The stock market is volatile. Clients are nervous. The economy's a mess and not expected to improve anytime soon. So, what does all this mean? Well, if you're an advisor it's a great time to shift your business-building efforts into overdrive and grow your practice. Whatever plateau you may have reached, whatever ceiling you might have bumped up against - now is the time to blast off or blast through.
These dour circumstances create a near-perfect storm for new business and financial opportunities, especially if conditions remain difficult through the end of the year. Looking back, many advisors may remember this year as a once-in-a-lifetime business opportunity. For astute and motivated advisors, it may go down in history as the point of departure for a more successful and lucrative future.
Too many of your colleagues are sidelined by the uncertain economic climate, avoiding major investment decisions and contact with angry clients. Being proactive, informed and approachable can distinguish you from other advisors and open the door to more assets, more clients and more revenue. Sure, you say, but how much more?
To quantify your opportunity, we developed a series of statistical models that would take into account the current market environment, the prevailing attitudes and intentions of wealthy investors, and three years of behavioral research conducted with more than 4,000 advisors and almost 1,000 of their affluent investors. That data-along with the size of the U.S. high-net-worth market and the typical size and scope of an investment advisory relationship-was used to project the results that can be reasonably achieved by a proactive advisor over the next 18 months. They are:
At least $32 million in new fee-based assets;
A minimum of eight new affluent clients; and
More than $1.85 million in incremental income from noninvestment products.
If this piques your curiosity, keep reading. We share the findings from our latest research with high-net-worth investors, the advisor behaviors that result in this growth we have described, and the steps you need to start taking now to make the most of this window of opportunity.
Affluent Investors Are Unhappy
For more than a decade, we have taken the pulse of affluent investors when there are major market movements and significant geopolitical or economic events. In keeping with that approach, we surveyed 406 affluent investors with fee-based investment portfolios ranging in value from $500,000 to $7 million in March of this year. (See Figure 1.)
Almost all the survey respondents had seen a decline in their portfolios since the beginning of the year, although this was proportionately more prevalent among investors with smaller portfolios. (See Figure 2.)
About nine out of ten affluent investors believe that the U.S. is presently in a recession and expect the economy to worsen over the rest of 2008. Meanwhile, very few of the respondents believe the government or the Federal Reserve has the ability to improve the situation. (See Figure 3.)
In sum, it's not a pretty situation-investors with shrinking portfolios, a gloomy financial outlook and limited faith in the most visible governing bodies. This is where your growth opportunity begins.
Big Changes Lie Ahead
Sometimes a challenging market climate can paralyze investors, while other times it spurs action. Given the brittle mindset, we wanted to know how our wealthy survey respondents planned to cope with the adverse circumstances. What we learned is that most plan to make changes in an effort to protect their assets and weather the coming uncertainty. But what sounds like a logical approach from investors can have a dramatic and negative impact on advisors.
About 70% of affluent investors are planning to pull monies from their primary investment advisor (the advisor with the greatest percentage of their investable assets). About two-thirds are recommending that their peers avoid that professional altogether, or the firm their advisor is associated with, a sentiment that is more pronounced among investors with smaller portfolios. (See Figure 4.). The majority of firms named by our survey respondents were well-known banks and brokerage firms that will need to work with their representatives to mitigate the hostility from clients. Large-scale advertising and communications initiatives about client commitment won't be sufficient and should be paired with personalized advisor-driven efforts to rebuild the confidence of select affluent clients.
About two-thirds of the affluent investors surveyed are inclined to leave their primary advisor, so it stands to reason that a similar number are planning to find a new advisor. Investors with more assets expressed a greater likelihood of selecting a new professional with whom to work. With a meaningful number of affluent investors transitioning assets and accounts between advisors, your growth opportunity expands. Some of those clients and their assets can be yours with the right preparation and execution.
