As the economy becomes increasingly stressed, financial services providers and advisors must do all they can to keep ahead of the ebb and flow of market tides. A significant portion of their overall success depends on the attitudes and behaviors of a relatively small portion of U.S. households, the "affluent market."
And that attitude as of late has not been positive. At the outset of 2008, overall investor sentiment was at its lowest point since February 2004, as measured by the monthly Spectrem Affluent Investor Index (SAII) and Spectrem Millionaire Investor Index (SMII). This pessimistic outlook is especially troublesome since presidential election years usually bring investment concerns anyway. This dismal attitude may continue beyond the November elections. Of all the concerns facing the affluent, the stock market conditions and the economic environment have the largest impact on investment portfolios and attitudes.
Following are some other insights from our recent research, Perspective,Future Trends in Wealth Management.
In the future, financial services organizations will have to become either product providers, advice specialists or advice generalists with access to experts at no additional cost. Informed affluent investors will reject one-size-fits-all advice in favor of individualized solutions and applied expertise.
Today financial services organizations run the gamut from pushing product to providing advice. In the near future it will be very difficult to do both. Sophisticated investors will be seeking the best products possible. It will be difficult for one organization to provide the best asset management, the best trading services and the best managed accounts.
Consequently, successful organizations must concentrate on their core competencies. Strong asset management firms will concentrate on asset management, advisory firms will concentrate on providing objective, open-architecture investment advice and in-depth financial planning services to their clients.
Another trend that will emerge is a decrease in loyalty to advisors. One cause for this will be the inability of advisors to meet greater expectations. Investors will have to weigh the expertise and convenience of their advisors against their own ability to manage their investments. Indeed, some affluent investors will feel confident enough to buy products directly from product providers via the Internet, avoiding advisors altogether. Clearly, the need for advisors will change. The Internet will play a larger role. Firms must be ready for this and realize that client satisfaction will be linked to Internet capabilities. Affluent investors want to know what is happening with their assets instantaneously.
About half of affluent investors are spending more time online regarding financial issues compared to a year ago, with the younger investors pulling up that average. Broken out by age group, 61% of affluent investors age 50 and younger are doing more online financially, as are 54% of those between ages 51 and 60 and 29% over age 61.
The factors influencing the attitudes of today's investors are numerous. Their greatest desire is to understand how to protect themselves and their families from financial risk. Their challenge is in determining whom to trust, where to get the appropriate information, which firm or advisor will look out for their interests and how to hire the expertise required in a changing and volatile marketplace.
All of these factors will influence the types of providers the wealthy will choose in the future. Providers in this market must focus on their core competencies and determine how to effectively position themselves in the market. There is a critical balance between maintaining credibility and providing the required products and services to attract and retain affluent clients. Financial firms, especially brokerages, need to master this balance in this new online world.
Advisors should keep the following three points in mind. First, they must position themselves as focused on an investor's life needs, not on investable assets. Second, they must reposition themselves as experts and not as product pushers or transaction specialists. Third, as investors become more sophisticated, advisors should be available on the Internet to answer their questions. Why is this stock right for them? What does it do to their portfolio? What are the tax implications? What do you know about the company that is not readily available?
To meet these client needs, advisors should establish training programs.
George Walper and Catherine S. McBreen are president and managing director, respectively, of Spectrem Group, a research and consulting firm that specializes in the affluent and retirement markets.
