Affluent investors may have shuddered at the poor performance of their portfolios last year, but overall their faith in their financial advisors remained unshaken, according to a Cerulli Associates report.
The Boston-based research firm’s survey, “Partnering Through Adversity,” found that while 44% of affluent respondents had reconsidered their overall portfolio plan in 2022, 61% said they believed financial services firms put the clients’ best interests first. That confidence rose to 75% for bank advisors, 73% for private banks and 72% for independent advisors, the survey said.
“This feeling of alignment is particularly useful during periods of market turbulence and declines, as these clients are less likely to feel losses are tied to advisor malfeasance,” Scott Smith, director of Cerulli research, wrote in the report.
That said, Smith suggested that the anxiety over a market downturn could cause investors to make reactive portfolio changes that run counter to their financial goals.
“To counter these tendencies, providers should encourage their advisors to consistently position market volatility as an exploitable expectation rather than a conquerable enemy,” he said. “ No matter how confident and informed a client may be, these circumstances require escalating levels of communication and reassurance.”
Whether or not advisors are reaching out, affluent clients tend to keep a vigilant eye on their financial progress, the survey found. Overall, 76% of affluent respondents said they closely monitor their progress toward financial goals, but that percentage rose to 89% for 40-something clients of bank advisors and dipped to 67% for 70-years-plus clients of independent advisors.
Household financial assets were hit hard in 2022, as the markets lost $10 trillion from 2021, and affluent investors were greatly impacted. For example, the survey found, assets of mass-market and middle-market households actually grew to $9.3 trillion in 2022 from $9.2 trillion in 2021 because of the number of affluent investors who dropped down to these lower tiers following their equity and bond market losses.
For advisors trying to balance their time with client needs, the report offered a template for how services could be tied to asset level. Mass market clients, those with less than $100,000 to invest, should receive guidance and a basic product set for accumulation and retirement income. Middle market clients, with between $100,000 and $500,000 to invest, should get standardized advice with some access to alternative assets. Mass-affluent clients, with $500,000 to $2 million, should receive advice for accumulation and distribution, and a broader product set that includes separately managed accounts and alternatives.
More personalization is appropriate for higher tiers, the report said. Affluent clients with $2 million to $5 million should get personalized advice, a shift to asset preservation, estate planning and more complex products, such as private equity, Cerulli said. The "wealth" market, defined by clients with assets between $5 million and $10 million, gets all of that plus direct hedge fund investment. And the high-wealth market, with $10 million to $20 million, receives highly customized advice and products, such as custom asset allocation.
The ultra-high-wealth client, with more than $20 million in assets, should receive family-office services, Cerulli said.