Updated: Aug 26, 2022
Today’s wealth managers face a generational challenge. After devoting the countless hours it takes to understand their clients’ goals and priorities and assemble boutique services to meet their needs, how can they continue that relationship with the next generation?
One solution is to help clients’ children find their place in a larger family story, making them feel invested—emotionally and financially—in a legacy they will then be more likely to entrust to a wealth manager who already understands their vision and values.
But to gain a deeper sense of what that client relationship really means and how to sustain it across generations, wealth managers themselves would do well to understand their role in a larger story, one that fundamentally distinguishes them from other financial professionals.
Wealth management can be traced to the English feudal custom of trusteeship, in which a still-living male landowner would transfer title to a trusted friend or relative who could ensure that upon his death, in the absence of an adult male son, property would remain within the family and benefit the surviving widow, daughters, and minor sons.
(In an era when primogeniture was the law of the land, this was particularly important for ensuring that estates were not “entailed away” from the family line in the absence of an adult son—a dilemma famously depicted in Jane Austen’s novels.)
Just as medieval knights swore a ceremonial oath of fealty to those they served, these “trustees” swore a ceremonial oath to hold assets in trust for the friend or relative they had agreed to help. Knights’ oaths and trustee oaths alike were considered sacred, integral to the “web of oaths” that defined feudal society.
Fast forward to the modern era and two major changes fueled the evolution of this trusteeship system: industrialization and professionalization.
Whereas wealth had previously been synonymous with land, the rise of industrial capitalism—joint stock companies, global streams of money and goods—ushered in more complex forms of property. By the 19th century, wealth increasingly took the form of financial assets rather than land, meaning that managing wealth in trust was more complicated than simply holding title to land on a friend’s behalf.
This, in turn, meant that trusteeship became professionalized. The notion of a loyal friend or relative gave way to the more formal concept of the fiduciary, in which a professional wealth manager promises—and is legally bound—to act in the best interest of the person whose assets he or she manages.
The law, meanwhile, evolved to support this transformation. In the United States, an 1830 Massachusetts court case established the “prudent man” rule for wealth managers. It held that such managers should be accorded autonomy in recognition of their professional expertise, but should be bound to manage their clients’ assets as a “prudent man” would. In the United Kingdom, the Trustee Investment Act of 1889 gave wealth managers leeway to invest clients’ money in government bonds or land.
The 20th century found wealth managers joining forces to institutionalize their profession. Trusts & Estates magazine, founded in 1904, helped wealth managers build community and exchange professional knowledge. In 1991, the Society for Trust and Estate Professionals held its inaugural meeting in London. The organization soon went global, just as increasing cross-border capital flows began to make investment management itself an increasingly global endeavor.
Today, wealth management remains distinct from other financial professions in ways that directly relate to this venerable lineage. Whereas others in the financial services industry must answer first to their firm’s shareholders, wealth managers—like the informal trustees of old—are quite literally sworn, via their legal duty of care, to act in their clients’ best interest.
What does all of this mean for today’s wealth managers?
Despite centuries of economic transformation, their relationship with clients is still, in essence, one between trusted peers, bound up with anxieties about the family’s future in the broader legal, social, and economic worlds they inhabit. Wealth managers may no longer swear a ceremonial oath, but like medieval trustees, their relationship with clients must reflect a family friend’s devotion and intimate understanding—combined with the technical and investment savvy that became crucial as the economy, and the wealth management profession, evolved.
And now, as then, trust must be at the core.