One-third of all affluent investors surveyed plan to take greater control of their finances, though that perspective is not as widely shared by investors with portfolios of $3 million to $7 million, who will continue to rely on professional advisors. About a sixth of all wealthy investors are considering legal action against their primary advisors, but nearly one-quarter of the wealthiest investors are likely to do so. Relatively very few affluent investors will give more money or referrals to their primary advisors, but to the extent this will occur, it's more prevalent among wealthier investors.
The Line of Demarcation
It looks pretty bleak for investment advisors, but that needn't be the case. We also asked the wealthy investors in our study to discuss their advisors, how and when they interact, and specific efforts they appreciate and value.
As we examined these behavioral patterns, two empirically derived segments of advisors emerged-those that are proactive toward their clients and those that are reactive. Proactive investment advisors reach out to their clients to help them understand the market environment and how it impacts their portfolios. They are more consultative, actively seeking ways to be of service and discussing issues in the context of each client's personal and financial agenda. In contrast, reactive advisors are lying low. They handle incoming requests and inquiries from their clients, but don't initiate contact and rarely discuss anything outside investments. The large majority of advisors, almost 80%, can be considered reactive based on how they work with their clients. (See Figure 5.)
The Benefits of Being Proactive
We then took another look at the future plans of our wealthy investors, separating their responses by the type of advisor they work with. What we found is that an advisor's approach to his or her clients has a considerable effect on the latter's plans to maintain, resize or terminate their relationships with those advisors. Even more promising is the fact that proactive behaviors have a demonstrable ability to help advisors retain business and relationships.
As illustrated in the following chart, the clients of proactive advisors were far less likely to change the nature of their advisory relationship than clients of reactive advisors. In every scenario we posed, proactive advisors fared far better than their less-responsive counterparts and are in a better position to strengthen current relationships and earn new business. (See Figure 6.)
Getting Your Share of the Current Crisis
The stark contrast in the client responses when separated by the approach of their advisors sheds light on your biggest opportunity-proactive behavior can help you expand the scope of your existing client relationships, secure referrals to qualified prospects and attract new, affluent clients. Proactive behavior is a vital and ongoing part of any service-oriented business, but it is even more important when market conditions and investment results are less than desirable.
In numerous studies, we've found that tumultuous markets and a weak economy are often optimal times to approach clients for additional assets and referrals and to cultivate new relationships with dissatisfied investors in search of new advisors. Additionally, our studies have helped us determine that periods of fiscal duress can also be a good time to expand the scope of your client relationships beyond investments by adding other products, such as life insurance and credit, and by offering other services, such as estate planning and tax preparation. An integrated platform of offerings allows you to demonstrate your interest in your clients' broad-based needs, reinforce your financial and planning expertise, deliver greater value to each relationship and generate more business revenue.
So, what next? The following chart includes five distinct growth initiatives (and key support activities) that are more accessible than ever because of the current state of the economy and the mood of investors. These suggestions should be considered only as a springboard, however, since there are other countless ways to reach your growth goals that should be explored, and you likely have your own reliable methods that you have perfected over the years.
Enhancing Your Efforts
Contrary to popular opinion, advisors can achieve noteworthy growth in tough markets or during a recession if the right steps are taken. The results discussed previously-$32 million in new fee-based assets, eight new clients and $1.85 million in revenue from new products or services-are attainable for a motivated advisor. In every scenario you must be proactive, but the greatest results will come from doing so within a clearly defined and targeted plan and relying on proven techniques and processes that support each initiative. For instance, a partnership with an accountant or a tax attorney can play a decisive role in helping you get all eight of those new affluent clients. What's more, the opportunities will multiply if the current circumstances persist.
It's true that a gyrating stock market, skyrocketing gas prices, higher unemployment rates, a tumbling DJIA, an eroding dollar and record numbers of foreclosures used to be sure signs of trouble. But today they have created an ideal environment for you to reach out to your clients and prospects as an expert and a leader, and someday soon you may unexpectedly find yourself hoping for a deep and extended recession.
