More Wealth Means More Demand for Trusted Advisers

The World Wealth Report, released this week by Merrill Lynch and Capgemini, highlighted the growing number of HNWIs (individuals with over $1 million in investible assets), particularly in emerging markets. Since 2002, total wealth held by HNWIs has grown by more than 50% from $26.7 trillion to $40.7 trillion (see Merrill Lynch Releases ‘World Wealth Report’). The number of HNWIs has also increased by almost three million, and these individuals are demanding talented advisers from wealth management firms.

Trusted Advisers

While most HNWIs and ultra-HNWIs have relationships with multiple wealth management firms, many clients seek the “trusted adviser” relationship for the long term. More HNWIs are becoming more sophisticated and “hands-on,” meaning they expect advisers to understand them in the context of a larger personal relationship, rather than just giving investment advice, the study says. The effect in wealth management firms is evidenced by the shift from commission-based, transaction-driven business to fee-based, advice-driven business.

Yet firms should note that expectations of HNWIs differ from market to market. For instance, HNWIs in the growing segment of emerging markets seek advisers who understand global markets, as well as the nuances of local cultures (see New HNW Markets Require New Strategies).

HNWIs also typically favor older, more experienced advisers. In fact, the average adviser in North America is now 52, and 42% of practicing advisers will pass the age of 60 within five years, the study says. This rapid graying of advisers—as well as the dwindling number of advisers—was also noted in recent reports by Cerulli Associates (seeB/Ds Dealing With Dwindling Numbers of Advisers and The Pool of Advisers Continues to Shrink). The aging and dwindling numbers of advisers has increased demand and recruiting efforts among firms.

Keeping Clients, Keeping Talent

In order to combat the competition for top adviser talent, the report suggests firms must focus on client retention, which correlates with adviser retention. So, by giving advisers the right tools to retain their clients, firms will successfully retain both advisers and their revenue—keeping in mind that clients often stick to their trusted advisers even if they switch firms.

Some of the retention-building investments the report suggests include analytic tools to help advisers better serve their clients, such as real-time, detailed analytics. Some firms are also developing in-house practice management consulting focused on maximizing client support.

With the increased emphasis on trust-building in long-term adviser relationships, the use of team-based models will also help to aid the process of retention, the report says. In the team approach, advisers reaching retirement can effectively transition their books to younger clients, while remaining a mentor/consultant. Team financial advisers actually perform 10% to 20% better than individual advisers, the report says.

To help adviser retention, firms are also relying on traditional compensation methods with a twist, such as reengineering compensation packages and retirement plans. In general, the report outlines the fact that firms are trying to keep advisers—and their clients—for the long haul.