Data & Research December 30, 2013

Perceptions Differ on Wealth Management

Investors at different income levels define wealth management services differently, research shows, increasing the risk of misunderstanding and client loss for advisers in the channel.
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Many financial firms offer wealth management services, according to Spectrem Group’s online research report, “Defining Wealth Management,” with different levels of success. The report shows that a firm’s wealthiest clients are the most familiar with wealth management products and also the most likely to have a favorable opinion of the wealth management services they receive.

Spectrem’s report shows that although 70% of all investors claim to be familiar with the term “wealth management,” 81% of ultra-high-net-worth investors are familiar with the term, compared with just 59% of mass affluent investors. The report defines ultra-high-net-worth (UHNW) investors as those with between $5 million and $25 million in assets, not including equity in a primary residence. Mass affluent investors have between $100,000 and $1 million, not including home equity.

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UHNW investors are also more likely to think positively about the term “wealth management.” When asked to give their impression of the term on a sliding scale, with “0” as negative and “100” as positive, the UHNW investors tagged it at 67.22. Millionaire investors (with a net worth between $1 million and $5 million) averaged 64.81, and the mass affluent investors came in at 63.65.

“While the term ‘wealth management’ does remain unclear to some investors, the perception of the term has improved,”‘ says George H. Walper Jr., president of Spectrem Group. “There is a clearer understanding of the services that are expected in wealth management, including a focus on a comprehensive financial plan, investment planning and management, and tax planning.”

Other findings in the report show 65% percent of UHNW investors agree or strongly agree with the idea that wealth management services are appropriate for their circumstances, while only 53% of millionaires agreed with that statement. Just 10% of the UHNW investors disagreed with the statement.

The wealthiest investors also seem to understand the need to pay for wealth management services. When asked to respond to the sentence, “Wealth Management makes me believe I am paying too much for the services,” 28% disagreed. Even fewer millionaires (21%) disagreed.

The wealthiest investors are far more likely than other client segments to receive their wealth management services from a bank (19%) or a brokerage firm (34%). The mass affluent and millionaire investors, the report shows, primarily receive wealth management services from a financial planning firm.

Looking more widely at the wealth management industry, 49% of investors say wealth management services are appropriate for their needs, although there is a significant difference of opinion between investors with a net worth over $1 million and those with a net worth under $1 million.

Forty-five percent of investors obtain wealth management services from a financial planning firm or a brokerage firm, the report shows, while the remainder say they get wealth management services from banks, mutual fund companies or accounting firms.

Researchers also observed a significant gender gap when measuring familiarity with the term “wealth management.” While 77% of male investors are familiar with the term, only 63% of women reported the same.

More on the report and related survey results are available here.

Data & Research December 27, 2013

Growth of 529 Plans Slows

Assets in 529 college savings plans continue to set yearly records, but growth in both the adviser-sold and direct-sold channels is slowing, research shows.
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Growth in direct-to-investor 529 products has slowed significantly, according to “529 Advisor Study, 2013,”a report by investment research and consulting firm Strategic Insight (SI), an Asset International company.

In 2013, sales of direct-to-investor products were 9% of inflows, down from 14% last year, as more investors turned to professional help in managing savings efforts. Advisers can expect direct-sold products to continue the trend of declining market shares.

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The retirement and institutional channel, on the other hand, will remain central to 529 product distribution strategies. According to SI, asset growth and sales in these channels will be propelled by a number of demographic trends and the increasing need for retirement savings.

SI researchers expect the fastest growth to come in the intermediary channel.

Intermediaries, on SI’s analysis, will benefit as aging investors transition from other channels, such as seeking professional advice when rolling over assets from a 401(k) account. 

Wirehouses are expected to hold onto their strong position, with 44% of projected 2013 year-end fund assets, but they also have to deal several issues. These include problems in adviser and asset retention, and tarnished brand images following the financial crisis. 

Regional firms have expanded based on strong records for customer satisfaction and consistent service, SI says. The independent adviser channel, conversely, has backtracked in the past few years, because of mergers, acquisitions, firm closures, consolidations and adviser retirements.

SI researchers also point out that the registered investment adviser (RIA) segment stands out as the most independent section of the intermediary channel, and consists of more than 27,000 firms of varying sizes, making wholesaling a challenge. SI expects the RIA population to increase the most of any intermediary channel. Advisers with dual registration (with an RIA and a broker/dealer) have also become an increasingly important part of the channel. 

One channel that remains relatively untapped is the employer channel. According to SI, expanding into this channel is ideal for expanding both assets and automatic funding into 529 plans.

About a third of parents (30%) say that they use a 529 plan to save for college, SI found in its research, but just 7% report that they enrolled in it through an employer. The employer channel can be useful in expanding industry assets, SI says, because 90% of the 529 users who enrolled that way use automatic funding for their accounts. Auto enrollment is an effective way for savers to continually contribute and grow their accounts, which is good for both advisers and their clients.

For that reason, SI urges product providers to allocate more resources to support employers directly and to consider utilizing benefits fairs and other initiatives to encourage employees to save more. 

Looking more generally at the 529 space, total assets have grown to about $183.5 billion, as of the end of the second quarter of 2013. That’s an all-time high and 64% higher than the pre-recession year-end high of $112 billion, measured in 2007. 

Assets in plans sold by advisers have been steadily declining year over year. In fact, the adviser channel accounted for 62% of the 529 savings plan industry assets in 2003, but only 49% as of the second quarter.

Investors have been returning to the industry since 2008, with direct-sold plans gathering the majority of net flows. The growth of the intermediary channel will be critical to the future of all 529s, even direct-sold plans, where financial advisers play an important part in enrollment.

More on the survey and how to obtain the full results is available at http://www.sionline.com/.

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