Full service for the affluent (Your basics won’t cut it)

(August 2008) New evidence is being put forth, this time by education provider Canadian Securities Institute (CSI), in support of using the quarterback business model to attract and retain wealthy clients.

This is not a stunning revelation, particularly for those already serving higher-net-worth investors, but the study, entitled What Affluent Clients Want, released in support of CSI’s new Chartered Professional (Ch.P.) Strategic Wealth designation, does offer some illuminating commentary from the 402 clients it surveyed, about both the services they want and the perceptions they have of the advisors who would serve them.

The survey, intended “to build an independent profile of the clients most sought after by advisors,” identified several key gaps:

• Advisors who do not understand the financial planning needs of business owners in the future will see their opportunities to serve high-net-worth Canadians reduced by 50%, even before they get started.

• Advisors who want to attract high-net-worth families need to identify them early on. The families in this category today generally have established wealth management relationships that reach far beyond investment advisors.

• That said, many of those with financial advisors have been making use of their services for less than five years — the relationships are relatively new, vulnerable and susceptible to change during pivotal moments when client lifestyles change.

• Opinions are changing. Roughly 61% of younger affluent clients say strategic wealth management services would be very beneficial to them — a much higher percentage than their older peers. Furthermore, CSI says a significant portion of the market is open to a more well-rounded relationship. “Wealthy Canadians see the value of integrated expertise; they just don’t see who offers it.”

Under “lessons learned,” CSI authors say higher-net-worth Canadians do not see their financial planners as strategic wealth practitioners. In fact, only 36% agreed they are getting the advice they need to grow their net worth. In terms of needed services, 72% say they have, or expect to create, an estate plan for their heirs or for a charity. Nearly 50% of Canadian households in the high-net-worth category include business owners. Of those with household assets exceeding $5 million, 81% own all or part of a business.

These clients need consultative advisors who understand business-related structures and ownership dynamics, assistance in the transfer of business equity, succession planning, tax advice, trust planning and wealth preservation strategies. The affluent, business owners especially, are also more likely to be working with other advisors (accountants, lawyers and more than one financial planner at times), and they tend to hold every type of asset — a portfolio mix well diversified outside of standard investments.

The challenge, though, is that financial planners are not among the list of advisors such clients are turning to. Only 12% say they use a planner exclusively. Moreover, they say simple investment solutions are clearly beginning to hold less value “and could be in danger of becoming a commodity. Wealthy clients see it, and they’re commenting on it,” say the report’s authors.

The client comments, too, are a little damning at times. Most notably, one told interviewers that “I have found I always come away with a view that I know more than they do.” A second comment points to another common problem: “Strategic wealth would be about reviewing all of my assets together. Currently, my financial planner seems only concerned with what he has under his direct management.”

The survey, conducted at the beginning of 2008, used income as a predictor of overall wealth. CSI vice-president Brent Scowen says CSI found that 67% of households surveyed had assets over $1 million, the largest extent derived from assets other than property. Integrated wealth management, meanwhile, is defined by the company and tied to an advisor’s ability to act as a quarterback for wealth management needs and give clients a complete sense of their overall success.

One out of 10 claimed to be receiving the services he or she needs. Roughly 80% who use multiple advisors could not identify a single one among them who could provide comprehensive strategic wealth management.

The number of affluent families, though, is expected to double in the next 10 years.

“Tax, trust and wealth preservation overall were big hot buttons,” says Scowen. “Those were areas where they felt needs are not being met today. The difference that we see is more pronounced among Canada’s wealthy. They’re looking for advice well outside of basic investments. If advisors know the world of business ownership better, if they focus on building deeper relationships earlier with their clients, if they seek and provide management well beyond the basic inventory of investments and if they’re committed to quarterbacking these professional relationships — there’s interpersonal knowledge and client relationships skills they need to work on — but if they think way beyond product selling and really focus on those broader needs, they can fill the void.”

If not, says CSI, advisors relying simply on traditional investment practices will eventually lose affluent clients to their more sophisticated competitors.

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com