2010 Oechsli Institute - Affluent Research

2010 Research Report

Affluent Investor Study The Oechsli Institute & Nationwide

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©2010 The Oechsli Institute. All Rights Reserved. | For Broker/Dealer Use Only - Not For Use With The Public.ved

www.oechsli.com | ©2010 The Oechsli Institute. All Rights Reserved. | For Broker/Dealer Use Only - Not For Use With The Public.ved

IntroductionThe landscape of the financial services industry re-mains in the midst of a radical change. These chang-es have transformed the attitudes and behaviors of affluent investors and the financial advisors who work with them. This has created a tremendous op-portunity for financial advisors and teams who are able to understand today’s affluent investor, make the necessary adjustments, and commit themselves to meeting their expectations.

In an our ongoing effort to stay abreast of affluent investors’ financial concerns, the Oechsli Institute, in partnership with Nationwide Financial, conducted a 2010 Q1 study on the affluent. The objective of this study was to remain up-to-date on what is important to today’s affluent in the midst of this financial cri-sis, especially with regards to their relationship with financial advisors.

We studied three key areas as they relate to the afflu-ent investor’s relationship with the financial services industry:

Marketing: Since it appears that every financial ad-visor is marketing his or her services to the affluent, we wanted empirical evidence as to which marketing tactics are most effective and what factors into the affluent consumer’s selection of financial advisors. For instance…

• Personal introductions are the most effective by a wide margin, whereas cold calling and direct mail were extremely ineffective. Very few afflu-ent investors found their current financial advisor as a result of those mediums.

• Reputation (Trust) and first impression regarding professionalism and competency are the most important factors today’s affluent investor uses in selecting a financial advisor. The quality of

the actual proposal and the specific investment recommendations were much less significant.

• When asked which type of client event they would prefer to attend, small social events were at the top for both attendance and willingness to bring a guest.

Loyalty / Service: Nothing is more important to fi-nancial advisors than being able to develop loyal af-fluent clients. The loyalty of today’s affluent inves-tor requires personalized service coupled with truly comprehensive wealth management. All of which is linked with statistical significance to affluent client acquisition (marketing). For instance…

• There are 16 factors critically important to to-day’s affluent investor / financial advisor rela-tionship. Advisors should be aware of and atten-tive to all 16.

• The two most effective mediums of communica-tion are in-person-meetings and telephone calls. The least effective are brochures and personal websites.

• Of the top 5 issues that would cause today’s af-fluent to search for another advisor; the top three involve personal service and communication.

Financial Solutions: Financial advisors rank high-est amongst all financial professionals for full trust of unbiased advice. The trust of today’s financial advisor is linked to providing a comprehensive array of financial services and the professionalism in how they are delivered. For instance…

• Nearly two-thirds of working affluent investors remain concerned about their family’s financial health.

• Lifestyle in retirement is the greatest concern for both working and retired alike.

Introduction

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• Only 25% of financial advisors are perceived by their affluent clients to be providing a very com-prehensive planning approach to managing their finances.

The above is only a small sampling of what we dis-covered. For this report, we’ve outlined several core areas for financial advisors looking to acquire more affluent clients, strengthen the loyalty of existing af-fluent clients, and develop a better understanding of the financial solutions (products and services) that are important to today’s affluent investor.

The results in this report reflect the responses of over 400 qualified respondents, all of which have over $500,000 in investable assets (83% had investable assets between $750,000 and $10 million and 55% between $1 million and $5 million). The data collec-tion was done through online survey. Basic univari-ate results are presented directly. When statements or significance are made, they are based on the re-sults of common statistical methods for the type of survey data and reflect the use of a 5% margin of error as a standard for measuring significance. Any group comparisons presented reflect significant dif-ference in group responses.

Introduction

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Demographics Investable AssetsThe majority of respondents (83%) fell into the $750,000 to $10 million currently invested or avail-able to invest category, with 55% falling into the $1 million to $5 million category. This grouping rep-resents the affluent ‘sweet spot’ for most financial advisors.

IncomeAll incomes fall into what the Bureau of Labor Sta-tistics refers to as the “top quintile income earn-ers.” Although these figures have become some-what fluid as a result of this financial crisis, 29% of respondents are still earning over $200,000 a year.

Net WorthThe financial crisis has had a direct impact on many affluent residential home values. Since home value has always played a significant role in calculating a family’s net worth, it remains to be determined how the concept of net worth will be viewed in the future. However, today’s affluent are concerned about their overall financial health.

