October 1, 2012

Wealthiest Americans Are Pleased With Their Advisors

Alternative investments, tax planning are top of mind

The country’s wealthiest Americans report a significant increase in satisfaction with their financial advisor, Spectrem Group reported Sept. 24.

The report also found that investors are increasingly turning to alternative investments and tax-free bonds as they seek to grow their assets while minimizing how much the government takes from them.

Over 80% of investors with at least $25 million in net worth report being happy with their financial advisor. Satisfaction has increased steadily since 2007 when 61% of high-net-worth investors said they were satisfied. In 2010, 66% of investors said they were happy with their advisor.

More investors report using a full-service broker as their primary advisor, the report found. In 2012, 23% of investors said they used a full-service broker as their primary advisor, compared with 18% of investors who said they used an independent financial planner as their primary advisor. In 2010, 13% of investors were using a full-service broker and another 13% were using an independent planner as their primary advisor.

Accountants also enjoyed an increase in the number of investors who use them as a primary advisor, increasing from 8% in 2010 to 11% in 2012.

The report noted, however, that while these advisors experienced an increase in the number of investors who use them as a primary advisor, most investors are using more than one advisor. In fact, 41% of investors have three or more advisors. Just 27% say they use only one advisor.

Of the 41% of investors who work with three or more advisors, more than two-thirds work closely with them to cover day-to-day decisions in their portfolios. The report found 60% of those investors say they spend six hours or more each week making investment decisions with their advisors.

While a sizable portion of investors are very involved in their investments and portfolios, 22% say they make their investment decisions without an advisor's help at all. Eleven percent say they rely on their advisor to make most of their decisions.

In addition to gauging investors’ satisfaction with their advisors, Spectrem also asked about which investments they’re most happy with. The report found alternative investments are taking up a growing chunk of investors’ portfolios.

Alternatives account for 25% of total investable assets, the report found, up from 20% in 2010 and 16% in 2007. Of those, hedge funds are most popular as 47% of HNW households are invested in them.

Wealthy investors reported being slightly less interested in stocks and bonds, as they account for 18% of their total investments, down from 20% in 2010 and 21% in 2007.

Investors are also actively working to protect themselves from a large tax bill. Sixty percent are investing in tax-free bonds and nearly the same percentage of investors are revising their estate plans. Fifty-five percent have engaged a tax planner to help them manage the tax impact of their investments. Many are willing to take extensive measures to protect against taxes: 24% said they are considering changing their legal residence to a state without income tax.

The report found that by the end of 2011, 107,000 households had at least $25 million in net worth, and of those, less than a third inherited their wealth. Those investors also tend to be younger than investors in lower wealth categories, with a mean age of 60 and 38% of whom are younger than 55. By comparison, investors with between $5 million and $25 million have a mean age of 67 and those with between $1 million to $5 million have a mean age of 63.

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