The role of geography in the growth of wealth management – Financial Planning
The landscape of wealth management in terms of geography is undergoing a significant shift, moving away from a focus solely on major urban areas and spreading out to encompass the entire country, according to insights shared by Jim Cahn, the chair of the Investment Committee and chief strategy officer at Wealth Enhancement. This company, based in Plymouth, Minnesota, and backed by private equity, has amassed over $96 billion in client assets, prompting a reevaluation of its strategy regarding geographic considerations when it comes to acquiring new clients and initiating deals in specific regions.
The traditional idea that wealth management centers primarily around cities with NFL teams is losing its importance. Cahn mentioned that Wealth Enhancement’s initial focus was in Chicago, along with the East Coast, due to the density of population in those regions. However, it has become increasingly clear that wealth management clients exist in all corners of the country, suggesting that no market should be overlooked. The belief that only metropolitan areas like New York, California, and Florida are lucrative has now been challenged, highlighting that opportunities for advisors and clients are widespread.
A webinar hosted by Succession Resource Group revealed that the location of an advisory firm plays a significant role in determining the interest and value attached to it by potential buyers. Transactions carried out by buyers from different states accounted for a larger proportion compared to previous years, with out-of-state buyers willing to pay higher purchase prices, indicating an out-of-state premium. The data also showed that dealing across regions yielded varying results in terms of average price multiples compared to yearly revenue, with the Northeast fetching the highest average price multiples.
When looking at potential acquisitions or clients, utilizing housing data can offer a more focused view. By analyzing the concentration of high-value homes in metropolitan areas, wealth management firms could leverage this data to seek out affluent clients with substantial investable assets. However, Cahn emphasized that the value of an area’s housing stock does not necessarily equate to a client’s investment potential, as other factors like personal preferences and community involvement play a more significant role in wealth management decisions.
Furthermore, an emerging trend in the industry indicates that there is an increasing interest in advisory practices from exurban areas and those with local expertise. For instance, Wealth Enhancement’s network includes teams that specialize in catering to Mandarin speakers in specific regions. This shift towards localized expertise suggests that personal connections and tailored services are becoming more sought after by clients.
In conclusion, the evolving landscape of wealth management is challenging traditional notions and emphasizing the importance of diversifying strategies to cater to a wider range of clients across various geographical locations. As the industry continues to evolve, wealth management firms must adapt and explore new avenues for growth and client acquisition to remain competitive and relevant in the ever-changing financial landscape.