AgeThe two largest age categories of respondents fall into the 50 to 59 and 60 to 69 age brackets. That said, it is nearly evenly divided between over 60 years of age (52%) and under 60 (48%). Only 6% of respondents are under 40, which indicates that this group is still actively involved in the accumulation of wealth.

Under 40 5%

40-49 10%

50-59 32%

60-69 38%

70 or older 14%

Demographics

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GenderWomen are becoming increasingly more involved in the decisions concerning their family’s financial affairs. The fact that 41% of our respondents were female is a strong indicator of their influence. Finan-cial advisors should involve both husband and wife when offering advice regarding family finances.

Number of Financial ProfessionalsThe majority of respondents view themselves to be working with only one financial advisor. However, the greater the level of assets the greater the prob-ability affluent investors are currently using more than one advisor. This is significant in as much that today’s affluent desire to have a primary “go-to” fi-nancial advisor overseeing their family’s financial affairs and highlights both an opportunity and a con-cern.

From the perspective of concern; financial advisors need to take the necessary steps to ensure they are the primary “go-to” financial advisor for their afflu-ent clients. From the perspective of opportunity; fi-nancial advisors should work to become the primary “go-to” financial advisor for affluent investors who have multiple advisors elsewhere. This underscores

a serious affluent prospecting opportunity. Nearly half of all affluent investors are prospects for the simple process of consolidating all of their family’s financial affairs.

Demographics

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MarketingSelecting A Financial ProfessionalThe affluent make major decisions predominantly through word-of-mouth influence; they place signifi-cant emphasis on the opinions of people they trust and respect. Selecting a primary financial advisor is a major decision and it should be no surprise that 54% made their selection as the result of a personal intro-duction from a family member, friend, colleague or another professional. This is face-to-face marketing. It is important to note the small percentage of af-fluent investors influenced by public seminars (6%), direct mail (2%), telephone solicitation (2%), or the internet (1%). Marketing to today’s affluent investor is all about cultivating personal relationships.

Even the 17% in the “Other” category were predomi-nately personal (my friend, my neighbor, etc.) with just a handful responding that they were “inherited / assigned to a financial advisor by management”.

Factors in Advisor SelectionAfter carefully studying this chart you will discover that 76% of the “factors” that today’s affluent inves-tor considers most important in selecting a financial advisor refer to the reputation and trust of the indi-vidual. At 16%, the importance of the advisor’s firm is much less significant. The actual proposal (specif-ic investment recommendations, etc.) presented to an affluent prospect and his or her reputation regarding a specific area of expertise both have minimal impact on the selection process (7% and 6% respectfully).

Marketing

Advisor Takeaways:

• Get Face-to-Face: This is the only way to de-velop meaningful relationships with affluent

investors and other professionals.• Stimulate positive word-of-mouth amongst

affluent clients and centers-of-influence.• Make certain you’re positioned as the trusted

primary financial advisor for your affluent clients. Without trust, there’s no penetrating centers-of-influence.

• Work to develop personal relationships with CPAs, attorneys and other professionals. This goes beyond a simple business arrangement.

• Be cautious about investing money in imper-sonal marketing activities for the purposes of acquiring new affluent clients.

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Second OpinionsThe greater the level of investable assets of today’s af-fluent investor, the greater interest in having a second opinion on their portfolio. Basically, 7 out every 10 af-fluent investors with $5 million or more of investable assets would entertain a second opinion on their port-folio and only 3% responded with an absolute “no”. Again, this highlights a valuable prospecting oppor-tunity and a note of caution. Although financial ad-visors should be looking to offer second opinions to affluent prospects, they need to be taking the neces-sary steps to make certain that their affluent clients would not accept such an offer.

Perception of Client EventsFinancial advisors should take note; when it comes to inviting today’s affluent clients to an event, they are most likely to attend an intimate social event (36%) and to bring a guest (42%). This doesn’t mean that only 4 of 10 would attend a small social event; this was a forced ranking. Respondents were asked to choose which event they would be most likely to at-tend and to which they would be most likely to bring a guest. The types of events used range from a small dinner party, to a wine tasting, to a night at the the-atre, to a sporting event – the list is endless.

This finding suggests that financial advisors who are interested in acquiring new affluent clients should al-ways have their clients invite a guest to these intimate non-business ‘fun’ events. These small scale social events create an ideal environment for establish-ing trust and building relationships with your afflu-ent clients and their friends, family and colleagues. Large scale social events are not preferred (12%) by today’s affluent investors.

