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.