From the April 2004 issue of Investment Advisor • Subscribe!

Surveys Say...

While there is a handful of studies examining the behavior and preferences of mass-affluent individuals with wealth of $1 million to $5 million, much less data is available on the financial habits and holdings of the super-wealthy. A few firms specialize in studying the affluent and showing firms how to market to them, including Spectrem Group of Chicago and HNW of New York.

Probably the best-known annual survey of the affluent is performed by Cap Gemini Ernst & Young and sponsored by Merrill Lynch. The annual World Wealth Report examines high-net-worth individuals with $1 million of assets and up. The study applies a statistical technique that extrapolates how many HNWIs are located in a country by using World Bank income data and applying a Lorenz curve, which ironically is a technique adopted in recent years in making estimates of poverty. This gives you some idea about how hard it is to get good data about people with more than $5 million in assets.

The research and conclusions on the super-wealthy and the marketing ideas delivered in the surveys generally do not get into the hands of independent advisors or the general public. For instance, I asked Cap Gemini to send me the actual survey questions and data and for last year's study. Since the survey is financed by Merrill Lynch as proprietary research, Cap Gemini understandably does not make the data public. Consequently, you have conclusions in the Cap Gemini study that basically say that super-wealthy individuals want better service from their advisors and more independent advice, but there is almost no hard data explaining these assertions.

Still, Cap Gemini did pre-release to me some key statistics affecting independent advisors that will be part of its forthcoming survey to be released in June.

The main conclusion of the two most recent surveys is that HNWIs are more often demanding unbiased advice and third-party products. "The ability to access best-of-breed products from multiple providers through a single point of distribution holds enormous appeal for wealthy clients," says the latest briefing from Cap Gemini.

The most detailed research released to me about the super-wealthy and their advisors came from Chicago-based Spectrem Group. Its recent studies confirm key findings of the Cap Gemini survey, but Chicago-based Spectrem provided additional statistics for its conclusions.

To gather its data, Spectrem managing director Cathy McBreen says the firm offers ultra-HNWIs $300 toward their favorite charity to take a 20-minute survey, and the surveys are augmented by focus groups. The 2003 survey was taken last summer by 327 financial decision-makers in households with net worths of $5 million and up.

Here are the key finding I gleaned from "Relationships With Advisors," a 76-page study that's part of Spectrem's 2003 Ultra-High-Net-Worth Perspectives series:

o Although full-service brokers are still the dominant primary advisor, they have lost significant share to investment advisors (RIAs) and investment managers, with full-service brokers going from 41% market share in 2001 to 30% in 2003.

o Financial planners gained market share slightly from 15% in 2001 to 17% in 2003.

o Broker usage dropped dramatically in the under-age-50 segment, from 42% in 2001 to 28% in 2003.

o Full-service brokers were providing the lowest satisfaction rate among the four types of advisors (41%), while planners got the highest satisfaction rate (89%) and investment advisors and investment managers were tied (72%).

o 52% of the super-wealthy prefer to work with an advisor not associated with a product provider. However, 60% of them use advisors affiliated with brokerages, banks, insurers, or fund companies.

o 65% of those who use an independent advisor said they did so because they valued unbiased advice.

o 61% of those using independents said they were likely or extremely likely to give their advisor a referral, compared with only 43% of those using affiliated advisors.

o 51% said they chose their advisor based on a referral from a friend or other advisor.

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