It is also important to take note that the financial cri-sis has fueled affluent investor interest (35%) for up-to-date information on the economy and market re-lated issues, although they’re not as willing to bring a guest (30%) as they are to small scale social events. These events are still far more effective than product focused events (17%).

2%

37%

61%

8%

33%

60%

7%

23%

71%

3%

28%

69%

0%

10%

20%

30%

40%

50%

60%

70%

80%

No Not Likely Most Likely or Yes

Would Accept a 2nd Opinion on Their Portfolio$500K to under $750K $750K to under $1M $1M to under $5M $5M and up

Marketing

Advisor Takeaways:

• Make certain your affluent clients are aware of every service you are providing and the value they are receiving.

• Be covetous of your reputation• Expand your depth and breadth of industry

knowledge.• Be a consummate professional in every man-

ner; dress, demeanor, community involve-ment, etc.

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Intimate Client Event ExamplesAdvisor A: Jane invested $105, held a wine tasting event and landed a $1.2 million new client. How? She held the event in a local art gallery at no charge (owner was happy to have potential affluent cus-tomers in his gallery), purchased good quality, well priced wine (a friend is a distributor), and cooked the finger food herself. She invited five good clients and four brought a guest. Everyone had fun, no real business was discussed, although two of the guests were interested in a second opinion regarding their family’s finances. To date, one of these guests has become a client.

Advisor B: Robert invested over $1,000 on a surprise birthday party for a top client and landed no new cli-ents. Why? He called his client’s spouse, offered the idea of a surprise birthday party (his 65th), she thought it a wonderful idea until Robert asked her to provide him with the contact information of his closest friends and colleagues. Her response was “If I get you this list, you must NEVER solicit business from them – ever!” The birthday party was a big hit, everyone loved it, but Robert had lost the spouse’s trust because he came across too much like a sales

person when he asked for the contact information. Today’s affluent investors do not like sales people.

Referrals/Introductions Given Last yearA whopping 68% of affluent clients have given zero (42%) or one (26%) referrals or introductions to their primary financial advisor over the past year. This highlights both a challenge and an opportunity. The opportunity is obvious; affluent investors will introduce their primary financial advisor to a friend, colleague or family member if approached properly.

However, too few referrals and introductions have actually happened. Thus the challenge for financial advisors is to master the art of penetrating affluent centers-of-influence. Your affluent clients will al-low this to happen if 1) they trust you, 2) they feel strongly about the services you provide, and 3) you make it easy for them.

Methods Acceptable for IntroductionsThese findings highlight a wonderful opportunity for today’s primary financial advisors. Affluent clients will recommend you if asked by someone (90%), will offer your name to someone complaining about their financial advisor (80%), and will provide un-solicited introductions and referrals (70%) – if they

Advisor Takeaways:

• Keep your events small and social.• Hold your events regularly; monthly or bi-

monthly is ideal.• Hold quarterly or semi-annual informational

events related to the market. Your affluent cli-ents will attend and many will bring a guest. The financial crisis has fueled a hunger for unbiased information updates regarding the economy and markets.

• Avoid public product-focused seminars and large client events.

Marketing

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like, trust and respect you. However, elite financial advisors are not reactive. They don’t wait for clients to determine who they think might be dissatisfied or who they should meet. These advisors know that af-fluent dissatisfaction is rampant, they assume their affluent clients feel strongly about them, and they’re proactive in orchestrating these personal introduc-tions and referrals.

Decision to Hire Based on Professional or FirmFor today’s highly skeptical and guarded affluent investor, the financial advisor is the product. 67% of affluent investors are making their decision on their primary financial advisor based on the reputa-tion, first impression, professionalism and perceived competency of the individual advisor. Only 14% are making their decision based on the institution with which the advisor is associated. This suggests that financial institutions should invest heavily in ad-vanced training for their financial advisors, as the more professional and client centric they are, the more the institution strengthens its credibility with affluent investors.

Advisor Takeaways:

• Remember that 90% of your clients feel strongly enough about you as a financial advi-sor to recommend your services.

• Be proactive in orchestrating personal intro-ductions and referrals.

• Spend time refining your affluent sales skills; they need to be seamless.

• Hold small social events and invite top clients and guests.

