The Corporate Executive Market Is Ready For Service

By Walter H. Zultwoski

After three years of a bear market, the economy appears to be improving and the equity markets are heading north, which represents great news for advisors to the high net worth.

Like all investors, members of this market have been struggling with preserving their assets these past several years. Many suffered significant losses to their portfolios. The recent improving conditions, buttressed by economic indicators and forecasts by some of the nations most respected economists, makes it likely that wealthy investors will be back in the market for financial advice and services.

Since 1999, my company has been conducting annual surveys, focus groups, and has had constant interaction with advisors working with the high-net-worth market, which we define as clients with a net worth of more than $1 million, exclusive of their primary residence.

The attitudes of the nations wealthy have changed markedly during the three-year bear market. In 2000, the Phoenix Wealth Management Survey found the high net worth full of confidence, looking forward to continuing good times. Reflective of those heady times, many millionaires did not think they were wealthy, and they felt the threshold for achieving wealth was $5 million.

In 2002, in the continuing midst of the difficult equity markets and flat-lined economy, our surveys found the nations wealthy were more cautious and the bar for “perceived wealth” had dropped slightly.

As I write this, we are nearing completion of our 2003 wealth survey. The preliminary data show that members of the high-net-worth market are gaining more confidence in todays economy. Of course, the high net worth are not all alike. We have identified distinct markets–business owners, wealthy families and corporate executives–and all look for slightly different solutions at different times.

Based on everything we have seen, it seems clear the corporate executive market segment will be among the most aggressive in looking for service. Corporate executives, by a higher margin than the full survey population, agreed with the statement, “It is important to me to get a substantial return on my capital, even if it means taking risks” (57% for corporate executives vs. 41% of the survey). Why? Consider the demographics of these executives.

For the most part, corporate executives are the youngest and best educated of the high net worth. They have gained their wealth largely through compensation paid by their employers, or in the heady days of the 1990s, through stock options and other corporate compensation plans. In fact, 60% of this group listed compensation as the major contributor to their wealth, vs. 48% of the full survey group.

While the difficult economy of the past three years has made them nervous and insecure, based on the data, it seems their natural inclination is to be aggressive–at least when it comes to financial planning. In answer to the question, “I need the constant thrill of competition,” corporate executives agreed at a rate of 60%, vs. 32% of the survey population.

Advisors should recognize this is a savvy group, who is well-schooled about products available through the financial services industry. They report investing in stocks (91%), mutual funds (84%), life insurance (79%) and a 401(k) plan (83%). Again, given their positions, they are used to ingesting large amounts of information, analyzing how to act and then acting decisively. They approach their personal finances the same way. That makes this group open to new ideas and new advisors.

In the end, corporate executives are like other high-net-worth segments in terms of their ultimate needs. Their top priority is to prepare for a comfortable retirement–86% of corporate executives listed that as their number one goal. They want to provide protection for their loved ones, whether it is to pay for upcoming college expenses or to make sure there is income for their families if they suffer an accident or untimely death. They want to minimize the impact taxes have on their assets and their estates. They may even be looking down the road past their comfortable retirement, to leaving a legacy for family, friends and community, where 10% of corporate executives list this as a goal.

We should also recognize this group would benefit from the recently enacted tax cuts at the federal level. Those cuts, a reduction in tax rates, as well as a lowering of taxes on capital gains and dividends begin to kick in July 1.

This confluence of forces will leave this group looking for varied financial services. They understand what they have and where they want to go. Wealth for the corporate executives is important because it means security and independence. As we have stated, they are willing to take risks. Of all the groups, they seem to be in the most hurry to accumulate the assets necessary to support that goal.

But advisors looking to work with this group have to look beyond the demographics to find how this group goes about meeting their financial needs. There are other forces at work. This group, more than the other high-net-worth segments–wants to gain more control of their lives. Seventy-eight percent say they wish they had more time for family and friends, vs. 55% in the full survey.

So, how should an advisor approach this market? It should be recognized that success would be highly company specific. In other words, one must be an expert in the benefits and stock option plans of the corporations for which these executives work. This extends to having a good understanding of the corporations future prospects for success, as well as the “corporate culture” regarding how executives deal with their financial planning.

It is also extremely important to understand that ones approach to this market is very much a function of the age of the senior executive. In fact, many advisors who achieve success in this market dont spend their time working with the younger executive because they may not have the resources for financial product and service spending, because they are maintaining a high lifestyle. The “sweet spot” in this market is the executive in pre-retirement years, as they plan for that comfortable future.

Another trait of this group is they are comfortable paying fees for services. This is not surprising, given their day-to-day world; they are used to a regular flow of consultants offering services on a fee basis. Also, as mentioned earlier, these executives are knowledgeable and confident when it comes to financial matters. As a result, advisors should expect to be challenged and questioned on their recommendations. Advisors must demonstrate their financial expertise and the value they offer.

Successful advisors to the high-net-worth corporate executive have to be on top of their game. But there is one more indicator in the wealth management survey that shows this market is ready to move. Ninety-six percent of the corporate executives agreed: “I have many goals that I still want to accomplish for myself.” One of those goals is to secure their financial future, and they are open and ready for the right financial advisor.

Walter H. Zultwoski, Ph.D., is senior vice president, marketing and market research for The Phoenix Companies Inc., Hartford, Conn. He can be reached at walter.zultowski@phoenixwm.com.


Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 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.