Re-Engaging High-Net-Worth Clients After Three Tough Years
The volatile equity markets of recent years clearly left their mark on the financial holdings of the high-net-worth market. By their own estimates, 75% of high-net-worth consumers reported they lost 15% or more of their investment portfolio in the past three years, according to the 2003 Phoenix/Harris Interactive Wealth Study, conducted in March 2003.
Fifty-three percent indicated they lost 25% or more, and 13% reported they lost half or more of their invested assets. These losses have caused several in the industry to speculate that many high-net-worth clients are “financially frozen”; its equally possible their financial advisors are “frozen” and hesitant to approach actively new or even established clients.
To quote one of my colleagues at Phoenix, however, “just because clients investment portfolios have been negatively impacted, it doesnt mean their financial hopes, dreams and aspirations have changed.” In fact, they need more help than ever in getting back on track to achieve their financial goals. The right tactics can help advisors re-engage their high-net-worth clients to solve their financial challenges.
A first obvious way is to discuss portfolio re-allocation or re-balancing. Quite amazingly, almost four out of 10 (39%) of the high-net-worth report they have not re-allocated or re-balanced their investment portfolios during the last three years. As to why, 71% said they “didnt think it was necessary,” 25% “didnt think it would make any difference,” and 10% said they “werent sure what to do.” Moreover, of this group, better than two-thirds (67%) say they dont plan to re-allocate or re-balance their portfolios this year. These are clients in need of some basic investment counseling.
The reality, however, is that portfolio re-allocation or re-balancing may well be an area of great sensitivity for your clients today. This is especially so if they followed advice to re-allocate in recent years and still saw a decline in their investment portfolios. If so, here are six other topics ripe for discussion. Each topic represents a need of the high-net-worth market, and based on our survey results, chances are your clients will need help in at least one of the following areas:
Income Distribution Planning. Assuring a comfortable retirement remains, far and away, the primary financial goal of the high net worth. Our research shows the key to achieving retirement security lies not in simply amassing a retirement nest egg, but rather in assuring that clients will have an income stream to handle their day-to-day living expenses during their retirement years. Add to this need the goal of early retirement, which is still very much in the minds of the high net worth, and these are very fertile grounds in which to cultivate a discussion with your clients. (A more extensive explanation of this topic can be found in my last article in the Oct. 27 issue of National Underwriter.)
Estate Planning. Today, 36% of the high-net-worth market still do not have an estate plan. Moreover, this number probably is an underestimate, as many consumers taking surveys mistake having a will for having an estate plan. In addition, three-quarters of this group without an estate plan indicate they plan to establish one in the future. The discussions of recent years surrounding the elimination of the estate tax have, of course, cast a shadow on estate planning throughout the industry. However, when asked in our survey about the likelihood of the estate tax being permanently repealed after 2010, nearly half of the high-net-worth market (43%) do not believe it will happen. The reasons for this sentiment can be found in Table 1.