• Spend more time with your affluent clients and centers-of-influence. It accelerates word of mouth influence.

Marketing

Advisor Takeaways:

• You – the individual financial advisor – are the product.

• Financial advisors must be able to communi-cate, demonstrate, and quantify their value.

• Professionalism and a consistent client expe-rience are essential.

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16 Advisor Commandments

The following 16 criteria are extremely important to today’s affluent investor. It shows that they expect more services, higher levels of service, and more personal attention from their primary financial advi-sor. As you read through these 16 criteria, assess how well you’re currently performing in each crite-rion using the following scale:

1. Always having your family’s best interests be-hind every financial recommendation. Performance Rating: _______

2. Providing clear and timely communication. Performance Rating: _______

3. Resolving problems quickly and to your satis-faction. Performance Rating: ________

4. Meeting investment performance expectations. Performance Rating: _______

5. Possessing a comprehensive breadth and depth of industry knowledge. Performance Rating: _______

6. Delivering high-level personal service. Performance Rating: _______

7. Fully disclosing all fees. Performance Rating: _______

8. Fully understanding your family’s goals and needs. Performance Rating: _______

9. Being focused on overseeing my family’s finan-cial affairs, not marketing his/her practice. Performance Rating: _______

10. Keeping you informed of any events that might impact your family’s finances. Performance Rating: _______

11. Developing and communicating a financial recovery strategy for your family. Performance Rating: _______

12. Helping create and execute an up-to-date formal financial plan. Performance Rating: _______

13. Cares about my family more than just my in-vestments Performance Rating: _______

14. Coordinating all of your family’s investment decisions. Performance Rating: _______

15. Helping you organize and keep up-to-date all your important financial documents. Performance Rating: _______

16. Using outside experts (specialists) to help with other financial areas. Performance Rating: _______

Marketing

1=Not Well, 2=Somewhat Well, 3=Moderately Well, 4=Very Well

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Your next action step is to identify two to three areas that need the most attention and take specific action steps to improve in those areas. It is important to re-member that all 16 criteria are important in the eyes of your affluent clients and prospects.

1. Improvement Area: ______________________ Action Steps: _________________________________________________________________

2. Improvement Area: ______________________Action Steps: _________________________________________________________________

3. Improvement Area: ______________________Action Steps: _________________________________________________________________

Note that only one of the 16 important criteria is “meeting investment performance expectations”, so it is important that financial advisors understand that there are 15 other areas that are important to today’s affluent investor. Financial advisors need to begin taking, if they aren’t already, a comprehensive ap-proach to handling their affluent client’s financial af-fairs. Providing a full array of services, having the appropriate personnel, and delivering Ritz Carlton quality with FedEx efficiency have all become es-sential for working with today’s affluent investor.

Advisor Performance Effect on ReferralsThe charts on the following page illustrate both the challenge and opportunity confronting financial ad-visors as they endeavor to work with today’s affluent investor. Because each of the 16 criteria presented in these charts are rated as “Important” to affluent clients, every advisor’s challenge is to perform “Very Well” within each of the criteria. These charts il-lustrate significant room for improvement. These charts also highlight a real opportunity; financial advisors who were rated as performing “Very Well” by their affluent clients in these areas received more referrals than their counterparts who were deficient in these areas.

Across the board we would like to see a higher per-centage of advisors being rated as performing “Very Well” with each of these sixteen criteria. Also, the future for prospecting is bright for financial advisors who do perform well with these criteria and are able to proactively generate introductions and referrals as opposed to waiting to be given a referral. As indicat-ed in this report, financial advisors, even those who are perceived to being doing a good job with their affluent clients, are not performing well at acquiring new affluent clients.

That said, the following data shows two distinct groups; those affluent clients who gave zero referrals last year and those who gave one or more referrals. The results prove that advisors who perform better in each of the 16 criteria receive more referrals. For instance, 56% of those who gave one or more refer-rals rated their advisor as performing “Very Well” in “Developing and Communicating a Financial Re-covery Strategy” vs. 37% of those who didn’t give any referrals.

Marketing

Advisor Takeaways:

• Make a commitment to ongoing improvement in every aspect of your practice.

• Work to improve any of the criterion where you scored 3 or less.

• If you are on a team, review areas of respon-sibility regarding these 16 criteria; make any necessary adjustments.

• Review and reassess your practice against these 16 criteria in six months.

