Clients Ticked Off At Their Advisors
The economic and investing hard times that began last summer have taken a toll on the collective psyche of advisory clients, and they're directing that displeasure at their advisors. According to a poll of more than 400 individuals with investable assets between $500,000 and $7 million conducted in March by Hannah Shaw Grove and Russ Alan Prince, 97% said their portfolios had lost value since the beginning of the year.
But rather than taking it in stride as part of a longer-term view toward their portfolios, a majority of respondents are taking it out on their advisors-at least in their minds. The poll found 71% plan to take money away from their primary advisor. Worse yet, 65% plan to terminate their advisor and find another one, and 66% said they would tell other people to avoid their advisor.
"We've never seen numbers this high," says Grove, who writes about private wealth and advisory practice management. She and Prince, who heads the consulting firm Prince & Associates, frequently collaborate on research on the high-net-worth market and periodically take pulse polls of high-net-worth clients during crazy market conditions.
Grove said the current pessimism tops that of the dot-com crash. "The real question is whether or not they act out on what they say they're going to do," she says.
"A lot of them [advisory clients] are stewing," Grove says. "It's been a slow burn situation. If advisors would just call to check up on them and offer some reassurance it could alleviate some of the tension because I think part of the problem is that clients more or less feel ignored."
Grove and Prince are doing follow-up research on what advisors can do to benefit from the current situation.
Surprising Conclusions About Client Loyalty
Receiving poor advice from their financial advisor is the top reason that clients switch to another one. But something as simple as returning telephone calls promptly is the No. 1 action an advisor can take to develop loyalty in a client, according to a recent survey of affluent investors conducted by Spectrem Group.
The survey measured responses from 500 investors with at least $500,000 in investable assets. It might seem odd, but the survey showed 90% of the investors feel that returning phone calls promptly is the most important reason for being loyal, beating out good investment returns, which came in second at 80%.
The survey, Client Satisfaction Versus Loyalty, indicates that investors with less than $1 million in investable assets judge themselves to be more loyal (61%) than those with more than $1 million in investable assets (57%). Older clients are more loyal, according to the survey, with 54% of those 18 to 50 years old considering themselves loyal compared with 64% of those 66 and older Overall, only 5% say they switch advisors frequently.
Even though the majority consider themselves loyal to their advisor, only 33% would follow an advisor to another firm, a decrease from the 55% who said they would follow an advisor a year ago. That "has potentially serious ramifications for financial advisors looking to make their next career move and counting on existing business to pave the way," says George H. Walper Jr., Spectrem Group president.
The Keys To A More Profitable 401(k) Practice
Financial advisors who advise 401(k) plans can do a better job in that space by, well, doing a better job in that space. Might seem like a "no duh" comment, but a new study by Fidelity Investments states that advisors will strengthen their overall 401(k) practice by spending more time servicing existing plans and less time prospecting for new 401(k) business.
Fidelity's report, Growing a 401(k) Practice From The Inside Out, consists of two independent surveys of 395 plan sponsors who use an advisor and 415 advisors who sell 401(k) plans. It concluded that advisors who develop strong relationships with existing 401(k) plan sponsor clients and have "very satisfied" customers will grow their 401(k) revenue at a much faster rate than other advisors serving that marketplace.
Greater plan sponsor satisfaction can boost an advisor's business in several ways, such as giving him longer plan tenure and more referrals for other plan sponsor clients. In addition, the report says that highly satisfied plan sponsors are more likely to let advisors solicit financial planning business directly from employees. Regarding the latter point, the report says that 50% of "very satisfied" plan sponsors would welcome their 401(k) advisor soliciting financial planning business from employees versus 31% for "satisfied" plan sponsors, 29% for "neutral" and 8% for "dissatisfied" clients.
he 401(k) market is a competitive one for advisors. According to Fidelity, 93% of plan sponsors say they're solicited at least once a year by other advisors looking to grab the business. Almost 60% say they are solicited three or more times a year. More than half of those plan sponsors surveyed (53%) are either "very satisfied" or "satisfied" with their advisors, but the other 47% were either "somewhat satisfied" or worse, suggesting there is room for improvement.
