Rather than stumble like their colleagues who maintain a narrow focus on investments, advisors with a broader wealth-management practice orientation can benefit and grow as they provide the kind of services affluent families need during difficult market times.
In fact, those advisors who take an advance planning approach, which embraces a wealth-management comprehensiveness, are positioning themselves much more effectively to reach high-net-worth and ultra-high-net worth families. The term “wealth management” is used loosely by marketing people, but to be clear, true wealth management examines all aspects of a client’s financial life and goals and it provides a full range of planning services, including complex estate planning, business planning, and charitable giving. According to Cerulli Associates and Federal Reserve numbers, the HNW (with $5 million to $50 million in investable assets) and UHNW sectors (with $50 million and above) represents only 1.5% of the overall population, but they control 39% of the nation’s overall net worth.
Anecdotal evidence from advisors and industry firms highlights how clients from all segments are asking for more planning advice, not just account information. At Charles Schwab, the number of its retirement plan participants requesting personalized service grew by more than 40% from September to October 2008–a fact not surprising given what was occurring on Wall St. at that time. Cerulli’s 2008 Advisor Survey showed that 78% of advisors agree that consumers are demanding more comprehensive financial advice.
Feeling the Market
What Your Peers Are Reading
Affluent clients are certainly experiencing discomfort during these economic times, albeit on a scale relative to their normal lifestyle. “The reality is that individuals in the range of $5 to $15 million [of investable assets] have fear in this environment just as much as the individual who may just have a half a million to $1 million,” observes Howard Schneider, president and founder of Practical Perspective, a research and consulting company based in Boxford, Massachusetts, which specializes in addressing critical strategic and competitive challenges in financial services.
“Advisors who are dealing with those clients are dealing with the same emotions as the mass affluent,” says Schneider. “Those clients are thunderstruck by what’s going on in the marketplace. They’ve seen generally significant deterioration in their portfolio values. Their feeling of comfort, their feeling of wealth, their confidence in the future to a large degree has been shaken.”
Concerns about the cost of healthcare during the retirement years cuts through demographic segments. In a Northern Trust survey of high-net-worth individuals averaging over $5 million of investable assets, 92% of preretirees stated they are very or somewhat worried that jumps in health care costs would affect their ability to enjoy their retirement. They have the assets to purchase adequate amounts of health and long-term care insurance protection, yet they’re concerned about the lack of certainty about expenses when they move from wealth accumulation to the retirement spend-down phase.
In terms of a retirement lifestyle, these individuals still have enough for what most people would consider a comfortable life. A $10 million portfolio down 50% still leaves $5 million–but they do feel the pain of a pinched lifestyle. “Individuals in that wealth range may have been expecting a certain type of lifestyle with multiple homes, constant travel, gifts to charity, and leaving a significant legacy for their family,” notes Schneider. “They may have to pull back on some of those things.”
More Planning, Now
Given market conditions and client concerns, Cerulli expects advisors to boost comprehensive planning as part of their practice. When asked how they anticipate their practices will change during the next 12 months, 61% of respondents to a Cerulli survey agreed that they would offer more financial planning services. By adopting a comprehensive approach to client needs, advisors can create a repeatable discovery, planning, implementation, and review process that enhances the client experience and doesn’t rely solely on the unpredictable performance of investment portfolios.
The long view for clients also brings more stability and organic growth potential for advisor practices. Those professionals with broader service offerings based on advice–not just products–also offer the possibility of greater profitability since advisors with an advanced planning team can address more client needs. If the client connection is just based on investment guidance, challenging market conditions can bring the thinness of that relationship under sharp scrutiny. On the other hand, those same market conditions within the context of a comprehensive planning relationship become another event where the client and advisor partner. For the right clients, it also becomes a shrewd time to make some strategic investments.
Advisors who look beyond investments also have the opportunity to have more conversations with clients about something other than equities, notes Scott B. Smith, a senior analyst at Cerulli. The status of the client’s life insurance and long-term care are two good topics to pursue. “Those things may have been pushed aside in the past but now have stepped back to the forefront because the advisor has more time on his hands to talk about these things,” says Smith.