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Marketing

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Loyalty

LoyaltyCommunication MediumsAlthough the affluent find telephone communica-tion to be effective, nothing will take the place of in-person meetings. It is imperative that financial advisors spend more time meeting with and talking to their clients. The fact that account statements and financial plans are rated highly indicates that today’s affluent investor wants specific communication, ac-curate and easy to read statements, and a comprehen-sive and updated financial plan. The best advisors combine both personal meetings and telephone calls with clients, not using email as a primary commu-nication medium. Brochures and collateral materi-als are not effective communication mediums, and if used improperly, they are perceived as sales props. Communication Mediums Rated as “Highly Effective” In Person Meetings 82%

Phone Calls 80%

Account Statements 77%

Financial Plan 77%

Emails 57%

Seminars/Informational Events 33%

Firm’s Website 31%

Newsletters 31%

Brochure/Collateral Material 28%

Advisor’s Personal Website 24%

In Person CommunicationToday’s affluent investor considers in-person com-munication to be highly effective. 8 of 10 affluent investors under 50 years of age prefer face-to-face interaction, as compared to 9 of 10 affluent investors over the age of 50. Financial advisors need to take notice; the more face-to-face time spent with today’s affluent the greater the probability of having loyal affluent clients. The older the client, the more im-

portant in-person interaction becomes.

Issues With Financial ProfessionalsAccording to our respondents, although financial ad-visors might think that they are providing high-level personal service to their best clients, 4 out of 10 with $5 million or greater don’t feel they are getting the level of service they desire. Nearly half (48%) are annoyed with completing excessive paperwork, 45%

Advisor Takeaways:

• Increase (if necessary) the personal interac-tion you’re having with your affluent clients.

• Review all account statements for accuracy and simplicity and make certain your clients understand them.

• Update and review the financial plan of every affluent client (in person).

• Avoid relying too heavily on email as a mode of communication.

• Avoid investing a lot of money on newsletters, brochures, or a personal website. These are all secondary mediums of communication.

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feel that they are always being “pitched” new prod-ucts and services, and 45% have an issue with a lack of personal attention. Today’s wealthier affluent in-vestors are more demanding and have greater expec-tations regarding service and operational issues than clients with fewer assets. Delivering a Ritz Carlton caliber of personalized service with a FedEx level of efficiency is essential for advisors working with to-day’s affluent investor. For many financial advisors, this a practice management issue.

Issues That Cause The Affluent to Search for Another AdvisorIt is obvious that today’s affluent investor wants a strong professional relationship with their primary

financial advisor. Repeated mistakes signal a lack of professionalism and a poorly run practice. Interest-ingly, when a financial advisor pays too little atten-tion to an affluent client’s financial affairs, a percep-tion is created that he or she is spending the time marketing their practice, not serving their clients. Although this is not always the case, today’s affluent investor is distrustful of sales people and views the financial services industry as being sales-heavy, so they assume that marketing trumps service whenever service is lacking.

Poor communication cuts a wide path, but coupled with our earlier findings regarding the two most ef-fective communication mediums (face-to-face meet-ings and telephone calls), advisors need to devote more time to being engaged in both.

Financial advisors are typically surprised to see that “investment performance not meeting expectations” ranked so low in reasons an affluent client will leave. This doesn’t mean performance is not important - it is. However, it is important for financial advisors to understand the other issues impacting affluent loyal-ty that are more important. More often than not, the key issue regarding performance is managing client ‘expectations’.

Advisor Takeaways:

• The more assets an affluent client has with you, the greater their expectations of both ser-vice and efficiency. They are more demand-ing.

• Think in terms of Ritz Carlton quality service delivered with a FedEx level of efficiency.

• Consider two levels of service; one for your wealthier clients and one for everyone else.

Loyalty

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Feeling About Referring Your AdvisorOver two-thirds of today’s affluent investors feel positively about referring their primary financial ad-visor to a family member, friend or colleague. This is extremely significant as it creates a tremendous window of opportunity for financial advisors. How-ever our data also informs us that approximately two-thirds of affluent clients have referred only one person, or nobody, to their financial advisors over the past 12 months. Again, this is an indication that fi-nancial advisors either do not know how to penetrate their affluent client’s centers-of-influence, or they simply are not being proactive about it. Either way, this is a gold mine for skilled advisors.

Loyalty

Advisor Takeaways:

• Make certain mistakes are corrected quickly and communicated clearly to the client.

• Make whatever necessary practice manage-ment / personnel / procedural adjustments to eliminate mistakes.

