Consider Your Advisor a Financial Guru

Physician's Money Digest, April15 2003, Volume 10, Issue 7

A recent Spectrem Group survey findsthat affluent investors are much lessconfident about their own investmentmanagement capabilities since the market'sdownturn. In 1999, for example, 53%of the nation's wealthiest investors saidthey needed very little advice to makeinvestments. By 2002, however, that figurehad dropped to 32%. As the affluentturn to others for advice, they are not onlyturning more frequently to independentadvisors, but they are also demanding alot more from their advisors.

INCREASED EXPECTATIONS

Changes in the market and in the economyare bringing about a change in theinvestment landscape. The Spectrem surveyfound that advisors with designations(eg, CFPs®) and accountants are slowlygaining ground in the wealth-advisormarket. Part of the reason is the dissatisfactionamong wealthy investors withtheir current advisor and with the qualityof advice they are receiving.

For example, in 1999, 83% of individualssurveyed by Spectrem expressed overallsatisfaction with their advisor. That figuredropped to 70% in 2002. In addition,only 68% were satisfied with the qualityof the advice they received, down from82% in 1999. In contrast, the survey foundthat a higher percentage of wealthyinvestors were satisfied with the servicethey received from independent advisors,compared with advisors or brokers affiliatedwith a financial company.

Part of the reason for the change isthat the down market has forced investorsto focus more on the process of investing.No longer simply looking for big returns,wealthy investors are looking for somethingelse. Consider that the Spectremstudy found that 37% of investors whoused an independent advisor said theiradvisor helped them with major lifeissues, not just their current portfolio.

While advisors look to capitalize on thisturn of events, they should be aware thatwealthy investors are now expecting amore collaborative client/advisor relationship.These investors are viewing theiradvisor primarily as a guide and counselorand secondarily as someone to providethem with access to the investment markets.With these new demands, however,comes loyalty. According to the study,65% of wealthy investors who used anindependent advisor said they would followthem to a new firm.

ADVISOR AND GUIDE

The Spectrem study found that a newcrop of affluent investors follow an advisor-assisted approach to investing. Thoseindividuals, who represent 30% of affluenthouseholds, want the final say ininvestment decisions, but they also wantto work closely with an advisor to comeup with those decisions. They're placingmore value on investment planning, taxplanning, and other related services. Andthey're seeking strategic guidance to steerthem toward well-defined goals.

That doesn't mean, of course, thatwealthy investors have abandoned aproactive approach to investing. Forexample, 78% of affluent households areheavy Internet users, according to the survey.They use the Internet because it's aconvenient source for investment andfinancial information. But they still wantto work closely with an advisor, 84% indicatingthat no matter how far the Internetadvances, they would always want a personalrelationship with a financial advisor.

Financial advisors must recognize thechanges that are occurring. They're beinglooked to not just for access to the stockmarket but for financial guidance. Forfinancial advisory firms, it's time to integratewealth-management capabilities todeliver a wider range of products and services.These firms must realize that not allinvestors are alike, and tailor their servicesto meet individual investor needs. Andthey must recognize that brokerages willfight back to maintain a significant portionof the high-net-worth market.

The scramble is on. Affluent investorsare looking for more value and more services.Financial advisors are being pressedto provide those services. In the end, theSpectrem survey notes, firms with well recognized,established, and very clearlyarticulated financial services will have adistinct advantage over other financialservice organizations.