Survey reveals

(August 14, 2003) Advisors are out of touch with their high net worth (HNW) clients in several important areas, suggests a recent U.S. study conducted for Fidelity Investments. The survey of 800 American millionaire investors and HNW advisors concludes that advisors appear to be underestimating the importance of investment performance and overestimating the importance of relationships.

Half of affluent investors rated performance as more important than relationships, while only 4% said the advisor relationship carried more weight. Among advisors, 52% believed performance and relationships were equally important. About one-third said performance was more important while 18% favoured relationships.

“This is extremely important because investment performance is a key factor in a client’s decision to add to or switch assets from their current advisor,” states the Harris Interactive study.

Among ultra-HNW investors, performance was even more important. Of those with $5 million or more in investable assets, 84% said performance track record was critical to their selection of an advisor.

“Performance matters to all clients, and ultra-HNW investors and men in particular, place the highest value on performance in selecting an advisor and evaluating the success of the advisor-client relationship,” says Jay Lanigan, president of the Fidelity Registered Investment Advisor Group.

The survey also reveals a disconnect on the question of why HNW clients initially decide to seek out an advisor. Nearly two-thirds of clients said they needed an advisor because they had reached a certain milestone in their levels, usually measured by a specific level of wealth.

However, nearly 60% of advisors believe clients seek them out because they are no longer interested in the do-it-yourself approach.

“Advisors generally underestimate the importance clients place on achieving a particular goal or reaching life milestones as factors in seeking out their services, while overestimating their [clients’] desire for particular financial services,” the study says.

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Four out of 10 advisors said they believed networking events, such as golf games or cocktail parties, were the best ways to meet new clients. But only one in 10 clients said they found an advisor that way.

This suggests that advisors may be out of sync with investors and are perhaps wasting time and energy on fruitless marketing efforts, the study concludes.

The Harris Interactive report also found a high satisfaction rate (92%) among clients for their advisors. But there’s a suggestion that that number could be misleading, given the poor returns of the last few years.

“Perhaps the economic downturn has reduced expectations for investment performance,” the study says. “Clients seem to have developed a reluctant tolerance for muted or negative returns; that tolerance could dissipate when stocks enter a bull market.”

The study, conducted by Harris for Fidelity in March, involved 510 wealthy investors, defined as having more than $1 million in investable assets, and 320 advisors who have a significant proportion of HNW individuals in their client base.

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Are the results of this U.S. survey reflective of the Canadian HNW market? If so, how? If not, how do wealthy Americans’ attitudes differ from Canadians’? Share your thoughts about serving this market in the Talvest Town Hall on Advisor.ca, or send your views on Diehl’s comments in a letter to Advisor’s Edge to advisorsedge@rmpublishing.com.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(08/14/03)

Doug Watt