According to the survey, sponsors were all over the map when it came to picking the most important services offered by advisors-some preferred investment knowledge (24%), some retirement knowledge and employee education (22% of the respondents in each case), and others liked objectivity (20%). The report says that the variety of answers means it may not be enough for advisors to focus on just one area. To differentiate their services and score points with plan sponsors, the report suggests advisors need to zero in on areas that plan sponsors consider important but don't see enough of from advisors-employee communications, group investment meetings, proactive check-ins and industry updates.
Of course, advisors still need to deliver the goods regarding things like investment and retirement knowledge.
According to Fidelity's report, when advisors serving the 401(k) market were asked what they'd do with four extra hours per week, 56% said they'd use the time prospecting for new 401(k) business. But the report's basic message is that advisors can be more time-efficient and profitable over the long haul by focusing on existing clients rather than focusing on trying to get as many 401(k) clients as possible.
Comments Due For ADV Changes
Comments are due this month on the Securities and Exchange Commission's reproposed amendments to Part 2 of Form ADV and related rules under the Investment Advisers Act that would require investment advisors to provide clients with brochures written in plain English.
Currently under Part 2 of Form ADV, advisors respond to a series of multiple-choice and fill-in-the-blank questions in a check-the-box format, augmented in some cases with a brief narrative.
The reproposed amendments would apply to more than 10,000 SEC-registered advisors serving roughly 20 million clients. They would mandate advisors to provide their clients with information that is "clear, current and more meaningful disclosure" regarding their services, fees, business practices, and conflicts of interest with clients, including those related to soft money practices. They would also provide background information on investment advisors and their advisory personnel. Much of that information is part of what advisors already must provide to clients as a fiduciary under the Act's anti-fraud provisions.
The brochures would be filed electronically through the SEC's Investment Adviser Public Disclosure website. They would contain 19 separate items, each covering a different disclosure topic that are basically the same as those proposed in 2000 when the SEC first tried to require registered investment advisors to give clients a narrative brochure to describe their business operations.
The SEC received more than 70 comments on that proposal. Some of those raised concerns that the SEC is trying to address in this go-round. For starters, advisors only have to respond to items germane to their business. Second, the form will omit some information that was deemed unnecessary. Third, the SEC re-wrote several items to require advisors to explain succinctly how they address the conflicts of interest they identify, rather than disclosing their "policies and procedures" as the agency originally proposed.
The deadline for comments should be received on or before May 16 via regular mail or electronically via http://www.sec.gov/rules/proposed.shtml, http://www.regulations.gov or in an email to email@example.com (include File Number S7-10-00 on the subject line).
Lipper Rolls Out New Fund Classifications
Lipper, Inc. will officially change the way it classifies U.S. funds as of May 23. The Denver-based mutual fund research firm said it made the changes after extensive research and communication with key Lipper clients to reflect current investing strategies in the marketplace.
The company will add 11 open-end equity classifications that differentiate between domestic, global and international mutual funds: consumer services, consumer goods, industrials, basic materials, commodities, global real estate, international real estate, global natural resources, global financial services, global health/biotechnology and global science/technology.
To keep up with the growing popularity of target-date funds, Lipper added four new classifications and modified a handful of existing categories to cover the gamut of funds in five-year increments. The new target dates are for 2015, 2025, 2040, and 2045; the modified target dates stretch from 2010 to 2050.
Among other new classifications, Lipper will also introduce a diversified leveraged funds category for funds that use a combination of futures contracts, derivatives and leverage to beat their index. There will also be a category for extended U.S. large-cap core funds that combine long and short positions-typically 110% long and 10% short to 160% long and 60% short.