New research shows that high net worth clients’ expectations of their financial advisors have changed dramatically in the past 18 months, and advisors must adjust their strategies to keep such clients engaged.

The Mackenzie Private Client Group recently commissioned Investor Economics Strategy Consulting to undertake qualitative research about the attitudes and priorities of the high net worth community. The research, which involved interviews with affluent investors with at least half a million dollars in investable assets, as well as focus groups with advisors across the country, found substantial changes in the attitudes and expectations of affluent investors.

“Advisors need to remain vigilant in finding new and different ways of providing solid service to their high net worth clients, and communicating with their high net worth clients,” says Paul Allan, senior vice president at Mackenzie Financial Services Inc.

The research found that affluent investors are seeking to get “closer to their money,” are expanding their sources of advice and are spending more time monitoring their financial affairs. Their basic goals have shifted from growth and reasonable returns to the preservation of capital, and they are generally looking for a higher level of professional advice.

Interestingly, the research shows that clients have not lost trust in their advisors to the extent advisors believe. Many advisors interviewed for the study expressed concern that the reputation of the entire industry — and their own credibility — had been damaged by the crisis, and that clients were blaming them for wealth deterioration. But interviews with clients revealed that this wasn’t the case.

“We actually got pretty positive comments from affluent investors,” says Keith Sjogren, director at Investor Economics. He explains that investors recognized that the crisis was a challenging time for advisors, and many investors commended their advisors for maintaining regular contact throughout the turmoil.

“The fingers of suspicion really weren’t being pointed at advisors,” Sjogren says.

The research found that approximately 18% of affluent investors considered switching advisors throughout the financial crisis, indicating that a hefty 82% of clients remained satisfied with their advisors.

But in order to continue to appeal to this market, Mackenzie says advisors must adapt to the changing needs of these clients. Based on the research, the firm recommends several strategies for advisors to use when dealing with high net worth clients.

1. Take a partnership approach and plan to allocate more time to affluent client servicing.

Prior to the financial meltdown, clients tended to accept investment recommendations from their advisor without question. In contrast, clients are now much more inclined to challenge recommendations, forcing advisors to explain why specific investments are suitable for them.

“The high net worth investor is far more willing to question recommendations,” Allan explains. “They’re more involved.”

As a result, advisors must be willing to take more of a partnership approach, making decisions with clients rather than for clients.

“Financial advisors need to view themselves as basically a chief financial officer for their clients,” says Allan.

But Sjogren warns that this approach of educating and working more closely with clients requires advisors to spend more time in meetings. “What we found is that [investors are] looking to spend more time with their advisors,” he says.

2. Tailor your position to being more of a guardian of wealth and less of a catalyst of wealth accumulation.

The research found that affluent investors have become considerably more conservative in their investment approach since the financial crisis. As a result, they are seeking advisors who will help protect their wealth rather than promising to aggressively grow it.

“It’s not going to resonate with the high net worth investor that I’m going to grow their portfolio by X per cent,” says Allan. “What’s going to resonate, is advisors positioning themselves as guardians of capital.”

3. Full-service advisors at bank-owned brokerage firms will need to take the opportunity to stress the advantages of size and stability to existing and prospective clients.

Advisors at bank-owned brokerage firms have gained an advantage over their independent counterparts, since the big Canadian banks have emerged from the crisis in such strong shape compared to other banks around the world. As a result, advisors at the banks have the advantage of a strong institution behind them.

“Those advisors that are embedded in bank branches have come through this period with a heightened profile,” says Sjogren.

@page_break@In fact, advisors at the banks report that they’ve been able to recruit new clients in recent months thanks to this affiliation with such reputable institutions. Allan encourages advisors to use this affiliation to their advantage.

4. Independent advisors will need to promote their competitive advantage over branch-based planners by emphasizing objectivity, breadth of offer, planning skills and customized solutions.

In contrast, independent advisors face the challenge of earning credibility without the benefit of a recognizable and reputable name behind them, according to Allan.

“The independent advisor has a real challenge here,” he says. He urges independent advisors to promote the objectivity and flexibility that they have in designing financial plans, relative to branch-based advisors.

5. Financial advisors should respond to increased demand for integrated financial plans by offering comprehensive planning and advice services rather than investment or insurance products.

For many investors, the financial crisis highlighted the importance of having a financial plan. As a result, many high net worth clients are now looking to their advisors for more comprehensive planning services that incorporate retirement planning, tax planning, estate planning and other aspects.

Allan urges advisors to team up with experts in each of these areas to ensure clients’ needs are properly met. “The financial advisor needs to draw into the equation expertise in different areas,” he says.

IE