How does a wealth manager provide value to an investor? Many still feel that the job of the wealth manager is to pick the best investments. Should I buy Bitcoin? What about Apple? If the value of a wealth manager rests in his or her ability to pick stocks, then wealth managers should be trained to identify underpriced securities through techniques such as security valuation and technical analysis.
 
But does picking stocks really add value? A revolution in data analysis within the field of finance led to a greater understanding of market efficiency. There is little evidence that even the most highly skilled investment analysts do a better job of picking investments than a passively-managed index fund. If wealth managers don’t provide value by picking superior investments, then how should they be trained in the future? (For related reading see: Which Certifications Should Advisors Consider?)

Modern Wealth Management

Modern wealth management rests on a foundation of research-based finance theory. Wealth managers build a portfolio of well-diversified investments and consider strategies, such as investment factors, that have been shown to provide a performance edge. But selecting a well-diversified portfolio isn’t enough. Two investors with the same fundamental portfolio can have very different net returns.
 
How? There are hundreds of tax rules that a wealth manager needs to understand that can allow them to maximize the risk-adjusted net return on an investment portfolio. By strategically selecting the appropriate type of taxable or tax-sheltered account for each investment, also known as asset location, wealth managers can provide significant and real value to their clients.
 
In order to determine the most tax-efficient account for an investment, it’s also important to know when that money will be spent, which is centered on the client’s goals. For example, a down payment on a house may be a few years down the road. A college education may be a decade away. It may be 30 years before an investment today gets spent on retirement. Selecting the right account and the right investments means understanding each client’s goals.

A wealth manager who practices goals-based investing sees the portfolio not as a monolithic entity, but rather as a collection of investment portfolios, each with the purpose of funding a future spending goal. If a client has a goal of sending a child to college, they need to determine the best way to invest for college. Maybe it’s best for them to save in a 529 plan? Or maybe a Roth IRA makes the most sense? Perhaps the client needs a combination of accounts, given their current and projected tax situation. And what investments are most appropriate for the college savings goal? That depends in large part on how flexible the client can be if risky assets fail to deliver when the money is needed.
 
To provide the best advice to help a client reach their goals, a wealth manager needs to understand the range of possible accounts that are available for each particular goal. He or she also need to understand how drawing money from these accounts will impact the client’s taxes and even their eligibility for financial aid. This means wealth managers need to understand a range of topics that are crucial to making sound investment recommendations for individual investors that have nothing to do with picking stocks.
 
In building a new curriculum in wealth management education, investment researchers including myself (Michael Finke, dean and chief academic office at the American College), David Blanchett, head of retirement research at Morningstar, Wade Pfau, professor of retirement income at the American College, and others identified the knowledge areas where an advisor can provide the greatest value to their clients. With a focus on evidence-based research, we designed the curriculum around what an advisor needs to know to design an efficient, goals-based investment portfolio.

Wealth Management Certified Professional Designation

In addition to investment management and education planning, the Wealth Management Certified ProfessionalTM (WMCPTM) includes content in behavioral finance, tax planning, charitable planning, estate planning and a number of other wealth management topics. It covers sophisticated asset location strategies, such as when to choose a tax-exempt (Roth) or a tax-deferred account, based on the type of investment and the time horizon of the goal. In addition to technical topics, the curriculum also addresses science-based approaches to communicating with clients in order to improve client outcomes.
 
In addition to a modern wealth management curriculum, the new WMCPTM also takes a modern approach to instructional design. Using continual assessment, students are guided toward the content areas where their performance is the weakest. A series of five simulations allows students to work with hypothetical clients and receive immediate feedback after making recommendations. By working with simulated clients who can have complex problems with ambiguous solutions, students learn wealth management concepts more deeply and can better anticipate real client situations. (For more, see: Financial Certifications With the Best ROI.)

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