• Review your face-to-face meetings and tele-phone contact with each affluent client.

• Make certain you’ve mastered the art of afflu-ent sales; your sales skills must be seamless!

• Review each affluent client’s fee structure and make certain each client and everyone in your practice is fully aware. Your staff should also be able to articulate your value whenever dis-cussing fees.

• Even though you are the product, you need to communicate the strengths and stability of your firm and how you conduct due diligence on both.

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FinancialFull Trust For Unbiased AdviceNo longer should a financial advisor use his or her firm as an excuse. On a macro level, this financial crisis has eroded affluent investor trust towards the financial services industry. However, as you can de-termine from the chart below, if an affluent client has a primary financial advisor who is associated with a particular firm, their trust in that firm is elevated with statistical significance. Without a primary financial advisor associated with a firm, today’s affluent in-vestors default to their macro view of skepticism to-wards all distribution channels. Although you, the primary financial advisor, are the product, you still want to communicate your firm’s strengths to your clients.

Full Trust In Financial AdvisorsIn general, today’s affluent investor doesn’t have a lot of trust in people marketing themselves as financial advisors. With the highest level of trust hovering be-low 50%, it is imperative that financial advisors pay much closer attention to their affluent clients. The younger affluent generation, those under the age of 50, are overwhelmingly distrustful of the profession.

This is a warning signal for the future of financial advisors. Although this is a general statement and

not reflective of trust associated with their primary “go-to” financial advisor, it warrants attention. Trust levels need to rise across all age groups of affluent investors, but financial advisors need to pay particu-lar attention towards building trust in the younger af-fluent segment.

Full Trust In Financial ProfessionalsThis is the second time (2009 – Q3 report being the first) in our history of researching affluent investors that Financial Advisor is ranked as the most trusted. All indications suggest that this is a direct result of our financial crisis. How? Many financial advisors have worked harder and more closely with their af-fluent clients than ever before; more so than any oth-er category of financial professionals. That said, full trust ranked at 41% indicates that advisors still have a lot of room for improvement. With the previous chart showing full trust of their financial advisor’s firm at 45%, indicators point to a symbiotic rela-tionship between advisor and firm in regaining the trust of affluent investors. Some advisors, like some firms, are doing a better job than others.

On the other hand, CPAs have not increased their

Financial

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personal contact with their affluent clients and, from the perspective of the affluent investor (31% trust factor), have done a poor job of managing these re-lationships in the midst of this crisis. The conse-quence is that now affluent investors view their CPA differently. Basically the same can be said for Finan-cial Planners (33% trust factor), as they need to make certain they are doing more for their affluent clients than just planning.

Because many financial advisors and planners began their careers as stockbrokers and insurance agents, it is important that these professionals work diligently to make certain they are positioned with their clients as the primary financial professional.

Percentage of Assets Managed By Primary Financial ProfessionalEven though an affluent investor might perceive that they have a primary financial advisor, the major-ity of working respondents (81%) and over half of those who are retired (56%) have investable assets held elsewhere. Even taking into consideration that many of those who are still working have money in 401K plans, there is still a strong probability that the majority of a financial advisor’s affluent clients have assets held elsewhere. This is an opportunity for ad-visors to upgrade many affluent client relationships

by consolidating their investable assets into their professional oversight.

Approach to Managing FinancesIt appears that only one-quarter of our respondents’ primary financial advisors are currently taking a comprehensive planning approach with their clients’ finances. Since this is important to today’s affluent investor (see the 16 important criteria), it is important for advisors to take a serious self-assessment of the actual services they are delivering. Wherever there are gaps, services not delivered or not perceived as being delivered, financial advisors should work to provide these services. If these services are being provided, it is essential that clients are made aware of all the services they are receiving.

Advisor Takeaways:

• Set a meeting with each affluent client to re-view and organize all their financial docu-ments (one of the 16 important criteria).

• Whenever assets are discovered to be held elsewhere, have a personal conversation with the client about consolidating those assets with you.

Financial

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From a prospecting angle, this signals another win-dow of opportunity for advisors who are interested in acquiring more affluent clients. If today’s afflu-ent investor wants a comprehensive planning ap-proach and isn’t receiving it, an ideal prospecting opportunity is presented for the financial advisor who is delivering and communicating these services.

