The Pros and Cons of Wealth Management

Wealth management is one of the most highly sought after roles in all of finance, but like anything else in life there are significant pros and cons.

In this article we'll be covering what are, in my view, the pros and cons of wealth management. I should be clear from the start that these are just my views based on my own set of experiences.

However, I think it's safe to say that the vast majority of wealth managers would agree these are the predominant pros and cons. I also feel confident stating that the vast majority of wealth managers would believe that the pros far outweigh the cons. 

With that being said, getting into wealth management is a commitment. You should view it as being what you're going to do for years into the future. Because of this, you should think seriously about the cons and whether or not they outweigh the pros for you personally. No one can make that determination other than yourself. 

The Pros of Wealth Management 

While there are many different positive attributes to wealth management, I think you can really boil it down to there being four primary ones. Of course, it goes without saying that some of these pros may not be viewed as being positive by everyone due to differences in personality traits, etc.

Lifestyle Flexibility

A common theme for those making significant amounts in finance is missing out on important life events. This can include not being able to make it to your child's baseball game, missing your friend's wedding due to last minute work, or generally not being able to see your friends and family during the weekday due to late nights in the office.

Wealth management, relative to nearly every other job in finance, has no set agenda you must follow every day. If you want to block out 3-4PM to go to your child's baseball game, that's up to you to decide!

Like in any line of work, in order to be successful you need to work hard. However, in wealth management the hours in which you work are largely up to your own discretion as you get more senior. 

The one caveat I would make is that if you're a junior person in a private wealth management role - at a place like Goldman Sachs or Morgan Stanley - then you should expect to be in the office for ~60 hours a week or so (perhaps more during particularly busy time crunches). 

Compensation Considerations

There's no getting around the fact that when you're just starting off in wealth management, the money isn't anything to write home about.

However, as you get more senior, building your own book of clients, the money quickly turns around. In fact, on a lifestyle-adjusted basis it's hard to imagine any better job than wealth management.

As we will discuss in the con section, with compensation is undoubtably a pro of wealth management, getting to the point of having serious compensation isn't a walk in the park. In fact, most people fail to get there.

The Rewarding Nature of the Work

One thing few candidates bring up in wealth management interviews is just how rewarding the actual work is. This often surprises me, because to my mind one of the reasons to get into wealth management is just how rewarding it is.

Think about it this way: your clients are not being dealt with on a one-off basis. You are dealing with them, helping them reach their goals, through potentially decades of time. You are seeing them and their families grow, go through good times and bad times, and along the way helping to navigate the ship.

To have such long relationships is incredibly rewarding. It's most certainly not an aspect of wealth management to overlook.

The Social Nature of the Work

This won't be a pro for everyone, of course. However, if you're at all interested in wealth management chances are you are a more social person.

That doesn't mean that you're extroverted necessarily. It just means you like talking to people about markets, about their goals, and about their lives. 

I always define wealth management as requiring you to be extroverted in a narrow sense, not necessarily in a broad sense. Successful wealth managers come in all kinds of variations and you absolutely don't have to be the life of the party in order to get ahead.

However, you should enjoy socializing. Getting together with clients while talking about markets and their goals (perhaps over a coffee or a meal).

The Cons of Wealth Management

While these pros are all fantastic (as hopefully you agree) there are very real downsides to being in wealth management as well. 

One thing I go over in the wealth management guide is the importance of being cognizant of these and not being afraid to bring them up in an interview context.

It shows maturity and sobriety to be actively pursuing a career path that you acknowledge is not necessarily without flaws.

High Failure Rate

Depending on the type of firm you join, the failure rate within the first five years can be anywhere between 50-90%. 

For private wealth management firms, less people tend to leave within the first five year period. For independent wealth management shops - that prioritize building a book or getting out of the firm - the rate is toward the higher end of the scale. 

I often say that one of the most important attributes of any wealth manager is being an eternal optimist. You are going to face setbacks, hardships, and disappointment. You need to be able to look at those in the most positive light possible (which isn't always an easy thing to do!) and move forward.

A lot of succeeding within wealth management is just being willing to keep at it, keep talking to people, keep pursuing leads, and get through the first three to five years. It's difficult for everyone in this period and you won't be any exception to the rule.

Dealing with Bad Clients

In the pro section we covered the fact that dealing with clients over decades can be an incredibly rewarding experience. The flip side to that is occasionally you may have "bad clients".

These clients aren't necessarily bad people, of course. However, they could overreact to any downturn in the markets, ignore advice given, consistently change what their objectives are, and blame you for anything they receive to be negative about how their wealth is being handled. 

As you get more senior in the position the evaluation of potential clients will be something you think about a lot. It's important to bring on people who have the right blend of attributes and personality for you. 

Volatile Markets

It never feels good to be rejected. It never feels good to suffer hardship. It never feels good to look at markets that aren't going the way you would have hoped.

Many people get into wealth management thinking that volatile markets will have less of a psychological effect on them than if they were a hedge fund analyst or trading at an investment bank.

The reality is that even if you aren't actively managing a portfolio - picking certain securities and making directional bets on behalf of your clients - you still are "in the market" and thus are going to feel terrible when your clients portfolio values are declining in value.

Like I mentioned before, one of the best attributes a wealth manager can have is to be an eternal optimist. You should be someone who looks at bad markets and just says to themselves, "How can we make the best of this? Where is there opportunity here? How can I explain this to my clients through a positive lens?"

This is easier said than done, of course. Volatile markets are hard to deal with for everyone and if you find yourself to be particularly skittish or risk-avoidant than you may find the role of a wealth manager to be a difficult one.

Conclusion

The reality is that no one can make the determination for you as to whether the pros of wealth management outweigh the cons. It all comes down to your personality and disposition.

Many smart, talented, well-educated people get into wealth management, but find the first few years so unbearable that they leave despite the fact that they almost certainly would have found success if they just stuck it out.

Likewise, many smart, talented, well-educated people find dealing with clients who are in a bad mood to just be torturous. 

You should think deeply about the pros and cons listed here and how they may apply to you. Try rating these on a scale of 1-10 and then comparing how high the number is for the pros and how high the number is for the cons.

For example, if you feel volatile markets don't affect you much, then put a one or two there. If you think you would find dealing with clients to be very rewarding, put an eight or nine there. 

If the sum of the positive attributes of wealth management significantly outweigh the cons, then you're in luck! If they don't then perhaps you should think seriously about whether such a career path is right for you.

Be sure to let me know if you have any questions!