Products America's Senior Executives Use And Want

The wealthier they are, the more they want products designed for them.

This is the second in a series of three articles based on a recent study of 388 senior executives with at least $500,000 in investable assets that will examine 1) their key financial concerns, 2) the financial products and services that they use and are interested in using, and 3) their relationships with their financial advisors.

We recently conducted an extensive survey of American executives to learn about their financial affairs and find what made them different from other affluent clients and even from one another, depending on how much money they had. Last month, we noted that the more assets they had, the more they were concerned about a lack of diversification, especially because a high percentage of their assets was often tied up in stock options or highly appreciated stock.

This time around, we'll take a look at which financial products they use and, more importantly from a financial advisor's standpoint, which ones they'd like to use. In this case, the storyline is straightforward: Like other affluent clients, the more money they have, the more senior executives are interested in products or services specifically designed for the wealthy, notably managed accounts and private money management, and the less interested they are in the more typical financial options such as mutual funds.

The 388 executives that we surveyed all held positions of vice president or higher at publicly traded Fortune 1000 companies. About half the group had investable assets of $500,000 to $1 million, a third had $1 million to $5 million, and the remaining 18.2% had more than $5 million. All of them were 45 or older, 315 were male compared to just 73 women, and all of them had been with their current company for at least a decade. Each of them also has at least one financial advisor.

Last month, we saw that the more assets they have, the greater the percentage in company stock or stock options. The least affluent group had slightly less than a third of their assets in their company's stock and stock options, compared with about two-thirds of those at the top end.

Their Key Concerns

By and large, their level of wealth was the defining factor when it came to their key concerns. The less affluent executives were more concerned about losing their jobs, not having enough money for retirement and covering the cost of their children's education. The wealthiest segment, in contrast, were far more worried about diversifying their investment portfolio, being sued and making sure their heirs were properly taken care of. The one subject that they were all highly (and understandably) concerned about was the possibility of their company's stock declining in value.

The Products They Use

With that framework in place, we can now turn to which financial products they currently use and which ones they'd like to use.

Without exception, they all owned at least some individual securities (Exhibit 1). And, like most Americans-95 million, according to a recent article in The Wall Street Journal-the majority of the senior executives had mutual funds in their portfolio, though there was a gradual decline in usage from 89.5% among the less wealthy execs to 71.8% among the most affluent.

After that, there was a dramatic drop-off in usage, with managed accounts the next most commonly held product (24.2%). Predictably, those execs at the higher end were twice as likely to have a managed account as the less affluent executives. With the exception of 529 tuition accounts, which 20.9% of the group as a whole had, no other product was used by more than 10% of the 388 executives. Of those with $500,0000 to $1 million, however, 22.5% had an annuity, as did 12.7% of those in the middle-wealth bracket (compared with less than 10% of the wealthiest execs). The wealthiest execs also differed from their peers in that more than 10% of them (15.5%) had long-term health-care insurance, while 16.9% had private money managers.

What They Want

Mirroring the results of other surveys that we have conducted examining product usage and interest among affluent individuals, the more money they had-or the more that they perceived themselves to be wealthy-the more interested senior executives were in products expressly designed for the wealthy, notably managed accounts, and the less interested they were in products that anyone could invest in, particularly mutual funds (Exhibit 2).

Partly because they had already invested in them and partly because they were seen as being a more pedestrian option, financially speaking, only 5.9% of the respondents were interested in mutual funds, with the wealthiest executives barely interested at all. As a group, however, they were very interested in the next step up the ladder, managed accounts, deemed attractive because of the higher level of service and personalization that generally accompany such products. If financial advisors want to get the attention of these senior executives, the managed account is clearly the way to go (along with the concentrated stock strategies mentioned in last month's article that will help executives manage the risk associated with the company stock they hold).

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