Advisers face ‘substantial’ turnover of wealthy clients
It only took a matter of months for the markets to lose nearly half their value, but financial advisers will apparently feel the ripple effects of the economic crisis for years.
It only took a matter of months for the markets to lose nearly half their value, but financial advisers will apparently feel the ripple effects of the economic crisis for years.
Anywhere from 20% to 30% of wealthy clients will change advisers over the next three to four years, predicted George Walper, president of Spectrem Group, a Chicago-based consulting firm that specializes in the wealth and retirement markets.
“This is not a decision that clients will make quickly. Many are still taking a wait-and-see attitude and will make the move to a different adviser once they have regained confidence in the economy,” Mr. Walper said.
“The turnover will be substantial,” he said.
Although typical millionaires saw their portfolios decline 30% from the start of the financial crisis, according to Spectrem research, most individuals don't blame the quality of the financial advice they have received for their losses.
In fact, just 1% of 2,000 consumers recently polled by McKinsey & Co. are actually holding their advisers accountable for the massive declines in their portfolios over the past year, according to a survey that the New York-based consulting firm released this month.
Similarly, 1% of the people McKinsey canvassed said that they have actually moved their money away from their primary financial providers.
In fact, 43% of the consumers polled said that the federal government and regulators are responsible for the impact that the economic collapse has had on their personal situations.
By contrast, 27% blamed financial institutions and 6% condemned the media.
REPAIRING PORTFOLIOS
Once investors are confident that the markets have stabilized and that the economy is on more firm footing, many will seek out new investment advisers to help repair their badly bruised portfolios.
The advisers most likely to lose business “will almost certainly be the ones who have taken a purely transactional approach to working with their clients,” said Sean Cunniff, research director in the brokerage and wealth management practices at The TowerGroup Inc., a Boston-based consulting firm.
He predicted that if advisers have simply been executing trades and only been responding to requests — as opposed to communicating proactively — many of their clients will either look for new advisers or move to self-service online brokerages, such as The Charles Schwab Corp. and TD Ameritrade Holding Corp.
“But the advisers who have been more focused on relationships than transactions should be able to keep many of their clients,” Mr. Cunniff said. “Even if those clients may be somewhat unhappy at the moment, they've formed some connection with their adviser.”
To this end, the McKinsey report noted that advisers who made a clear effort to reach out to clients are twice as likely to maintain their relationships as “non-proactive advisers.”
In fact, the consumers polled by McKinsey said that a proactive approach is more important than above-average investment performance when evaluating a new adviser.
At the same time, clients' needs have changed dramatically over the past 18 months, and many individuals will be looking for advisers who can “present real lifestyle solutions” for the issues that clients will face over the next several years, Mr. Walper noted.
Scores of older investors, for instance, have been forced to postpone their plans for retirement because of the financial crisis, while many others are now preparing to lead dramatically different lives during retirement than they once expected.
So advisers who can demonstrate an expertise in retirement planning — and more importantly, building reliable retirement-income portfolios — may have the inside track in luring a significant number of new clients over the next few years, said Howard Schneider, president and founder of Boxford, Mass.-based Practical Perspectives.
“The vast majority of individuals entering retirement will want, and need, an adviser to help them draw down their assets effectively,” he said, noting that 78 million baby boomers are slated to retire over the next two decades.
“A remote relationship with a broker, an insurance agent or an online brokerage won't get the job done — so there will be an incredible opportunity for true advisers to attract new clients who are on the verge of retiring.”
E-mail Mark Bruno at [email protected].
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