Seventy-eight percent of registered investment advisors serving affluent clients are wealth managers rather than money managers or market timers, finds a new study by the Financial Research Corporation, Boston.
FRC defines wealth managers as advisors who do comprehensive financial planning for clients, sometimes with the aid of allied financial specialists who complement their financial expertise.
In contrast, money managers and market timers are mostly concerned with managing portfolios and assets for individuals as well as institutions.
Nineteen percent of the studied firms were money managers and 3% were market timers.
The RIAs in the study managed a total of $974 billion, of which $728 billion were in accounts over which the advisor had investment discretion, and the remainder were in accounts over which the clients retained investment discretion.
Wealth managers controlled 73% of all high-net-worth advisors assets, followed by money managers with 25%, and market timers with 2%.
“Wealth managers are applying various aspects of the traditional family-office model to meet the needs of multiple affluent families, whether they are technically a family office, according to the FRC study, entitled “The 2002 Advisors to the Affluent Report.”
“The family office model traditionally is offering full complement of investment services to one extended wealthy family,” says D. Christopher Brown, a consultant who wrote the report. “A lot of wealth managers have taken it and applied it to many different families–theyre not just working for one family.”
Brown explains that some wealthy families have their own offices, complete with a financial advisor, tax attorney, and accountant dedicated to the familys needs. In a way, wealth managers can become a means for wealthy families to outsource the family office. For well-to-do families not affluent enough to have their own family office, this is a practical solution, Brown notes.
“Wealth managers can be part of a practice that offers these services to a number of wealthy families,” he explains. “The marketplace for such outsourced multi-family-office services is growing,” he adds.
Data for FRCs study was drawn from a proprietary database of the Financial Information Group, a database software firm in New York.
Highlights of the study include these findings:
New York, Boston, San Francisco, Los Angeles and Chicago are the top metropolitan areas for high-net-worth registered investment advisors in terms of client assets.
The larger the practice, the less likely it is to use mutual funds. Wide use of mutual funds is largely limited to advisors who manage under $500 million.
Wealth managers averaged $325 million in assets under management, compared to $486 million average for money managers and $263 million for market timers.
Wealth managers had an average of 288 clients, compared to 223 for money managers and 1,150 for market timers.
FRC studied more than 2,000 registered investment advisors managing $100 million or more, representing 21% of an estimated total universe of about 9,600 RIA firms.
Firms in the sample offered investment management or financial planning to individuals, were not exclusively or primarily institutional assets managers and were not primarily broker dealers, FRC explains.
For the study, the research firm defined high-net-worth clients as those having a net worth of at least $2 million or $750,000 or more with a particular manager or advisor.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.