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.

One can only guess that this sentiment has increased as the price tag associated with the conflict in Iraq continues to grow. Few recall that the estate tax has a rich history in this country as a vehicle for funding war efforts. Estate planning clearly represents an area for a renewed discussion with your clients.

Trusts. During a discussion of estate planning, the topic of revocable and irrevocable trust instruments will surely come up. This can be another fertile area for advisors to offer the high-net-worth guidance. Four out of 10 high-net-worth consumers (41%) do not have any type of trust in place, and less than 10% have an insurance-funded trust. When these statistics are considered with a list of the financial goals and desires of this market (beyond the use of trusts for estate tax liquidation), it is clear that trusts are an underutilized tool.

Long Term Care Insurance. Consumers are now witnessing, in many cases firsthand with their parents, the devastating financial impacts of increasing longevity paired with increasing health care costs. Of any group in the marketplace, the high-net-worth should be in a financial position to address this need through the purchase of individual long term care insurance. This seems to be happening, as weve watched ownership of individual long term care insurance increase over the four years weve conducted our research. Twenty-nine percent of high-net-worth households now indicate they have individual long term care insurance coverage, and an additional 13% express interest in obtaining such coverage within the next three years.

While these statistics represent progress, they also indicate that better than seven out of 10 (71%) of high-net-worth consumers still do not have individual long term care insurance coverage. One possible objection that you may encounter here is that high-net-worth clients can “self insure” against this financial risk. A review of readily available nursing home cost statistics, however, will quickly demonstrate that your client shouldnt even be entertaining such thoughts unless their net worth is at a minimum of $5 million.

Financial Planning. All these topics for discussion clearly are interrelated and as such, should be connected within the context of an overall financial plan. One would think that high-net-worth consumers, having already reached this level of affluence, did so through a well-developed and implemented financial plan. But according to our statistics, nothing could be further from the truth. Today, only 36% of the high-net-worth currently have a formal written financial plan in place. Yet, our research clearly shows having such a plan is key, at a minimum, to financial piece of mind during difficult economic times. Interestingly, when asked if their current primary financial advisor is qualified to provide them with such a comprehensive plan, only 45% said “yes,” 31% said “no,” and 24% were unsure.

Team-Based Advising. The question regarding the ability of advisors to provide comprehensive financial planning to their high-net-worth clients begs a bigger question of how best to serve the advisory needs of this market. The financial goals of this market are broad in scope and often deep in complexity. Moreover, these clients recognize no single advisor may be an expert in all of the areas in which they need help.

Not surprisingly, better than half of the high-net-worth express interest in an advisory service in which a team of experts could be brought together to address their spectrum of financial goals and concerns through a comprehensive and integrated approach. Thus, in addition to thinking about new concepts to re-engage your high-net-worth clients today, time also would be well spent thinking about how they want to be served in the future as well.

Walter H. Zultowski is senior vice president, business and market development for The Phoenix Companies Inc., Hartford, Conn. He can be reached at walter.zultowski@phoenixwm.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 7, 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.