Advisor’s Approach to Managing Finances Oversees only the investments held at his or her institution

45%

Semi-comprehensive planning approach to managing our finances

29%

Very comprehensive planning approach to man-aging our finances

25%

Family Financial HealthIt makes sense that working affluent investors are more concerned about their family’s financial health than the retired respondents. However these figures cannot be taken in isolation as our findings have also indicated that although today’s affluent want a ‘go-to’ financial advisor overseeing their family’s financial affairs, approximately three-quarters (see previous chart) don’t feel that their primary finan-cial advisor is serving in that capacity. In addition, our findings in the following chart highlight serious concerns about lifestyle and financial issues in retire-ment. All of this speaks to the fact that there is still

significant dissatisfaction amongst today’s affluent investors.

Biggest Worry About RetirementThis chart needs to be viewed in its entirety rather than each individual category in isolation. Although there is a significant difference between retired and working respondents in the two categories regard-ing lifestyle change and guaranteed income, the overriding issue appears to be their overall financial health. 80% of working investor concerns and 86% of retired investor concerns center around one issue; having adequate finances for retirement. Combine retirement concerns, financial health concerns, and lack of comprehensive wealth planning, it’s obvious that financial advisors have serious work to do with their current affluent clients.

Advisor Takeaways:

• Conduct a thorough assessment of the servic-es you are currently providing.

• Communicate to your clients the services you are providing; making certain they understand every aspect of what you deliver.

• Begin delivering, or coordinating the delivery, of any services not currently provided.

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Affluent Perception of Various InvestmentsThe affluent investor’s perception towards various investment products needs to be coupled with the 16 important criteria. It appears the today’s affluent investors are comfortable with investment vehicles that they are familiar with and understand; individual stocks, mutual funds, bonds, and CDs. However, be-cause of their concern regarding income during re-tirement, annuities have entered the picture joining the more conservative investment vehicles (bonds and certificates of deposit) where a larger percent-age of affluent investors (60% vs. 53%) would con-sider owning than currently do own. The differences

in those considering versus owning REITs and ETFs should also be noted; the larger gaps likely represent a knowledge gap, with affluent investors needing more information before purchasing.

Expect Advisor to Provide Guaranteed Income in RetirementFinancial advisors must understand that the days of chasing yield are over, regardless of how the mar-kets recover. This financial crisis has fundamentally changed how affluent investors think and how they in-vest. Their primary focus is on protecting their assets and having enough income in retirement. With 76% of today’s affluent investors expecting their financial advisor to guarantee income in retirement, advisors need to make this a core part of their comprehensive wealth planning and investment solution process.

Expect Advisor to Provide Guaranteed Income in Retirement Retired 61%

Non-Retired 76%

Advisor Takeaways:

• Focus on conservation of assets and man-age growth expectations. Today’s affluent in-vestors are more conservative, will invest in products they understand, and are focused on investments that will help in their retirement.

• Avoid investments that you can not easily ar-ticulate, especially with regards to risk and functionality.

• Develop a strong knowledge base for all in-vestment products with a 50% or greater “would consider” rating.

Financial

Advisor Takeaways:

• Stay focused on your affluent clients’ bigger picture; living comfortably in retirement.

• Become a knowledge worker. Today’s afflu-ent investors have numerous concerns that might impact their lifestyle in retirement; fi-nancial advisors must possess the knowledge necessary to provide solutions.

• Meet with each affluent client and have a se-rious planning discussion focused on retire-ment lifestyle.

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Would Invest in Guaranteed Retirement Income SolutionIt comes as no surprise that over 80% of working affluent investors would most likely invest in finan-cial solutions that guarantee them retirement in-come. However, what does come as a surprise is that nearly 80% of retired respondents feel the same way regarding guaranteed incomes solutions. Financial advisors need to be well versed in the appropriate investment solutions that serve this purpose.

With lifestyle in retirement a major concern for today’s affluent investor, financial advisors need to become experts at the financial solutions (prod-ucts) that are capable of guaranteeing income with minimal risk. It appears that nearly two-thirds of fi-nancial advisors either are not in possession of this knowledge, or have not communicated it clearly to their affluent clients.

Primary Source of Financial InformationToday’s affluent investors, both working and retired, are relying heavily (60% and 66% respectively) on their primary financial advisor for information. This is put into perspective when compared to ranking of CPAs; 6% with working affluent investors and 1% for those who are retired. This highlights the impor-tance for financial advisors being up-to-date on the economy, world events, changes in tax laws, etc., and to be continually expanding their knowledge base.

