In Practice October 14, 2008

How to Manage Affluent Investors in Financial Crisis

As the main source of financial information for affluent investors, advisers can help them move through the crisis.
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The vast majority of affluent investors have not had a serious financial setback in their lifetime, according to a SpectremAdvisor.com report. Sixty-seven have only experienced minor (17%) or extremely minor (50%) financial setbacks.

The report says that investable assets represent the greatest portion of total assets for affluent investors, so the current investment crisis has an impact on many of them right now. Some investors indicated a likelihood to change investment allocation during the financial crisis, according to the report. In May, 21% of affluent investors said they are likely to invest in more fixed-income products, and 18% are likely to change investment allocation. More than half agree that the news about Merrill Lynch, Lehman Brothers, and AIG will influence their investment plans over the next six months (43% strongly agree; 11% agree).

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When examining how affluent investors have reacted in the past, the report finds that during the Mutual Fund Crisis of 2003 to 2004, investors had the “wait and see” attitude. The majority (69%) opted to “stay the course” and hope for things to improve. During the Enron Scandal of 2002, confidence in American corporate business was low.

How to Help Your Client

To meet the needs of affluent clients in today’s market, Spectrem recommends the following to advisers:

  • Communicate with customers, discussing why you are or are not recommending changes to their portfolios. Reach out to them at least weekly with telephone calls, e-mails, Web site updates, and mail. Among affluent investors, returning phone calls was the key driver of loyalty to their advisers (94%), followed by providing good return on investments (93%), and working to keep fees and expenses low (87%), according to the report.
  • Recognize the concern clients have right now about the crisis. “Life issues are more important to investors than investment issues,” the report reminds advisers.
  • Understand the lack of confidence investors have in financial institutions. Advisers can help reassure clients about the American business model as a whole. “Be able to understand and clearly explain the credit crunch and its impact on the financial services industry and ultimately, investors,” the report says.
  • Respond promptly to questions and concerns from clients, and know what they expect. The report found that 36% of affluent investors think returning a phone call in one to three hours is acceptable from their adviser; 14% think it is acceptable in one hour or less.
  • Don’t underestimate other events going on aside from the economy. The upcoming presidential election is also on the forefront of many investors mind, and will have an impact on the investing behavior of the affluent. According to Spectrem, as of September, one-quarter of affluent investors plan to change investments as a result of the presidential election.

The research was based off of the Spectrem Affluent Investor Index (SAII), which measures the investment outlook of households with $500,000 or more in investable assets.

 

Information about purchasing the report is available at www.SpectremAdvisor.com.

In Practice October 14, 2008

Ex-Fidelity Workers Strike Deal on Gift Probe

Eight (mostly) former employees of Fidelity Investments have reached preliminary settlements with the U.S. Securities and Exchange Commission (SEC) in a gift-taking probe, according to Reuters, citing court documents.
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The SEC had in March charged Fidelity, Peter Lynch, and 12 other former or current employees of the firm with improperly accepting travel, entertainment, and other lavish gifts paid for by Wall Street brokers (see Fidelity to Pay $42M into Funds After Report Reveals Brokers’ Gifts to Traders).

Subsequently, Fidelity had agreed to pay $8 million and Lynch about $20,000 to settle the charges. Both Fidelity and Lynch, who ran the Magellan fund from 1977 to 1990, settled without denying or admitting the charges. Two other individuals also settled in March.

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Of the remaining 10, eight have now entered into in-principle settlements with the SEC’s Division of Enforcement, according to Reuters, citing documents from a Boston administrative court that were provided to Reuters by the SEC. The settlements, whose terms are not public yet, are subject to approval by the SEC, according to the report.

The Reuters report quoted a Fidelity spokeswoman as saying that seven of the eight individuals are no longer employed at Fidelity. One individual, who is still employed by the firm, has not been on its trading desk for more than three years, according to the report.

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