The first step in entering the high-net-worth financial services market is understanding the factors that these households desire in an advice provider, according to global analytics firm Cerulli Associates.
New research from Cerulli looks at the advice needs and preferences of high-net-worth (HNW) investors and the opportunities and obstacles these preferences pose for providers. Cerulli defines someone HNW as those with more than $5 million in investable assets.
“The first step in entering the HNW financial services market is understanding what characteristics these households desire in an advice provider,” Scott Smith, director at Cerulli, said in a statement. “When asked specifically about the elements they would seek in a new advisor relationship, across age tiers, HNW investors most frequently cite transparency as a very important differentiating feature.”
According to Cerulli, 62% of HNW investors say this.
In order to be transparent, Cerulli stresses the need for advisors and advice providers to make it “much easier” for prospective clients to understand all of the potential fees they are subject to in their current relationships.
“The financial industry was built around the premise that investors understand the fees they pay and sign documents affirming their awareness,” Smith said in a statement. “Cerulli’s research indicates that investors who truly comprehend the entirety of their costs are more the exception than the rule. The overall expenses of pooled investment vehicles, including management fees and other embedded fees such as 12b-1s, are essentially nonexistent to many investors — if they do not see a line item deduction from their accounts, they do not recognize a transfer of wealth from themselves to their advisor or provider.”
While these fees and expenses are well documented within the agreements and disclosures that investors sign, few investors take the time and effort to fully consider the cost of their arrangements, Cerulli says.
In addition to transparency, Cerulli identifies high-quality service as “extremely important” to HNW investors when choosing an advisor.
According to Cerulli, 59% of HNW investors want advisors to provide prompt follow-up on requests and 47% want advisors to maintain the right amount of contact with them.
While transparency and high-quality service are sought by HNW investors, these can be difficult areas for advisors to differentiate themselves from those of competitors.
Cerulli suggests a couple ways that advisors can stand out among HNW investors.
First, to realistically gain attention of HNW households, Cerulli says firms must pare down their value proposition.
Cerulli suggest picking the two or three elements of “greatest concern to investors” and highlight how these offerings differ from those of a prospect’s current provider.
“These firms need to transform ‘wealth management’ from a generic descriptor to a meaningful expression of the value of relationships they hope to develop with prospective clients,” the report states.
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