Advisor Takeaway:

60% of affluent investors said they’re unaware of financial products that can provide guaranteed in-come with no risk of loss.

Financial

Advisor Takeaways:

• Become well acquainted with financial prod-ucts that provide guaranteed income solutions.

• Learn how to present these financial products as solutions that are part of your comprehen-sive wealth management.

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Self-Directed Investors: Hiring an Advisor Over the Next YearThe vast majority (77%) of self-directed affluent investors will not entertain the possibility of hiring a financial advisor during the upcoming year. Yet 23% of working self-directed affluent investors are at least considering it. Advisors should attempt to qualify self-directed affluent investors in advance of spending a lot of time and energy prospecting for their business.

Self-Directed Investors: Reasons for Managing Their Own FinancesEven though ‘self-directed investors’ are clearly not ideal clients, advisors should find it useful to under-stand their reasoning. It appears that the majority (56%) either enjoy managing their finances or con-sider themselves highly skilled in the management of their finances.

Add the category that involves lack of trust and it seems that there is little opportunity for financial ad-visors with this group. However, if they are self-directed because they couldn’t find anyone they could trust, thought fees were too high, didn’t think they had enough assets, or other – you might have a chance.

Self-Directed Investors: Situations Leading to Hire An AdvisorOur self-directed affluent investor respondents are telling us that they would hire a financial advisor within a certain set of circumstances. At 71%, ill-ness is ranked at the top, with complex tax issues (59%), and finding a very qualified financial advisor (47%) following in rank order. The message here is clear; keep the lines of communication open with self-directed affluent investors and make certain that they are aware that you can help them if they ever en-counter any of the situations described in the graph.

Financial

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Conclusion This financial crisis has created a “tipping point” for financial advisors. On one hand, by making the necessary adjustments as suggested in this report, a financial advisor has the opportunity to become the indispensible primary financial advisor for their af-fluent clients. This will strengthen the loyalty of these affluent clients, which by itself is statistically significant for acquiring new affluent clients. Loyal affluent clients are very willing to introduce and re-fer their primary financial advisor to family mem-bers, friends, and colleagues.

On the other hand, this “tipping point” presents a tre-mendous opportunity for acquiring affluent clients of those advisors who aren’t making the requisite changes. The days of the one-dimensional financial advisor (sells investments, insurance, financial plans, etc.) are over. If history is any indicator, change is very difficult, and many financial advisors, for what-ever reason, will not make the changes necessary to become the indispensible primary financial advisor for their affluent clients. And herein lies a prospect-ing gold mine for financial advisors who are willing to learn the fine art of selling their services to these dissatisfied affluent investors.

Conclusion

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About The Oechsli InstituteThe Oechsli Institute, founded in 1978, specializes in helping the Financial Services Industry improve its abil-ity to attract, service and develop loyal affluent clients. Their research based performance coaching and training programs have been become the standard within the industry. The Oechsli Institute does ongoing work for nearly every major financial services firm in the US.

Matt Oechsli and his associates remain in high demand for keynote speeches and workshops. When not immersed in research projects, they spend most of the week traveling to national conferences, industry events, and other speaking engagements. Every program they conduct, every coaching session they hold, and every product they create are:

Research BasedThe Oechsli Institute has conducted numerous research projects on the Affluent, Rainmakers, and Elite Financial Teams. This research is the foundation of every program; speaking volumes about what the affluent want, and how the elite financial advisors and teams meet and exceed their expectations.

Action Oriented Each program conducted by The Oechsli Institute is driven by the principle, “activity drives the dream”. Why? Too many financial advisors get derailed by too much preparation. Oechsli Institute programs get you learning experientially!

Street TestedThe Oechsli Institute tests every facet of their approach to ensure their methods are working in today’s environ-ment. Every tactic we promote has been proven successful by many hard-working professionals.

Contributors

About The Oechsli Institute

Matt Oechsli, MBAPresident, The Oechsli [email protected]

John Eatman, PhDLead Statistician, The Oechsli Institute

Stephen Boswell, MBADirector of Research, The Oechsli [email protected]

Kevin Nichols, MBADirector of Marketing, The Oechsli [email protected]

[email protected]

The 2010 Affluent Investor Study was sponsored by Nationwide. Nationwide and its affiliates are not related to Oechsli Institute and any of its affiliates.NFM-8292AO (05/10).


Documents

2010 Oechsli Institute - Affluent Research