Through it all, independent RIAs have done a great job for their affluent clients by providing clarity in this ever-changing environment and helping clients respond intelligently to volatility and uncertainty so they can stay on track. Those clients have rewarded RIAs with their loyalty, as evidenced by the fact that RIAs have retained roughly 97% of their clients in each of the past three years.1 Going forward, service quality will continue to be a key factor in both client satisfaction and client referrals-and ultimately, in advisors' future success.
The affluent are an increasingly dynamic group. Overall, the global number of high-net-worth investors (those with $1 million in investable assets) grew by 8.3% in 2010 (the affluent population grew by 8.6% in the United States).2
The attitudes, behaviors and even the demographic characteristics of the affluent are shifting. The things they care about and what they want from financial advisors have also changed.
By understanding the ways in which affluent investors are evolving, advisors can position their firms to capture new opportunities that will help drive the industry for years to come.
The key trends we are seeing among the affluent present opportunities for advisors and their practices. Much of what we know is evolving. But these trends in particular are currently reshaping the affluent investor universe:
Affluent investors' investment strategies are changing. Nearly 80% of the affluent report that they have changed their investment strategies in recent years.3 This is not surprising given that today's affluent investors are getting older and the financial markets remain challenging. Think back just a few years ago, when most of their attention was on portfolio strategies for their impending retirements. Today, the conversation has fundamentally changed as more wealthy investors push back their retirement dates and refocus their investment strategies away from retirement income back toward growing and protecting wealth.
The affluent are conducting greater due diligence when selecting advisors. In the past, investors might have talked with two or three advisor firms before deciding which one to work with. Now they're typically interviewing eight to ten firms.4 They're also asking more detailed questions about advisors' investment strategies, resources, capabilities and practices. Increasingly, they are seeking out advisors with whom they feel some sort of emotional connection-the basis for strong interpersonal relationships among the advisor, themselves and their families. This desire for connection is becoming one of the key factors in investors' selection criteria.
The affluent are diversifying among financial advisors. Consider that 35% of affluent households with investable assets of $2 million to $5 million work with multiple advisors-and that number jumps to 58% of households with more than $5 million in assets.5 Continued uncertainty is prompting many investors to seek additional advice and validation from more sources in order to preserve their wealth-a trend that will create more competition but also drive better, more focused service. In some cases, affluent investors are choosing to work with multiple advisors who each have a particular specialty (such as fixed-income investing or estate planning), and to have those advisors work together as a unified team to manage the investors' entire financial lives.
The affluent are focused on monitoring risk. The vast majority of wealthy clients (93%) say they are more focused on monitoring risk in their portfolios than they were in the past.6 This vigilance likely results from both continued market volatility and advisors' success in educating their clients about market risk factors during the downturn. Safety has been (and will remain) a key concern for many affluent investors, who generally take more time to examine investment options and the ramifications of their choices. Increasingly, they will expect advisors to offer a wide range of solutions that can help them manage risk effectively while still making progress toward their goals.