From this year’s annual Phoenix Wealth Survey taken in the first quarter, we know the high-net-worth showed record levels of pessimism about the short-term outlook for the economy. Our research also shows that feelings of personal financial security have declined significantly since last year. Given recent events, the attitudes of the wealthy probably may have worsened.
And yet high-net-worth consumers are moving away from using professional financial advisors compared with recent years. Significantly more wealthy consumers report they are not regularly receiving advice from advisors and that they do not have a primary financial advisor. What’s going on here?
Wealthy consumers look at their advisory relationships differently during difficult economic times. For one thing, they are more likely to “commoditize” their advisory relationships, evaluating them more on the basis of performance and fees than they do when they are making money. This can present advisors with a difficult challenge. If they do all the right things for their clients’ investment portfolio, they could still be blamed for poor performance during a down market due to no fault of their own. What’s an advisor to do?
Tough economic times offer advisors an excellent opportunity to evaluate and expand their value proposition, in part by redoubling contacts with clients and reminding them that they are investing for the long term. From numerous focus groups with high-net-worth consumers, we know the wealthy look for a holistic approach that encompasses multiple financial needs and concerns and is not focused only on investment advice. Based on findings from the Phoenix Wealth Survey, now in its ninth year, we have several suggestions that advisors can pursue toward this end.
Retirement security planning
The most pressing financial concern of the affluent individual today is planning for financial security in retirement. Only half of high-net-worth households with primary advisors indicate they are receiving assistance with retirement planning. The disconnect may stem from the fact that many advisors equate retirement planning with their work to help build a client’s investment portfolio.
Of course, effective retirement planning also includes an insurance component. We don’t just mean annuities, although annuities can play an important role. Many new products offer insurance features, such as guaranteed income benefits for managed money portfolios. Such guarantees can help protect nest eggs from asset-depleting healthcare costs or an uninsured long term care event.
The approach of 2010, when the estate tax sunsets for one year before reverting to pre-2001 levels in 2011, has exacerbated another concern of the high net worth: estate planning. With continued budget deficits, wars in Iraq and Afghanistan, the prospect of a Democrat in the White House and deepening financial woes in general, estate tax repeal seems increasingly unlikely.