Today’s investors, however, might be more likely to take the expensive car and golf club membership as a sign of high-pressure sales tactics and astronomical investment and planning fees, according to Richtsmeier.
Advisors too often fail to state their true value proposition, says Richtsmeier, assuming that the mass affluent need investment help. Affluent Americans no longer require face-to-face relationships to make investing decisions. Value confusion creates a disconnect between the relationships demanded by affluent consumers and the services prioritized by financial advisors.
“Twenty years ago people were worried about whether their advisor understands capital markets, but now anyone can get market information at their fingertips,” he says. “It’s just not that important anymore.”
In truth, most Americans who reach $1 million in investable assets have already been investing effectively on their own. Capgemini’s recent World Wealth Report 2017 survey found that 56 percent of respondents with more than $1 million in net worth would consider using a roboadvisor form Google, Amazon, Apple of Facebook to manage their wealth in lieu of a human.
Many advisors prospect for clients using dreams and aspirations that are, realistically speaking, beyond the clients’ grasp. Today’s consumers may be skeptical of an advisor purporting to offer the possibility of a second home, a beach retirement and an Ivy League education for their children, when what they really need is help managing their budget, saving for retirement and addressing rising costs like health care and child care.
“At the most macro level, the industry has to make a decision: Does it intend to be a very small group of professionals serving a small, elite clientele, or will it continue as a broad-based industry that serves the broader public?” Asked Richtsmeier. “There’s been a flight among some advisors and companies towards the high-net-worth segment. I believe that we should continue to stay in the broader arena, but we’re going to have to change to more directly address the needs of the greater public.”
“Selling the dream” too often distracts clients with a possibility rather than addressing their financial realities. The mass affluent are more likely to need help with the complexities of their current day-to-day lives rather than an image of a far-off future.
To address these challenges, Richtsmeier proposes that advisors focus more on client onboarding, modernize their services and pricing, introduce a normalized standard of care for clients and invest in their own plans.
Client onboarding should be more about client disclosure than ascertaining risk capacity and checking compliance boxes, says Richtsmeier. Advisors should focus more on their clients’ experiences, concerns, successes and failures, he adds.
Advisors should consider abandoning the asset-based fee and moving towards a subscription- or retainer-based model or a fee-for-service menu, says Richtsmeier. The emphasis must move away from investing and onto providing ongoing care, advice and empathy.