The Markets August 7, 2008

Millionaires Return from Bearish Terrain

Spectrem Group said its Millionaire Investor Index rose and Affluent Investor Index remained unchanged during July.
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The Spectrem Millionaire Investor Index (SMII) rose 4 points in July to -8, its highest level since February, but still 2 points below its January level, according to a release from the company. The increase, which followed a 3-point decline in June, returned the index to neutral territory from mildly bearish (see Wealthy Americans Take Bearish Stance).

Meanwhile, the Spectrem Affluent Investor Index (SAII), which measures the investment outlook of households with $500,000 or more in investable assets, maintained the bearish stance it began in March. The index was unchanged in July at -17, which represents the second-lowest level since the indexes’ inception in February 2004.

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“Interestingly, with the July advance millionaires have opened a significant spread between their level of optimism and that of the affluent,’ said George Walper, Jr., president of Spectrem Group, in the release. “Whether this suggests a broader improvement in the coming months remains unclear.’

In response to an open-ended question about the factor most affecting their investment plans, affluent investors in July cited: stock market conditions (27%), the economic environment (21%), retirement (8%), household cash flow (6%), housing and real estate (5%), and household income (2%). The percentage choosing stock market conditions was the same (27%) as in April 2008, the last time this question was asked, according to Spectrem.

Millionaires shared the same top three concerns as the affluent: stock market conditions (28%), the economic environment (20%), and retirement (10%), the company said.

Performance in 2008
Feb.MarchAprilMayJuneJuly
SAII-10-20-13-13-17-17
SAMI-5-13-14-9-12-8

Spectrem’s montly report is available for purchase at www.spectrem.com.

In Practice August 7, 2008

The Changing Face of Advisory Firms

The growth of the dually registered adviser mirrors a trend toward incorporating more financial planning in the adviser industry.
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In The Cerulli Edge Advisor Edition, Cerulli Associates says advisers will continue to be attracted to B/D firms that work with its advisers to act in the client’s best interest, evidenced by the rise of the dually registered advisory firm, which houses both a registered investment adviser (RIA) for fee-based advice while also maintaining a broker/dealer affiliation. From 2004 to 2006, those firms experienced a growth spurt, swelling at an annual rate of more than 20%, than slowing to 6% growth between 2006 and 2007, the report says. Asset growth at these firms was more impressive, experiencing an annualized growth rate of 21% from 2004 to 2006 and 18% in 2007.

The move toward more fee-based service in the last decade is evidence that advice is becoming more of a critical part of adviser practice (64% of advisers are fee-based, compared with 34% in 2002, according to Cerulli data). A recent Cerulli study said that providing more financial planning will be critical to the success of firms (see Advice is Value Added). Overall, Cerulli says the trend toward incorporating more advice is positive—although it has caused some confusion as firms and advisers reshuffle their roles.

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In fact, recent data from the RAND Corporation found that many investors misunderstand the legal responsibilities of their advisers (see Advisers’ Legal Responsibility Blurred for Investors). The convergence of financial planning and product placement combined with the regulatory environment has prompted many firms and advisers to examine how they are working with clients and the legal implications of these actions, Cerulli says.

Some firms have begun to incorporate more financial planning more gracefully than others. The line is hazy between non-investment advice and comprehensive planning. Cerulli says in order to define that line, some firms use software programs to keep advice on track; others use disclosure techniques to explain the scope of the relationship to clients; and some avoid the issue altogether by barring advisers from practicing financial planning under the corporate RIA. The issues surrounding the client’s best interest will certainly continue to evolve, Cerulli says.


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