I wrote recently about the intriguing research on the wealthy done by my former colleagues at Merrill Lynch.
Every year, the firm joins with fellow publishers CapGemini Group to produce the World Wealth Report (WWR), a survey of the behaviours and attitudes of the world’s high-net-worth individuals (defined as those with over US$1 million in investible assets). You can download a free copy at www.capgemini.com.
As I noted then, perhaps the most compelling insight of this year’s WWR is that the “psyche” of wealthy individuals has changed. This insight coincides with my own observations. Judging from the high-net-worth individuals I’ve spoken to over the past several months, there is a strong desire to take a more “hands-on” approach to wealth management. There is less confidence in the market and in financial institutions. This attitude shift has a number of profound implications for the way clients and advisers work together.
Here are some conclusions taken from the WWR, supplemented with several observations of my own.
More than ever before, the wealthy want professionals to “show me my money.” They want up-to-date, easy-to-understand portfolio statements and regular progress reports. They expect more frequent contact from their professionals and a more proactive approach to market and macro-level economic events that might affect their portfolios. Call it a demand for transparency – and it’s here to stay.
As they become more educated about financial services, products and strategies, the wealthy have started to demand more specialized advice. What’s more, they’re willing to walk away from professionals who can’t offer a full range of financial services that’s finely tuned to their personal financial circumstances.
Since the financial crisis, wealthy investors have shifted away from a growth-focused attitude and are now placing a priority on risk management. They want to “kick the tires” of a particular investment and fully understand the risks before they commit their money. They’re looking for full-blown scenario analysis on their proposed portfolios, with verified data that shows them what might happen in the event worst comes to worst. The wealthy individuals I know are more concerned with protecting their downside risk than ever before and are particularly attracted to products and strategies that limit losses in the event of further market turmoil.
Wealthy individuals are now insisting professionals “keep it simple” when it comes to their portfolios. They want to fully understand what they’re investing in – how an investment works, how it makes money, what the tax implications are, etc. They’re unwilling to trust complicated financial structures, unproven strategies and “black box” investments. Instead, they want detailed disclosure and a thorough risk review prior to investing. And if they can’t understand a given investment, they’re more than willing to keep their money in good-old-fashioned cash.
Instead of empowering their adviser or other professionals to make decisions for them, wealthy individuals now insist on being in the driver’s seat. Instead of treating the adviser as a “guru” and deferring to his or her authority and knowledge, affluent individuals now insist on a more collaborative approach. They want a thorough discussion and debate before any investment decisions are made. They want to double-check strategy and recommendations against other sources and are willing to ask hard questions about whether the advice they’re receiving is realistic and appropriate.
A lot has changed over the past several years. The expectations of the wealthy have clearly shifted – most likely forever. Professionals ignore the significance of this change at their own risk.