Wealth Management Offers Significant Benefits, But Challenges Remain; Depth and Breadth of Client Relationship Differentiate Wealth Management

BOSTON, March 23, 2005 - As Baby Boomers age and assets in the hands of retirees increase to more than $19 trillion by 2012,¹ a growing number of independent advisors are looking to establish wealth management practices to help affluent clientele manage, preserve and transfer their wealth.

According to a study released today by Fidelity Investments, despite myriad benefits of a wealth management practice model, there also are a number of associated challenges and business considerations that wealth managers face, including managing growth and adding new clients without affecting service levels. Advisors need to carefully analyze the benefits and challenges before deciding whether or not to migrate to a wealth management model.

The Fidelity study, "The Evolution of Wealth Management," provides insight gathered from interviews conducted with more than 400 registered investment advisors about the wealth management business. In particular, it explores what "wealth management" means to established as well as aspiring wealth managers, and the challenges advisors have faced or are facing.

Based on lessons learned from wealth managers, who on average have 14 years of experience in the business, the study identifies the critical success drivers that help distinguish accomplished wealth managers from other types of advisory firms, including:

•		Developing broad and deep relationships with all clients, managing as much of their financial life as possible;
•		Carefully managing business growth to avoid disruption to existing client relationships;
•		Leveraging the resources of strategic partners; and
•		Taking advantage of product and service developments to bring the very best to their clients.

"The term 'wealth management' has been used throughout the financial services industry for most of the past decade but with no universally accepted definition," said Scott Dell'Orfano, executive vice president, Fidelity Registered Investment Advisor Group. "Some in the industry view it as nothing more than a buzzword; however, based on our research, it is clear that the term has real meaning and real value not only to the advisor but, just as importantly, the high-net-worth investor.

"While wealth management is not for everyone, the model provides considerable opportunities for the advisor to differentiate his or her practice from the competition," said Dell'Orfano. "We expect many advisors to continue to gravitate toward wealth management and look to custodians like Fidelity to help them meet the challenges that come with building and maintaining a successful practice."

Wealth Management Defined

According to the Fidelity study, when asked to describe what distinguishes their services from other types of advisors, 73 percent of wealth managers emphasize the depth and/or breadth of their client relationships -- broad in terms of encompassing all areas of a client's financial life and deep with respect to the advisor's intimate knowledge of a client's values and priorities. Financial planners and investment managers are less likely to articulate this. Following depth and breadth of the client relationship, the next most often cited differentiators of wealth management are the range of the products and services provided and the specific goals/objectives of wealthy clients.

Motivations for Adopting Wealth Management Model

When advisors were asked what prompted them to pursue becoming a wealth manager, the most common response was that they recognized that their clients needed more comprehensive financial planning and management.

Along with client demand for holistic solutions is the advisor's interest in providing a more comprehensive set of services. By doing so, the wealth manager can broaden and deepen client relationships and potentially attract new clients who may be more profitable to the firm. As a result, deeper client relationships may lead to greater probability of success for both advisor and client.

Interestingly, only 13 percent of wealth managers report pursuing the wealth management model for the prospect of higher income or compensation, indicating that it's not about the money but rather about doing what is right for the client.

According to the Fidelity study, the 41 percent of financial planners and 37 percent of investment managers who have considered, or are considering migrating to a wealth management model expressed similar motivating factors including: client demand for a more comprehensive set of advisory services; interest in working with a broader range of sophisticated products; and the opportunity to expand and strengthen relationships with existing clients.

"Whether wealth managers differentiate their practices on the basis of the breadth and depth of their client relationships or on the services they offer, one thing is clear: advisors who have or will adopt a wealth management model confront challenges that other advisors may not," said Dell'Orfano. "To distinguish themselves, wealth managers will have to successfully address a variety of issues including how to integrate their clients' team of financial professionals into the decision-making process and how to anticipate and be prepared to provide advice around complex and emotional life events such as divorce, health care and elderly care."

Challenges to Wealth Management

Despite the potential benefits, wealth management may not be for everyone as wealth managers cite challenges both in transitioning to this model as well as maintaining a successful wealth management practice. According to the Fidelity study, the top three challenges facing wealth managers include:

•		Managing growth and adding new clients without affecting service levels;
•		Increasing profitability; and
•		Finding new clients to grow the business.

Among all types of advisors, relatively few advisors are seeking aggressive business growth. Instead, at least two-thirds of advisors say they prefer slow, steady growth that allows them to add clients and new services carefully, while still managing their current client relationships.

Wealth Management Not for Everyone

While wealth management holds significant allure for many, fully 59 percent of financial planners and 63 percent of investment managers say that they have never considered transitioning to wealth management.

Some financial planners also say they prefer to continue working with a broader demographic group of mass-affluent and middle-market clients instead of turning their full attention to high-networth clients. Among investment managers, many are content to remain focused on managing portfolios and do not want the burden of adding staff and infrastructure to offer additional services. In addition, they say they enjoy their current practice model and have no desire to change.

"No matter what practice model an advisor chooses, one thing is clear: their decision is based on doing what is in the best interest of their clients," said Dell'Orfano. "Whether a wealth manager, financial planner, investment manager or some other model, Fidelity is committed to providing them access to the technology, products and support they need to operate their practice efficiently and achieve long-term growth."

Custodians can play an important role in helping wealth managers and aspiring wealth managers be successful. Advisors can leverage not only their networks of product providers but also their expertise, skills and knowledge to help forge broader and deeper client relationships. According to the Fidelity study, the products/services that custodians offer that are valued most by wealth managers include:

•		A complete range of financial products and wealth management solutions;
•		A technology platform that integrates trust and brokerage; and
•		A high-end, proactive client service model.

Study Methodology

The Fidelity-sponsored study, The Evolution of Wealth Management, was conducted in Fall 2004 by Evanston, Illinois-based Richard Day Research, Inc. (RDR). RDR first conducted in-depth qualitative interviews with 12 wealth managers to gain insight into how wealth managers view and distinguish themselves from other financial advisors. RDR then conducted more than 400 interviews nationwide with investment advisors, including 201 wealth managers², 102 financial planners, and 105 investment managers.

About Fidelity Registered Investment Advisor Group

Fidelity is the second largest provider of custody and brokerage services to the registered investment advisor marketplace, with $128 billion in assets on behalf of more than 2,575 advisors as of January 31, 2005. Fidelity provides access to a flexible, open technology environment, extensive practice management resources, and wealth management investments and services--all backed by the long-term commitment of a private company. Dedicated relationship professionals work consultatively to help advisors choose the products and services that are in the best interests of their clients and make the most sense for their business. For more information about Fidelity's services for advisors, please visit http://ria.fidelity.com.

About Fidelity Investments

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.1 trillion, including managed assets of $1.1 trillion as of January 31, 2005. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 19 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.

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Richard Day Research Inc. is an independent company and is not affiliated with Fidelity.

Clearing, custody, or other brokerage services may be provided by National Financial Services LLC or Fidelity Brokerage Services LLC. Members NYSE, SIPC.

¹ The Cerulli Edge, August 2004, Cerulli Associates.

² Wealth managers include advisors who reported that they provide estate planning and/or trust services, along with comprehensive financial planning, and who report an average client relationship of at least $500,000. Those who reported that they provide wealth manager services but did not meet these criteria were asked if they consider themselves closer to a financial planner or an investment manager, and were categorized accordingly.