In Practice December 1, 2008

More than Investment Management: HNWIs Want Comprehensive Services

Capturing high-net-worth (HNW) clients is increasingly focused around a holistic financial outlook rather than generating good investment performance, according to the latest edition of 'The Cerulli Edge—U.S. Asset Management Edition.'
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As wealth increases, complexity increases, according to Cerulli Associates. The firm’s latest research suggests that advisers cannot make investment management the main focus of their offering—particularly at the higher end of the market, as HNW and ultra-HNW (UHNW) investors are looking for a deeper breadth of services. In fact, only 29% of advisers and 12% of wealth managers (who specialize in comprehensive wealth management, often including estate planning and charitable giving) say that “providing superior investment performance” is a major value proposition to clients, according to a 2008 Cerulli survey.

That could be lucky in light of the troubled markets. When looking at it in terms of a long-term advice relationship, a down market isn’t so bad—now is the time to shop for clients. As advisers take on a more comprehensive approach, they are equipping themselves to deliver a good client experience regardless of “inherently unpredictable investment performance,” according to Cerulli.

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About 82% of wealth management providers to HNW and UHNW clients offer comprehensive financial planning as a primary service. Investment management is still high up there, with 74% of advisers offering it as a primary service.

Of course, HNW clients have different needs, sometimes depending upon where their wealth came from. Sophisticated and entrepreneurial clients are very willing to experiment with complicated, high-risk investments (58% of advisers strongly agree; 21% moderately agree). “Self-made” HNW clients are more likely to take risk than those who inherited wealth (40% strongly agree; 35% moderately agree). Contrastingly, about half of advisers strongly agree (and 35% moderately agree) that already wealthy clients tend to create portfolios with moderate risk . UHNW clients typically look to a business or other source of wealth to generate high returns rather than a portfolio (44% strongly agree; 39% moderately agree).

Shaping a Practice

Cerulli recommends that wealth management firms serving the HNW and UHNW clients look at their current offerings and expand them to be more competitive and better drive client satisfaction. Advisers in this market say they provide non-investment management services in order to differentiate (90%), enhance client relationships (88%), win investment management business (68%), and as a source of revenue (51%).

The more comprehensive approach with HNW clients is usually handled by team-based advisers. In fact 96% of wealth management practices serving the HNW market are team based. The adviser will serve as a “relationship manager,” coordinating the client’s service and prospecting for new clients, according to the report.

A good proportion of all types of wealth management practices serving HNW clients offer retirement income planning or retirement accumulation planning. The only type of adviser practice that does not overwhelmingly offer these services is, unsurprisingly, money managers (who focus on investment management). Even still, 49% of money managers offer retirement income planning and 41% offer retirement accumulation planning. Across all adviser segments, 95% offer both retirement tasks.

The largest challenge for serving HNW clients is maintaining profitability, wealth management providers say. “Firms are constantly struggling to be comprehensive provider but find it difficult with high client demands and numerous cost cents,” according to Cerulli. Other top concerns are attracting and retaining personnel (63%), adequately addressing compliance issues (42%), and competition (42%).

 

The report can be purchased through Cerulli at www.cerulli.com or 617.437.0084.

IMHO November 30, 2008

IMHO: 'Nothing' Doings

I wouldn’t for a second suggest that the current financial/economic crisis that we are enmeshed in isn’t “real.
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Nor would I say that the efforts to remedy it thus far aren’t well-intentioned, but it’s hard to shake the feeling that the words put forth to explain the situation—and thus the solutions put forward to redress that situation—are being done by folks desperate to be seen to be doing something, but not quite (at all?) sure what that something should be. And, IMHO, that inclination won’t diminish with a new Administration eager to prove itself. Let’s face it—even when doing nothing might be the best medicine (and I, for one, am at that point), we tend to believe that “something should be done.’
Meanwhile, we have retirement plan participants, most of whom—again—appear to be riding this one out. Oh, there are signs of change on the fringes—some modest reductions in average deferral rates, slight upticks in hardship distributions, and, on particularly volatile days in the market, a bump in transfer activity. Still, for the very most part, participants appear to have taken the “stay the course’ message to heart. Nor are they sleeping through the crisis; all the major providers are reporting a significant increase in call center volumes—but participants appear to be doing little more than assessing the damage and checking on their options. That, of course, is widely taken to be a good thing.
I’ve always thought it was interesting that we bemoan the negatives of participant inertia (or sometimes try to turn that negative into a positive via “automatic’ solutions)—except when it manifests itself during times of market turmoil. At those times, it’s the rare industry pundit who doesn’t applaud the “wisdom’ and calm shown by participants. It’s that one time when “doing nothing’ is not a problem to be solved, but an indication of prudence.’

‘Action’ Steps

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“This time’ may be different, of course—and the call center inquiries may well suggest that participants are making an active decision to stay put, though it seems to me more likely that those inclined to make a change simply aren’t sure what to do. Human beings may, like an object at rest, tend to remain so—but with this much turmoil still going on after all this time, in my experience, people feel better if they can actually DO something.

So, here are some things participants can do now:
  • Get started on rebalancing by changing the investment elections of new contributions, rather than transferring existing balances. It will take longer to realign the entire account, but at least you aren’t realizing those as-yet-unrealized losses.
  • Increase your current deferral rates. When you think about just how much cheaper those retirement plan investments are compared with a year ago, it’s hard to pass up that kind of bargain. More so if you aren’t yet saving at the maximum level of the match.
  • Consider automated rebalancing. The vast majority of providers now have in place mechanisms that will, on some preset frequency (monthly, quarterly, annually), automatically rebalance individual accounts in accordance with your investment elections. It’s a good way to keep things in balance without having to worry (or remember) about the best time to do so.
Those 12/31 statements are now only about a month away—but there’s no reason to wait till then to start taking proactive steps on the road to portfolio “recovery.’

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