship lead is supported by each specialist’s expertise and insights in developing and implementing the best solution possible.
Planning. Unlike the loose confederation of silo-based solutions, the MDT meets regularly and plans vital activities including how to present the MDT to the local market, how to conduct the analysis, planning, and presentation for specific client opportunities, and how to support the client after the plan has been executed.
Practice. The MDT shares its methods and insights with each member and prepares for its client meetings to deliver a refined, tightly coordinated presentation.
Tactical Realities
- MDTs do not override a specialist’s other business initiatives. In fact, it is expected that MDTs operate as a “wholesale” distribution method in parallel with the specialist’s own “retail” or direct-to-client initiatives.
- MDTs are not exclusive; each specialist may participate on different teams focused on business owners, ultra high net worth families, or blended families, for example.
- Only after an MDT solidifies itself in a local market should deeper operational integration occur such as common website content, proposal material, and periodic reporting.
A Sustainable Foundation
The marketplace for planning and execution services continues to evolve, but it is doing so with increased bundling, even with ultra high net worth families. Multidisciplinary teams now serve as a foundation upon which further product and service development will arise. The small- to mid-sized firm seizing the MDT as a strategic driver will find an accelerated growth profile and sustained competitive strength.
Kirk Loury is general manager of the Advisors Forum (www.advisorsforum.com) and president of Wealth Planning Consulting (www.wealthplanningconsulting.com).
Kevin Forbush is an attorney and CPA who focuses his practice on estate planning, tax planning, asset protection, and business planning.
Case Study: A Legal Practitioner’s Results
Forbush Legal, a three attorney, full-service estate planning law firm founded in 1996, began working in collaborative, multidisciplinary teams in 2006. Its core marketing area is Colorado Springs, Colorado, a mid-sized city with a population of about 430,000.
In many ways, a mid-size city represents the best proving ground for MDT. A sufficient supply of clients needing comprehensive planning and execution services exists, leading to an array of practitioners seeking to satisfy the demand. However, the city is small enough that people get to know one another, client to client and practitioner to practitioner.
As a small firm with high growth expectations, selling efforts sought to connect with financial advisers, CPAs, and insurance professionals on an informal basis, typically meeting over lunch or in small study groups. The best outcome of these meetings was a much deeper understanding of each specialist’s worries. Two consistent themes emerged: the challenge each had filling the sales funnel, and a frustration that plans were not implemented effectively.
This learning called for a more structured approach, and Forbush Legal shifted from just a face-time marketing program to forming truly collaborative relationship teams. Knowing that financial advisers normally operated in the lead, the firm embraced the support role as the legal specialist.
The first step was to categorize peer practitioners based on collaborative interest. The primary method used was in-office meetings that had a specialty topic presentation, usually offered with continuing education credits. These meetings allowed detailed technical discussions that revealed who among the attendees had the requisite expertise, market presence, and collaborative motivation to be strong team contributors.
Those practitioners fitting the collaborative profile were targeted with an invitation to formulate a team using the MDT elements listed in the main article. Forbush Legal rose to be a primary education resource for each specialty and this evolved into hosting periodic multidisciplinary collaborative forums.
Forbush Legal gains the majority of its revenues working with collaborative teams. And, rarely is business lost to a large, branded firm because the ability to serve even the most complex client situations is at the highest level.