More Provider Relationships for HNW Investors

Since the financial crisis, high-net-worth (HNW) investors have been averaging nearly four investment provider relationships, Cerulli research found.

High-net-worth investors maintain an average of 3.7 investment provider relationships, up from 3.3 in 2008, according to the latest research from Boston-based global analytics firm, Cerulli Associates.

“High-net-worth investors have more provider relationships and are more likely to change providers than other investors,” said Bing Waldert, director at Cerulli. “In addition to diversifying their assets, these investors also diversify their sources of advice.”

Cerulli’s report, “High-Net-Worth and Ultra-High-Net-Worth Markets 2012: Understanding Bank Trust Departments, Family Offices, Private Client Groups, and Other HNW Providers,” analyzes two affluent U.S. marketplaces: high-net-worth, with investable assets of more than $5 million, and ultra-high-net-worth, with investable assets of more than $20 million. Included is a detailed analysis of vehicle usage, fees and services provided at bank trust departments, family offices and private client groups.

The Cerulli report notes that despite the high-net-worth market’s competitiveness, it remains appealing to providers and asset managers. Providers are not only drawn to the large balances of high-net-worth investors, but to their complex situations that require a number of financial services.

“High-net-worth investors are a unique segment. They possess incredible wealth, allowing them to access institutionally priced vehicles,” Waldert said. “These investors are typically served by a diverse group of providers, ranging from global financial services firms to regional banks.”

High-net-worth investors will begin to consolidate their providers, Cerulli said, urging providers to consider how to position themselves as the adviser of choice when the time comes.

Investment consultants are turning to the HNW marketplace as a growth engine. These firms have been challenged by the unattractiveness of the public defined benefit market as well as a perceived lack of skill in alternatives.



One challenge high-net-worth investors face is feeling frustrated with continuous scandal and personnel turnover at major providers, which may be one reason they are increasingly utilizing structures where they can exercise more control.

The complex needs and high balances of these investors hold obvious appeal to providers. However, high-net-worth investors are the likeliest to express dissatisfaction and switch providers. On average, they diversify their assets among the most providers. They lean toward the contradictory goals of capital preservation and aggressive risk tolerance. Providers serving this market need to hit on all cylinders to keep clients satisfied.

Cerulli emphasizes that providers need to provide service with honesty and trustworthiness, while remaining focused on wealth preservation and still achieving decent investment performance. This mix of service and execution presents a significant challenge in the long run for any provider.

Some highlights of the report are:

  • Asset managers must think of high-net-worth providers as a unique market. The sale is likely to be institutional in nature, requiring a sophisticated salesperson prepared to have a detailed discussion of portfolio attribution.
  • Client acquisition will be essential for providers in the coming years, particularly in the ultra-high-net-worth markets.
  • Legacy providers have seen their business erode in recent years for multiple reasons. First, new wealth creators are seeking flexible, autonomous structures, such as forming their own private trust companies. Second, the weak economy of recent years has accelerated wealth erosion for legacy inheritors.
  • Many of the industry’s largest firms continue to be embroiled in scandal, often when they are not working in their clients’ best interest. While many of these actions occur in other businesses besides wealth management, they still shake investors who value trust and preservation.

Other features of the report are:

  • Unique characteristics of high-net-worth and ultra- high-net-worth investors;
  • Market segment shifts by certain high-net-worth providers;
  • Characteristics of the bank trust market;
  • Adjustments to fee schedules to retain profitability;
  • Asset manager strategies for addressing specific high-net-worth markets; and
  • Assessments of how high-net-worth providers and investors are constructing portfolios

A copy of the report can be purchased through Cerulli’s site.