What Todays High-Net-Worth Want From Their Primary Financial Advisors

In the first of this series on the changing attitudes of todays high-net-worth consumers (see NU, July 19), I noted that in many ways it is as if their mindset has been rewound several years and optimism has returned. They have come out of their bear market shells with regard to investing and report increased confidence in their own investing capabilities. All of this suggests that they will be relying less on advisors than during recent bull market years.

However, the 2004 Phoenix Wealth Survey also shows high-net-worth consumers report less knowledge these days about the stock market and financial matters, in general. So, could it be that todays wealthy consumers have recalibrated their own level of financial sophistication? And, while more confident in their own investing abilities, have come to recognize the important role a financial advisor can play in their financial decision-making?

Based on data from our survey as well as a series of focus groups we conducted with high-net-worth consumers earlier this year, our conclusion is that wealthy Americans are not prepared to turn away from advisors, as was seemingly the case in the “do it yourself” investing era of the bull-market 90s. However, lest todays financial advisors become complacent in this observation, it is also apparent that they will continue to be under pressure from todays high-net-worth consumer. This pressure will come in the form of a desire for a value proposition that is different from what many financial advisors have offered in the past.

First, as a whole, financial advisors remain relatively entrenched in the high-net-worth market. Only 1 out of 5 high-net-worth households (21%) report that they are navigating their personal financial waters without a primary financial advisor. This number has been stable over the past year, not significantly changing from 18% in our 2003 survey.

Adding to the positive outlook for advisors operating in this market is the fact that high-net-worth consumers report increased satisfaction with their primary advisorsup to 87% from 77% last year. So, how do we conclude from these positive results that the advisory business is under pressure to offer more than what theyre providing to the market today?

Of those who reported having a primary financial advisor, 8% indicated that theyre looking for a new one, and this number is unchanged for the last 3 years. This appears to be a positive. However, another 13% say that theyre “not sure” if theyll be looking for a new advisor in the upcoming year. Thus, in 21% of client-advisor relationships in the high-net-worth market, the permanency of those relationships is at least in question. Add this to the 21% of high-net-worth consumers who say they currently dont have a primary advisor, and the conclusion is that 4 out of 10 high-net-worth consumers either dont have a primary advisor or their current primary advisor relationship is in jeopardy.

The picture becomes clearer when we ask those who are currently looking for a new advisor as to why this is the case. As shown in the “Reasons for Seeking” chart, there was a significant decline in the percentages of respondents citing investment returns, investment strategies, and client contact as the cause. This is not surprising given the turnaround in the market. Fees and consumers simply “wanting to work with someone else” were increasingly cited.

The issue of “fees” seems disputable. Only 10% of those respondents that cited fees indicate that their primary advisor is a fee-based planner. While the costs of doing business with a commission-based advisor are not always transparent, it is suspected that their response is, in part, a reaction to the negative press that the financial industry has received during the past year. When combined with the reason of simply “wanting to work with someone else,” it also can be interpreted that these high-net-worth consumers are looking for greater value from their primary advisor than they are currently receiving. As one of my colleagues is fond of saying, “price is only an issue in the absence of value.”

A common theme throughout multiple high-net-worth focus groups commissioned by Phoenix earlier this year indicated these wealthy consumers are looking for more than just product from their financial advisors. They are looking for holistic integrated solutions that address their various financial issues and challenges. And as shown below, todays high-net-worth are not receiving a broad range of assistance on financial matters from their primary advisors.

The primary area in which todays high-net-worth are looking for help is retirement planning. Unlike many other areas of financial advising, retirement planning incorporates a wide range of issues and does not necessarily lead to the sale of a specific product. Toward this end, it is suggested that the upcoming age of retirement planning will separate true financial advisors from those advisors for whom financial planning is simply a veil for the sale of a specific financial product.

Given the necessity of retirement planning to the financial planning needs of todays high-net-worth consumer, the next article in this series will focus on the attitudes and expectations of this market specifically relating to retirement.

Walter Zultowski is Senior Vice President, Business and Market Research for The Phoenix Companies Inc., Hartford, Conn. He can be reached via e-mail at walter.zultowski@phoenixwm.com.


Reproduced from National Underwriter Edition, August 5, 2004. Copyright 2004 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.